Incremental Willingness to Pay: A Theoretical and Empirical Exposition

44 Pages Posted: 29 Sep 2015

See all articles by Karine Lamiraud

Karine Lamiraud

ESSEC Business School

Robert J. Oxoby

University of Calgary - Department of Economics; IZA Institute of Labor Economics

Cam Donaldson

Yunus Centre for Social Business and Health

Date Written: September 2015

Abstract

Applications of willingness to pay (WTP) have shown the difficultly to discriminate between various options. This reflects the problem of embedding in both its specific sense, of options being nested within one another, and its more-general sense, whereby respondents cannot discriminate between close substitutes or between more-disparate rivals for the same budget. Furthermore, high proportions of reversals between WTP-value and simple preference based rankings of options are often highlighted. Although an incremental WTP approach was devised to encourage more differentiated answers and a higher degree of consistency among respondents, a theoretical basis for this approach has not been elucidated, and there is little evidence to show that this approach might indeed achieve greater consistency between explicit and implicit rankings inferred from WTP values.

We address both these issues. Following our theoretical exposition, standard and incremental approaches were compared with explicit ranking in a study assessing preferences for different French emergency care services. 280 persons, representative of the French adult population, were interviewed. Half received the incremental version, the other half the standard version. Results suggest that the incremental approach provides a ranking of options fully in line with explicit ranking. The standard approach was reasonably consistent with explicit ranking but proved unable to differentiate between the five most preferred providers, as predicted by theory. Our findings suggest that the incremental approach provides results which can be used in priority-setting contexts.

Keywords: WTP, contingent valuation, reference points, embedding effect, incremental approach, emergency care

JEL Classification: D6, H4, I1

Suggested Citation

Lamiraud, Karine and Oxoby, Robert J. and Donaldson, Cam, Incremental Willingness to Pay: A Theoretical and Empirical Exposition (September 2015). Available at SSRN: https://ssrn.com/abstract=2666450 or http://dx.doi.org/10.2139/ssrn.2666450

Karine Lamiraud (Contact Author)

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

Robert J. Oxoby

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada
403-220-2586 (Phone)
403-282-5262 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Cam Donaldson

Yunus Centre for Social Business and Health ( email )

M201, George Moore Building
Glasgow, G4 0BA
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
48
Abstract Views
618
PlumX Metrics