Reference-Dependence Effects in Benefit Assessment: Beyond the WTA-WTP Dichotomy and WTA-WTP Ratios
Journal of Benefit-Cost Analysis, Forthcoming
32 Pages Posted: 21 Jan 2015
Date Written: January 12, 2015
Abstract
Willingness-to-pay values and willingness-to-accept values have received considerable attention, but the role of reference-dependence effects is more diverse. Policies involving cost and risk may have reference point effects with respect to both cost and risk, leading to four potential valuation measures. Experimental evidence for water quality policies suggests that the cost reference effects are particularly influential in that context. There is, however, no evidence of significant reference effects for labor market estimates of the value of a statistical life. Sound application of benefit values other than willingness-to-pay measures requires pertinent empirical evidence and an assessment of the underlying rationality of the determinants of the reference-dependence effects.
Keywords: willingness to pay, willingness to accept, WTA, WTP, value of statistical life, reference dependence, benefit-cost analysis
JEL Classification: H50, I18, J31, Q50
Suggested Citation: Suggested Citation