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Sensitivity of willingness to pay to the magnitude of risk reduction: a Taiwan­United States comparison

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  • James K Hammitt
  • Jin-Tan Liu
  • Wen-Ching KLin

Abstract

Estimates of willingness to pay (WTP) for health, environmental, and other goods obtained using contingent valuation (CV) have been criticized as inadequately sensitive to the scope or magnitude of the good. We investigate the sensitivity of WTP to variation in the magnitude of reductions in health risk using survey data collected in two countries, Taiwan and the United States, that differ dramatically with respect to economic development and cultural background. WTP is elicited for reductions in acute risks associated with food poisoning and blood transfusion, and for reductions in the chronic risk of pneumonia at advanced ages. Results are similar in the two countries and provide little evidence that CV-based estimates are sufficiently sensitive to the magnitude of the risk reduction. Inadequate sensitivity of estimated WTP to the magnitude of risk reduction suggests that improved methods are required for estimating consumers' rates of substitution between health risk and other goods.

Suggested Citation

  • James K Hammitt & Jin-Tan Liu & Wen-Ching KLin, 2000. "Sensitivity of willingness to pay to the magnitude of risk reduction: a Taiwan­United States comparison," Journal of Risk Research, Taylor & Francis Journals, vol. 3(4), pages 305-320, October.
    • Handle: RePEc:taf:jriskr:v:3:y:2000:i:4:p:305-320
    DOI: 10.1080/13669870050132531
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    References listed on IDEAS

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    1. Tolley, George & Kenkel, Donald & Fabian, Robert (ed.), 1994. "Valuing Health for Policy," University of Chicago Press Economics Books, University of Chicago Press, edition 1, number 9780226807133, June.
    2. Hammitt, James K & Graham, John D, 1999. "Willingness to Pay for Health Protection: Inadequate Sensitivity to Probability?," Journal of Risk and Uncertainty, Springer, vol. 18(1), pages 33-62, April.
    3. Johannesson, Magnus & Johansson, Per-Olov, 1996. "To Be, or Not to Be, That Is the Question: An Empirical Study of the WTP for an Increased Life Expectancy at an Advanced Age," Journal of Risk and Uncertainty, Springer, vol. 13(2), pages 163-174, September.
    4. Peter A. Diamond & Jerry A. Hausman, 1994. "Contingent Valuation: Is Some Number Better than No Number?," Journal of Economic Perspectives, American Economic Association, vol. 8(4), pages 45-64, Fall.
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    Cited by:

    1. Strand.J., 2001. "Public- and private-good values of statistical lives : results from a combined choice-experiment and contingent-valuation survey," Memorandum 31/2001, Oslo University, Department of Economics.
    2. Guofang Zhai & Takeshi Suzuki, 2008. "Effects of Risk Representation and Scope on Willingness to Pay for Reduced Risks: Evidence from Tokyo Bay, Japan," Risk Analysis, John Wiley & Sons, vol. 28(2), pages 513-522, April.

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