Willingness to pay

About: Willingness to pay is a research topic. Over the lifetime, 15597 publications have been published within this topic receiving 368639 citations. The topic is also known as: WTP.

A Model of Reference-Dependent Preferences

Abstract: We develop a model of reference-dependent preferences and loss aversion where “gain‐loss utility” is derived from standard “consumption utility” and the reference point is determined endogenously by the economic environment. We assume that a person’s reference point is her rational expectations held in the recent past about outcomes, which are determined in a personal equilibrium by the requirement that they must be consistent with optimal behavior given expectations. In deterministic environments, choices maximize consumption utility, but gain‐loss utility influences behavior when there is uncertainty. Applying the model to consumer behavior, we show that willingness to pay for a good is increasing in the expected probability of purchase and in the expected prices conditional on purchase. In within-day labor-supply decisions, a worker is less likely to continue work if income earned thus far is unexpectedly high, but more likely to show up as well as continue work if expected income is high.

A Model of Reference-Dependent Preferences

Abstract: We develop a model that fleshes out, extends, and modifies existing models of reference dependent preferences and loss aversion while accomodating most of the evidence motivating these models. Our approach makes reference-dependent theory more broadly applicable by avoiding some of the ways that prevailing models—if applied literally and without ancillary assumptions—make variously weak and incorrect predictions. Our model combines the reference-dependent gain-loss utility with standard economic “consumption utility†and clarifies the relationship between the two. Most importantly, we posit that a person’s reference point is her recent expectations about outcomes (rather than the status quo), and assume that behavior accords to a personal equilibrium: The person maximizes utility given her rational expectations about outcomes, where these expectations depend on her own anticipated behavior. We apply our theory to consumer behavior, and emphasize that a consumer’s willingness to pay for a good is endogenously determined by the market distribution of prices and how she expects to respond to these prices. Because a buyer’s willingness to buy depends on whether she anticipates buying the good, for a range of market prices there are multiple personal equilibria. This multiplicity disappears when the consumer is sufficiently uncertain about the price she will face. Because paying more than she anticipated induces a sense of loss in the buyer, the lower the prices at which she expects to buy the lower will be her willingness to pay. In some situations, a known stochastic decrease in prices can even lower the quantity demanded.

Value Orientations, Gender, and Environmental Concern:

Abstract: A social-psychological model is developed to examine the proposition that environmentalism represents a new way of thinking. It presumes that action in support of environmental quality may derive from any of three value orientations: egoistic, social-altruistic, or biospheric, and that gender may be implicated in the relation between these orientations and behavior. Behavioral intentions are modeled as the sum across values of the strength of a value times the strength of beliefs about the consequences of environmental conditions for valued objects. Evidence from a survey of 349 college students shows that beliefs about consequences for each type of valued object independently predict willingness to take political action, but only beliefs about consequences for self reliably predict willingness to pay through taxes. This result is consistent with other recent findings from contingent valuation surveys. Women have stronger beliefs than men about consequences for self, others, and the biosphere, but there i...