Validity of Willingness to Pay: hypothetical versus actual payment

M. R. Bhatia and J. A. Fox-Rushby

Applied Economics Letters, 2003, vol. 10, issue 12, 737-740

Abstract: Questions concerning the criterion validity of contingent valuation studies have been raised for years. However, the few examples that exist concentrate on willingness to pay (WTP) for goods like chocolate bars, where a market exists. This article examines the criterion validity of WTP for treated mosquito nets (TMNs) in Gujarat, India. Three hundred households, in 20 villages, were interviewed twice within one month. The first interview ascertained maximum hypothetical WTP for one TMN using a bidding format with an open-ended final question, along with questions about the socio-economic and health factors that were likely to influence demand. The second interview reminded the respondents about TMNs and asked whether they would be willing to buy one for Rs75 (the modal value). If so, they were invited to buy as many TMNs as desired for their household. Analysis is based on a 2 × 2 contingency table with estimates of the sensitivity and specificity of the hypothetical WTP. At an aggregate level, there is no discrepancy between hypothetical and observed WTP, although there was considerable variation amongst individuals. Sensitivity was 62% and specificity 67%. It is concluded that these WTP estimates are robust at the population level but less so at the individual level. Further research is required to examine the determinants of change in household behaviour between hypothetical and actual WTP.

Date: 2003
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DOI: 10.1080/1350485032000129575

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