Working Paper: NBER ID: w16483
Authors: Catherine L. Kling; John A. List; Jinhua Zhao
Abstract: Evidence from laboratory experiments suggests that important disparities exist between willingness to pay (WTP) and compensation demanded for the same good. This study advances, and experimentally tests, a new explanation of the WTP/WTA disparity--a dynamic theory based on the presence of commitment costs. We find that the commitment cost theory combined with a simple behavioral anomaly is able to lend insights into the causes and severity of the WTA/WTP disparity. Further, we find that market experience attenuates the behavioral anomaly, consistent with the notion that no value disparity exists for agents with sufficient market experience.
Keywords: Willingness to Pay; Willingness to Accept; Behavioral Economics; Commitment Costs
JEL Codes: C93; Q51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reversal difficulty (D50) | WTA (F13) |
| reversal difficulty (D50) | WTP (F13) |
| delay difficulty (C41) | WTP (F13) |
| delay difficulty (C41) | WTA (F13) |
| commitment costs (D23) | WTA (F13) |
| commitment costs (D23) | WTP (F13) |
| reversal difficulty (D50) | WTA (F13) |
| delay difficulty (C41) | WTP (F13) |
| market experience (G10) | perceived costs of delay and reversal (D91) |
| market experience (G10) | convergence in WTP and WTA values (D69) |