Working Paper: CEPR ID: DP6905
Authors: Rachel Griffith; Lars Nesheim
Abstract: We use hedonic prices and purchase quantities to consider what can be learned about household willingness to pay for baskets of organic products and how this varies across households. We use rich scanner data on food purchases by a large number of households to compute household specific lower and upper bounds on willingness to pay for various baskets of organic products. These bounds provide information about willingness to pay for organic without imposing restrictive assumptions on preferences. We show that the reasons households are willing to pay vary, with quality being the most important, health concerns coming second, and environmental concerns lagging far behind. We also show how these methods can be used for example by stores to provide robust upper bounds on the revenue implication of introducing a new line of organic products.
Keywords: Hedonic Prices; Organic; Willingness to Pay
JEL Codes: D12; L81; Q51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| households exhibit varying willingness to pay for organic products (D19) | product quality (L15) |
| households exhibit varying willingness to pay for organic products (D19) | health concerns (I12) |
| households exhibit varying willingness to pay for organic products (D19) | environmental concerns (Q56) |
| households exhibit varying willingness to pay for organic products (D19) | aggregate willingness to pay for organic foods (Q11) |
| product quality (L15) | lower bound on WTP for health reasons (I12) |
| product quality (L15) | lower bound on WTP for environmental reasons (Q26) |
| health concerns (I12) | lower bound on WTP for health reasons (I12) |
| environmental concerns (Q56) | lower bound on WTP for environmental reasons (Q26) |
| aggregate willingness to pay for organic foods (Q11) | maximum potential WTP for fully organic market (Q21) |