On Uncertainty and the WTA-WTP Gap

Douglas Davis and Robert Reilly

Economics Bulletin, 2012, vol. 32, issue 3, 2594-2605

Abstract: We correct an analysis by Isik (2004) regarding the effects of uncertainty on the WTA-WTP gap. Isik presents as his primary result a proposition that the introduction of uncertainty regarding environmental quality improvements causes WTA to increase and WTP to decrease by identical amounts relative to a certainty condition where WTA=WTP. These conclusions are incorrect. In fact, WTP may equal WTA even with uncertainty, and increases in the uncertainty of environmental quality improvements cause both WTA and WTP to fall. Finally, increases in uncertainty may either increase or decrease the WTA –WTP discrepancy.

Keywords: Uncertainty; Compensating Variation; Equivalent Variation (search for similar items in EconPapers)
JEL-codes: D1 D8 (search for similar items in EconPapers)
Date: 2012-09-18
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Citations: View citations in EconPapers (1)

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