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On Uncertainty and the WTA-WTP Gap

Author

Listed:
  • Douglas D. Davis

    (Virginia Commonwealth University)

  • Robert J. Reilly

    (Virginia Commonwealth University)

Abstract

We correct an analysis by Isik (2004) regarding the effects of uncertainty on the WTA-WTP gap. Isik presents as his primary result a proposition that the introduction of uncertainty regarding environmental quality improvements causes WTA to increase and WTP to decrease by identical amounts relative to a certainty condition where WTA=WTP. These conclusions are incorrect. In fact, WTP may equal WTA even with uncertainty, and increases in the uncertainty of environmental quality improvements cause both WTA and WTP to fall. Finally, increases in uncertainty may either increase or decrease the WTA –WTP discrepancy.

Suggested Citation

  • Douglas D. Davis & Robert J. Reilly, 2012. "On Uncertainty and the WTA-WTP Gap," Economics Bulletin, AccessEcon, vol. 32(3), pages 2594-2605.
    • Handle: RePEc:ebl:ecbull:eb-12-00527
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I3-P248.pdf
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    References listed on IDEAS

    as
    1. Murat Isik, 2004. "Does Uncertainty Affect the Divergence between WTP and WTA Measures?," Economics Bulletin, AccessEcon, vol. 4(1), pages 1-7.
    2. Weber, Thomas A., 2003. "An exact relation between willingness to pay and willingness to accept," Economics Letters, Elsevier, vol. 80(3), pages 311-315, September.
    3. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-647, June.
    4. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
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    Cited by:

    1. Robert Reilly & Douglas Davis, 2015. "The effects of uncertainty on the WTA–WTP gap," Theory and Decision, Springer, vol. 78(2), pages 261-272, February.

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    More about this item

    Keywords

    Uncertainty; Compensating Variation; Equivalent Variation;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D1 - Microeconomics - - Household Behavior

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