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ABSTRACT
At the 2014/15 water price reviews in Great Britain, a notionally similar stated preference methodology was used across multiple customer surveys to derive willingness to pay (WTP) estimates for comparable service improvements. Very different valuations were obtained for the same service measures, however, raising questions regarding their validity and reliability. This paper examines the variation in those WTP estimates via a meta-analysis of household WTP values from 18 water companies for five common service measures. Our main finding is that WTP decreased substantially with the service changes offered for valuation, a finding that is inconsistent with expected utility theory, the standard economic theory of rational choice under uncertainty, but is consistent with predictions from prospect theory, and with empirical evidence from related fields. Moreover, the majority of the observed variation in WTP estimates could be explained by differences in the scope of service change offered. The study also finds that WTP increased with the number of households supplied, a finding which is considered likely to be due to altruism, and with GDP per capita, and decreased with the number of attributes included in the study design. Significant risk framing effects are also identified.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 In the econometric models and descriptive statistics reported, the risk reduction used was the non-zero ratio of other people’s properties to total properties. Replacing these values with zero made no substantive difference to the model findings.
2 The Shapley value estimates were obtained using the shapley2 Stata package developed by Chávez Juárez (Citation2012).