WTA-WTP Disparity: The Role of Perceived Realism of the Valuation Setting
Based on a survey among more than 5,000 German households and a single-binary choice experiment in which we randomly split the respondents into two groups, this paper elicits both households’ willingness to pay (WTP) for power supply security and their willingness to accept (WTA) compensations for a reduced security level. In accord with numerous empirical studies, we find that the mean WTA value substantially exceeds the mean WTP bid, in our empirical example by a factor of 3.56. Yet, the WTA-WTP ratio decreases to 2.35 among respondents who believe that the hypothetical valuation setting is likely to become true. Conversely, the WTA-WTP ratio increases to 3.81 among respondents who deem the setting unlikely. Given this discrepancy, we conclude that inquiring about respondents’ perception of the realism of the valuation setting is an easily implemented and promising survey element to mitigate excessive WTA-WTP disparities, especially if a voluntary payment vehicle is used.
Frondel, M., S. Sommer und L. Tomberg (2021), WTA-WTP Disparity: The Role of Perceived Realism of the Valuation Setting. Land Economics, 97, 1, 196-206