Campus Units

Economics, Center for Agricultural and Rural Development

Document Type

Article

Publication Version

Accepted Manuscript

Publication Date

2015

Journal or Book Title

Annual Review of Resource Economics

Volume

7

First Page or Article ID Number

169

Last Page

187

DOI

10.1146/annurev-resource-100913-012501

Abstract

The often observed empirical divergence between WTA and WTP measures of welfare change continues to be a topic of interest to both theoretical and applied economists. The divergence has particularly important implications for environmental policy. In this article, we review behavioral and other explanations of the disparity, with a focus on their connections to neoclassical welfare theory, and evaluate the empirical evidence of these explanations through the same lens. Some explanations of the disparity are consistent with neoclassical models, and some are not. Likewise, some imply that the divergences are attributed to underlying preferences (neoclassical or not), whereas others suggest that the divergences are due to elicitation methods, cognitive limitations, or other non-preference-related reasons. We argue that the source of the divergence can inform the choice of which measure, WTP or WTA, to use in a given empirical application.

JEL Classification

D03, D11, D60, Q51

Comments

This is a manuscript of an article from Annual Review of Resource Economics, 7(2015); 169-187. DOI: 10.1146/annurev-resource-100913-012501. Posted with permission.

Copyright Owner

Annual Reviews

Language

en

File Format

application/pdf