TINKERING WITH VALUATION ESTIMATES: IS THERE A FUTURE FOR WILLINGNESS TO ACCEPT MEASURES?

Goldar and Misra (2001) attribute much of the disparity to the familiar hypothetical bias
problem, and propose methods for reducing this bias. Kahneman and Tversky (1979) and others
note that individuals may value gains and losses differently. In this case, respondent behavior is
logical given loss aversion.

Zhao and Kling (2001) expand on the notion of uncertainty’s role in the difference. In
essence, they argue that respondents forced to make a decision on the spot demand
compensation for this loss of quasi-option value (Arrow and Fisher, 1974) in the case of WTA,
and produce WTP bids less than their expected value of the good so as to insure not
“overpaying.” Thus, in this framework, WTA bids are inflated by risk aversion while WTP bids
are deflated, thus increasing the WTA/WTP ratio. Zhao and Kling provide some mixed evidence
of this effect examining past studies, although empirical work is still needed. If their hypothesis
is true, efforts to collapse the WTA/WTP ratio would need to explicitly remove risk averting
behavior from the experiment. In addition, if the difference in ratios is indeed related to risk
managing behavior, acceptance of Zhao and Kling’s reasoning may preclude a Goldar-Misra
explanation, and vice versa.

Finally, Horowitz and McConnell (2000) provide evidence that the WTA/WTP ratio
increases or decreases depending on the type of good valued, as well as the respondent’s
familiarity with the good. Specifically, “non-ordinary” goods have significantly higher ratios than
ordinary (private) goods. Thus, one would expect a good such as police protection to have a
lower ratio than biodiversity.

Willingness to Accept: Why Ask?

List and Shogren (2002: 219-220) note that “the recent hypothetical valuation literature
has been driven by compensatory natural resource damage assessment, which is closely tied to

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