WTP or WTA: A Means of Determining the Appropriate Welfare Measure of Positive and Negative Changes When Preferences are Reference Dependent

Kiet T. Nguyen (), Jack Knetsch and Phumsith Mahasuweerachai ()
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Kiet T. Nguyen: Can Tho University

Environmental & Resource Economics, 2021, vol. 78, issue 4, No 4, 615-633

Abstract: Abstract Many positive and negative changes are valued by people relative to a neutral reference state, which may, or often may not, be the status quo. Positive changes can then be either gains and the monetary value of the increase in welfare best assessed with the WTP measure, or reductions of losses, and like losses, the change in welfare more accurately assessed with the WTA measure. A means to discriminate between gains and reductions of losses is presented here, along with the results of tests of its efficacy, and a demonstration of its application to VSL estimates–with findings suggesting likely widespread biases of present practice of using WTP to assess the value of essentially all changes.

Keywords: Welfare measures; Reference dependence; Willingness-to-pay; Willingness-to-accept; Endowment effect (search for similar items in EconPapers)
JEL-codes: D61 D90 H40 Q51 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s10640-021-00546-0

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