바로가기메뉴

본문 바로가기 주메뉴 바로가기

logo

ISSN : 1226-9654

Article Contents

Prev Next
e-Submission

Vol.22 No.4

Citation Share

The effect of substitute on WTA and WTP

The Korean Journal of Cognitive and Biological Psychology / The Korean Journal of Cognitive and Biological Psychology, (P)1226-9654; (E)2733-466X
2010, v.22 no.4, pp.601-619
https://doi.org/10.22172/cogbio.2010.22.4.010


& (2010). The effect of substitute on WTA and WTP. The Korean Journal of Cognitive and Biological Psychology, 22(4), 601-619, https://doi.org/10.22172/cogbio.2010.22.4.010

Abstract

People tend to set a higher price on the same good when they are in selling position (WTA; willingness to accept) than in buying position (WTP; willingness to pay). One of the main factors that affect this tendency is the availability of substitute. When there is an available substitute, people can obtain similar utility from it so that WTA and WTP will not exceed the price of the substitute and the disparity between WTA and WTP will be reduced. In experiment 1, we examined whether availability and subjective substitutability of the substitute can reduce WTA-WTP disparity. Results showed that availability of the substitute reduced the WTA-WTP disparity in median values but subjective substitutability did not. In experiment 2, we examined whether price information of the substitute can reduce the WTA-WTP disparity. While one group(price group) was told the price of the substitute, the other group(control group) was not. Results showed that WTA was significantly higher than WTP even in the price group, but the median values of WTA and WTP in both groups became the same. Furthermore, magnitude of the disparity between WTA and WTP in price group was decreased by 55%, compared with control group. In sum, the results of two experiments indicate that the availability and the price information of substitute are more important factors than subjective substitutability. Finally, we suggested further research directions.

keywords
the availability of substitute, WTA, WTP, 대체제 가용여부, WTA, WTP

Reference

1.

이준구 (2009). 미시경제학 제5판. 경기도: 법문사.

2.

Adamowicz. W. L., Bhardwaj, V., & Macnab, B. (1993). Experiments on the difference between willingness to pay and willingness to accept. Land Economics. 69(4), 416-27.

3.

Bishop, R. C., Heberlein, T. A., & Kealy, M. J. (1983). An economic analysis of localized pollution: Rendering emissions in a residential setting. Canadian Journal of Agricultural Economics, 41(1), 45-59.

4.

Bishop, R. C., Heberlein, T. A., McCollum, D. W., & Welsh, M. P. (1988). A validation experiment for valuation techniques. WI: A report to the Electric Power Research Institute, School of Natural Resources, University of Wisconsin, Madison.

5.

Bockstael, N. E., & McConnell, K. E. (1980). Calculating equivalent and compensating variation for natural resource facilities. Land Economics. 56(1), 56-63.

6.

Brookshire, D. S., & Coursey, D. L. (1987). Measuring the value of a public good: An empirical comparison of elicitation procedures. American Economic Review, 77(4), 554-566.

7.

Brookshire, D. S., Randall, A., & Stoll, J. R. (1980). Valuing increments and decrements in natural resource service flows. American Journal of Agricultural Economics, 62(3), 478-488.

8.

Brown T. C., & Gregory R. (1999). Why the WTA-WTP disparity matters. Ecological Economics. 18, 323-335.

9.

Coursey, D. L., Hovis, J. L., & Schulze, W. D. (1987). The disparity between willingness to accept and willingness to pay measures of value. Quarterly Journal of Economics. 102(3), 679-690.

10.

Hammack J., & Brown, G. M. Jr. (1974). Waterfowl and wetlands: Toward bio-economic analyses. Baltimore, MD: Johns Hopkins Press.

11.

Hanemann, W. M. (1991). Willingness to pay and willingness to accept: How much can they differ? American Economic Review, 81, 635-47.

12.

Horowitz, J. K., & McConnell, K. E. (2002). A review of WTA/WTP studies. Journal of Environmental Economics and Management, 44(3), 426-447.

13.

Irwin, J. R. (1994). Buying/selling price preference reversals: preferences for environmental changes in buying and selling modes. Organizational Behavior and Human Decision Processes. 60, 431-457.

14.

Jehle, G. A., & Reny, P. J. (2000). Advanced Microeconomic Theory(2nd ed.). USA: Addison- Wesley.

15.

Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1990). Experimental tests of the endowment effect and the Coase Theorem. Journal of Political Economy, 98(6), 1325-1348.

16.

Kahneman, D., Ritov, I., & Schkade, D. (1999). Economic preferences or attitude expressions? Journal of Risk and Uncertainty, 19(1), 203 -235.

17.

Kahneman, D., & Tversky, A. (1979). Prospect Theory: An analysis of decision under risk. Econometrica, 47, 263-291.

18.

Knetsch, J. L. (1989). The endowment effect and evidence of nonreversible indifference curves. American Economic Review, 79(5), 1277-1284.

19.

Knetsch, J. L., & Gregory, R. S. (2002). Discounting future gains and future losses: Further evidence of the context dependence of time preferences. Working Paper, Simon Fraser University.

20.

Knetsch, J. L., & Sinden, J. A. (1984). Willingness to pay and compensation demanded: Experimental evidence of an unexpected disparity in measures of value. The Quarterly Journal of Economics, 99(3), 507-521.

21.

Ortona, G., & Scacciati, F. (1992). New experiments on the experiments on the endowment effect. Journal of Economic Psychology, 13(2), 277-296.

22.

Raban, D. R., & Rafaeli S. (2003). Subjective value of information: The endowment effect. Journal of Association for Information Systems. 4, 119-139.

23.

Sayman, S., & Öncüler, A. (2005). Effects of study design characteristics on the WTA-WTP disparity: A meta analytical framework. Journal of Economic Psychology, 26, 289-312.

24.

Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice: a reference- dependent model. Quarterly Journal of Economics, 106, 1039-1061.

25.

Thaler, R. (1980). Toward a positive theory of consumer choice. Journal of Economic Behavior organization, 1, 39-60.

26.

Willig, R. D. (1976). Consumer's surplus without apology. American Economic Review. 66(4), 589-597.

27.

Zhao, J., & Kling, C. L. (2001). A new explanation for the WTP/WTA disparity. Economics Letters. 73(3), 293-300.

The Korean Journal of Cognitive and Biological Psychology

e-Submission OA Policy