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



WTA measures of value.” However, given the problems with WTA, many researchers have
chosen to use the seemingly more reasonable WTP estimates. However, there are at least three
reasons why a WTA format might be preferred. First, from a theoretical perspective, property
rights to a clean environment are often assumed to belong to the public, and consequently
environmental losses should be evaluated using a WTA measure ( Harper, 2000). If as suggested
by Kahneman et al. (1990), individuals value losses more highly than gains, willingness to pay
estimates could severely understate value. Second, given certain goods, WTA may be a more
realistic scenario; for example, with deregulation of electricity generation, acceptance of an
increase in air pollution in exchange for cheaper electricity. Finally, as Horowitz and McConnell
(2000: 4, citing Knetsch [1990]) point out, “one of the most economically consequential
decisions will be the
initial (authors’ emphasis) establishment of property rights, especially for
environmental and other public amenities for which property rights are unclear.” Thus, the
choice of WTA vs. WTP has major ramifications both from an empirical standpoint and from a
property rights regime.

Study Background and Previous Visibility Studies

Deregulation of electricity markets, in spite of the events of recent years in California, has
been moving forward on the policy agenda. As Burtraw, Krupnick, and Palmer (1996) note, the
“natural monopoly” status of this utility is being eroded by technological changes. As they state:
Because new, cleaner plants are not expected to dominate the industry for some time,
there is concern about increased use of existing facilities....most often by states in the
Northeast, who fear that more open access to electricity transmissions will increase coal-
fired generation in the midwest.

Moves toward deregulation are also fueled by the notion that the current system does not serve
to keep prices low enough (Ando and Palmer, 1998). Not surprisingly the states which have



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