Despairing over disparities: An empirical analysis of the difference between willingness to pay and willingness to accept

This thesis evaluates competing hypotheses about the disparity between willingness-to-pay (WTP) and willingness-to-accept (WTA) found in contingent value (CV) data and develops a method of calibrating CV data to adjust the bids for systematic bias in the answers. I develop utility-based models of the hypotheses derived from the assumption of a specific functional form for utility and test them using CV and simulated market data. The results suggest neither poor quality survey data nor Hanemann's (1991) hypothesis can explain the disparity between WTP and WTA in either the survey or simulated market setting, but I find some support for the psychological theory of loss aversion. Using these same models, I am able to quantify the amount by which respondents to CV surveys over- or understate their bids in CV data, both in open-ended and closed-ended data. This allows me to adjust the data so that it more accurately reflects the value people place on goods in CV surveys.