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The Value of Familiarity: Effects of Experience, Knowledge and Signals on Willingness to Pay for a Public Good

Author

Listed:
  • Jacob Lariviere

    (Department of Economics and Baker Center for Public Policy, University of Tennessee)

  • Mikołaj Czajkowski

    (Faculty of Economic Sciences, University of Warsaw)

  • Nick Hanley

    (Division of Economics, University of Stirling)

  • Margrethe Aanesen

    (Faculty of Biosciences, Fisheries and Economics, University of Tromso)

  • Jannike Falk-Petersen

    (Faculty of Biosciences, Fisheries and Economics, University of Tromso)

  • Dugald Tinch

    (Division of Economics, University of Stirling)

Abstract

This paper compares how increases in experience versus increases in knowledge about a public good affect willingness to pay (WTP) for its provision. This is challenging because while consumers are often certain about their previous experiences with a good, they may be uncertain about the accuracy of their knowledge. We therefore design and conduct a field experiment in which treated subjects receive a precise and objective signal regarding their knowledge about a public good before estimating their WTP for it. Using data for two different public goods, we show qualitative equivalence of the effect of knowledge and experience on valuation for a public good. Surprisingly, though, we find that the causal effect of objective signals about the accuracy of a subject’s knowledge for a public good can dramatically affect their valuation for it: treatment causes an increase of $150-$200 in WTP for well-informed individuals. We find no such effect for less informed subjects. Our results imply that WTP estimates for public goods are not only a function of true information states of the respondents but beliefs about those information states.

Suggested Citation

  • Jacob Lariviere & Mikołaj Czajkowski & Nick Hanley & Margrethe Aanesen & Jannike Falk-Petersen & Dugald Tinch, 2013. "The Value of Familiarity: Effects of Experience, Knowledge and Signals on Willingness to Pay for a Public Good," Working Papers 2013-30, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2013-30
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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP115.pdf
    File Function: First version, 2013
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    Citations

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    Cited by:

    1. Mikołaj Czajkowski & Nick Hanley & Karine Nyborg, 2014. "Social norms, morals and self-interest as determinants of pro-environment behaviour," Working Papers 2014-17, Faculty of Economic Sciences, University of Warsaw.
    2. Czajkowski, Mikolaj & Hanley, Nicholas & LaRiviere, Jacob & Simpson, Katherine, 2014. "What is the Causal Effect of Information and Learning about a Public Good on Willingness to Pay?," Stirling Economics Discussion Papers 2014-05, University of Stirling, Division of Economics.

    More about this item

    Keywords

    Information; Beliefs; Field Experiment; Valuation; Uncertainty; Choice Experiment;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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