The Compensating Variation Approach: The Case of Lives Saved vs Lives Taken

Amiram Gafni and Abraham Ravid
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Amiram Gafni: Centre for Health Economics and Policy Analysis, McMaster University
Abraham Ravid: Graduate School of Management, University of California

No 20, Centre for Health Economics and Policy Analysis Working Paper Series from Centre for Health Economics and Policy Analysis (CHEPA), McMaster University, Hamilton, Canada

Abstract: In recent years many empirical studies have reported substantial differences in people's responses to willingness-to-pay vs compensation questions in the context of measuring potential economic losses. This paper offers an alternative explanation to this phenomenon. We claim that such differences stem from comparing answers to bounded vs non-bounded questions and that the situation between an interviewer and an interviewee can be seen as partial-information bargain scenario. Our approach is exemplified in the most extreme of cases - projects involving the loss of lives.

Pages: 13 pages
Date: 1989
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