An experimental analysis of impacts of uncertainty and irreversibility on willingness-to-pay

Abstract

Several empirical studies demonstrated large discrepancies between willingness-to-accept and willingness-to-pay measures. This paper uses an experimental method to determine the extent to which uncertainty about the value of the environmental improvement and the irreversibility of the decision affects the willingness-to-pay to preserve an endangered species. The results show that risk preferences, uncertainty about environmental improvements, and irreversibility significantly influence the willingness-to-pay measure. These results have implications for design and implementation of contingent valuation surveys.

Notes

¹ The assumption that V _yy  = 0 is not required for these results to hold. When V _yy  ≠ 0, the compensating variation can be derived from a quadratic equation.