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Validity of Willingness to Pay: hypothetical versus actual payment

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  • M. R. Bhatia
  • J. A. Fox-Rushby

Abstract

Questions concerning the criterion validity of contingent valuation studies have been raised for years. However, the few examples that exist concentrate on willingness to pay (WTP) for goods like chocolate bars, where a market exists. This article examines the criterion validity of WTP for treated mosquito nets (TMNs) in Gujarat, India. Three hundred households, in 20 villages, were interviewed twice within one month. The first interview ascertained maximum hypothetical WTP for one TMN using a bidding format with an open-ended final question, along with questions about the socio-economic and health factors that were likely to influence demand. The second interview reminded the respondents about TMNs and asked whether they would be willing to buy one for Rs75 (the modal value). If so, they were invited to buy as many TMNs as desired for their household. Analysis is based on a 2 × 2 contingency table with estimates of the sensitivity and specificity of the hypothetical WTP. At an aggregate level, there is no discrepancy between hypothetical and observed WTP, although there was considerable variation amongst individuals. Sensitivity was 62% and specificity 67%. It is concluded that these WTP estimates are robust at the population level but less so at the individual level. Further research is required to examine the determinants of change in household behaviour between hypothetical and actual WTP.

Suggested Citation

  • M. R. Bhatia & J. A. Fox-Rushby, 2003. "Validity of Willingness to Pay: hypothetical versus actual payment," Applied Economics Letters, Taylor & Francis Journals, vol. 10(12), pages 737-740.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:12:p:737-740
    DOI: 10.1080/1350485032000129575
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    2. Spash, Clive L., 2008. "The Contingent Valuation Method: Retrospect and Prospect," MPRA Paper 101234, University Library of Munich, Germany.
    3. Kanya, Lucy & Sanghera, Sabina & Lewin, Alex & Fox-Rushby, Julia, 2019. "The criterion validity of willingness to pay methods: A systematic review and meta-analysis of the evidence," Social Science & Medicine, Elsevier, vol. 232(C), pages 238-261.
    4. Kanya, Lucy & Saghera, Sabina & Lewin, Alex & Fox-Rushby, Julia, 2019. "The criterion validity of willingness to pay methods: a systematic review and meta-analysis of the evidence," LSE Research Online Documents on Economics 100741, London School of Economics and Political Science, LSE Library.
    5. repec:ebl:ecbull:v:3:y:2004:i:6:p:1-13 is not listed on IDEAS
    6. Jacopo Bonan & Philippe LeMay-Boucher & Michel Tenikue, 2014. "Households' Willingness to Pay for Health Microinsurance and its Impact on Actual Take-up: Results from a Field Experiment in Senegal," Journal of Development Studies, Taylor & Francis Journals, vol. 50(10), pages 1445-1462, November.
    7. M. R. Bhatia, 2005. "From evidence to calibration for starting point bias: willingness to pay for treated mosquito nets in Gujarat, India," Applied Economics, Taylor & Francis Journals, vol. 37(1), pages 1-7.
    8. Joseph Little & Robert Berrens, 2004. "Explaining Disparities between Actual and Hypothetical Stated Values: Further Investigation Using Meta-Analysis," Economics Bulletin, AccessEcon, vol. 3(6), pages 1-13.
    9. Mandy Ryan & Emmanouil Mentzakis & Suthi Jareinpituk & John Cairns, 2017. "External Validity of Contingent Valuation: Comparing Hypothetical and Actual Payments," Health Economics, John Wiley & Sons, Ltd., vol. 26(11), pages 1467-1473, November.
    10. Shiell, Alan & Sperber, Daniel & Porat, Carly, 2009. "Do taboo trade-offs explain the difficulty in valuing health and social interventions?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(6), pages 935-939, December.
    11. Murat Isik, 2006. "An experimental analysis of impacts of uncertainty and irreversibility on willingness-to-pay," Applied Economics Letters, Taylor & Francis Journals, vol. 13(2), pages 67-72.
    12. Pallab Mozumder & Robert P. Berrens, 2007. "Investigating hypothetical bias: induced-value tests of the referendum voting mechanism with uncertainty," Applied Economics Letters, Taylor & Francis Journals, vol. 14(10), pages 705-709.
    13. Stirling Bryan & Sue Jowett, 2010. "Hypothetical versus real preferences: results from an opportunistic field experiment," Health Economics, John Wiley & Sons, Ltd., vol. 19(12), pages 1502-1509, December.
    14. Bobinac, Ana & van Exel, N. Job A. & Rutten, Frans F.H. & Brouwer, Werner B.F., 2012. "GET MORE, PAY MORE? An elaborate test of construct validity of willingness to pay per QALY estimates obtained through contingent valuation," Journal of Health Economics, Elsevier, vol. 31(1), pages 158-168.

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