Joint Production and Averting Expenditure Measures of Willingness to Pay: Do Water Expenditures Really Measure Avoidance Costs?
Posted: 18 Oct 2000
A multinomial selection model of averting behavior in response to water contamination risks is estimated for Georgia residents. Measures of non-health related water quality (taste, odor, and appearance) are incorporated into the model to account for joint production of utility and health. The model examines the choice between bottled, filtered tap, and unfiltered tap water. Results of the estimation indicated that perceived risk from tap water, concern about water quality (taste, odor, and appearance of tap water), race, and age are the most important determinants of bottled water selection. Information regarding current or prior problems with tap water, perceived risk from tap water, and income are the most important determinants of water filter selection. Adjusting for quality differences between tap and bottled water, we show that averting costs estimates using bottled water expenditures would lead to an overstatement of avoidance costs by about 12%.
JEL Classification: Q25
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