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Title:An Experimental Investigation of the Disparity between WTA and WTP for Lotteries PDF Logo
Authors:Traub, Stefan
Schmidt, Ulrich
Issue Date:2006
Series/Report no.:Economics working paper / Christian-Albrechts-Universität Kiel, Department of Economics 2006,09
Abstract:In this paper we experimentally investigate the disparity between willingness-to-accept (WTA) and willingness-to-pay (WTP) for risky lotteries. The direction of the income effect is reversed by endowing subjects with the highest price of a lottery when asking the WTP question. Our results show that the income effect is too small to be the only source of the disparity. Since the disparity concentrates on a subsample of subjects, parametric and nonparametric tests of the WTA-WTP ratio may lead to contradictory results. The disparity is significantly reduced when background risk is introduced. That is, putting subjects always into a risky position could improve the contingent valuation method which is often concerned with the assessment of risky situations such as health risks, automobile safety, etc.
Subjects:WTA-WTP disparity
lotteries
background risk
contingent valuation
JEL:C91
D81
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Economics Working Papers, Department of Economics, CAU Kiel

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