Understanding Behavioral Explanations of the WTP-WTA Divergence Through a Neoclassical Lens: Implications for Environmental Policy

Younjun Kim (), Catherine Kling and Jinhua Zhao
Additional contact information
Younjun Kim: College of Business Administration, University of Nebraska, Lincoln, Nebraska 68588

Annual Review of Resource Economics, 2015, vol. 7, issue 1, 169-187

Abstract: The often observed empirical divergence between WTA and WTP measures of welfare change continues to be a topic of interest to both theoretical and applied economists. The divergence has particularly important implications for environmental policy. In this article, we review behavioral and other explanations of the disparity, with a focus on their connections to neoclassical welfare theory, and evaluate the empirical evidence of these explanations through the same lens. Some explanations of the disparity are consistent with neoclassical models, and some are not. Likewise, some imply that the divergences are attributed to underlying preferences (neoclassical or not), whereas others suggest that the divergences are due to elicitation methods, cognitive limitations, or other non-preference-related reasons. We argue that the source of the divergence can inform the choice of which measure, WTP or WTA, to use in a given empirical application.

Keywords: WTP-WTA disparity; Hicksian welfare theory; nonmarket valuation; welfare economics (search for similar items in EconPapers)
JEL-codes: D03 D11 D60 Q51 (search for similar items in EconPapers)
Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
http://www.annualreviews.org/doi/abs/10.1146/annurev-resource-100913-012501 (application/pdf)
Full text downloads are only available to subscribers. Visit the abstract page for more information.

Related works:
Working Paper: Understanding Behavioral Explanations of the WTP-WTA Divergence Through a Neoclassical Lens: Implications for Environmental Policy (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anr:reseco:v:7:y:2015:p:169-187

Ordering information: This journal article can be ordered from
http://www.annualreviews.org/action/ecommerce

Access Statistics for this article

More articles in Annual Review of Resource Economics from Annual Reviews Annual Reviews 4139 El Camino Way Palo Alto, CA 94306, USA.
Bibliographic data for series maintained by http://www.annualreviews.org ().