An experimental investigation of the disparity between WTA and WTP for lotteries

Ulrich Schmidt and Stefan Traub ()

Open Access Publications from Kiel Institute for the World Economy from Kiel Institute for the World Economy (IfW Kiel)

Abstract: In this paper we experimentally investigate the disparity between willingness-to-accept (WTA) and willingness-to-pay (WTP) for risky lotteries. The direction of the income effect is reversed by endowing subjects with the highest price of a lottery when asking the WTP question. Our results show that the income effect is too small to be the only source of the disparity. Since the disparity concentrates on a subsample of subjects, parametric and nonparametric tests of the WTA-WTP ratio may lead to contradictory results. The disparity is significantly reduced when background risk is introduced. That is, putting subjects always into a risky position could improve the contingent valuation method, which is often concerned with the assessment of risky situations such as health risks, automobile safety, etc.

Keywords: WTA-WTP disparity; lotteries; background risk; contingent valuation (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (24)

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https://www.econstor.eu/bitstream/10419/28786/1/592397769.pdf (application/pdf)

Related works:
Journal Article: An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries (2009)
Working Paper: An Experimental Investigation of the Disparity between WTA and WTP for Lotteries (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkie:28786

DOI: 10.1007/s11238-007-9062-2

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