Question

Consider the topics of Willingness to Pay and Willingness to Accept. While initially the discipline assumed that the two values should be nearly equal, this has not seemed to be the case. Describe the observed difference between WTA and WTP in practice. Describe two potential reasons that these values would diverge. Are there situations where it makes sense to use one measure over another?

Answer 1

In economics, willingness to accept (WTA) is the minimum amount of money that а person is willing to accept to abandon a good or to put up with something negative, such as pollution. It is equivalent to the minimum monetary amount required for sale of a good or acquisition of something undesirable to be accepted by an individual. Conversely, willingness to pay (WTP) is the maximum amount an individual is willing to sacrifice to procure a good or avoid something undesirable. The price of any goods transaction will thus be any point between a buyer's willingness to pay and a seller's willingness to accept. The net difference between WTP and WTA is the social surplus created by the trading of goods.

Several methods have been developed to measure consumer willingness to pay or accept payment. These methods can be differentiated whether they measure consumers' hypothetical or actual willingness to pay or accept and whether they measure consumer willingness to pay or accept directly or indirectly.

Choice modelling techniques may be used to estimate the value of the WTP or WTA through a choice experiment.

Unlike WTP, WTA is not constrained by an individual's wealth. For example, the willingness to pay to stop the ending of one's own life can only be as high as one's wealth, while the willingness to accept compensation to accept the loss of one's life would be an extremely high number

WTP and WTA are important factors for public policy. Many economic decisions are based upon the implicit assignment of property rights. When looking at a lake which is being polluted by a nearby factory, the WTA and WTP for treatment of an effluent treatment plant may have different consequences based upon how property rights are politically assigned. If lakeside residents have no property right to an effluent-free lake, then their willingness to pay to treat the lake's water supply would be considered. Conversely, if the lakeside residents are found to have a property right to a clean lake, then their willingness to accept compensation for a polluted lake would be considered.

Most treatments of WTP and WTA disparity assume that subjects have full information and there is no uncertainty about the value or characteristics of goods. Uncertainty may be particularly large for goods which incorporate stochastic elements such as insurance, where consumption does not imply direct knowledge of all the relevant outcomes. In the case of environmental amenities, judgments are made difficult by the fact that benefits may accrue over an extended period of time in uncertain future and often benefits are uncertain. Uncertainty and therefore the ratio of WTA/WTP may be high for non-market goods.

Large disparities between willingness to pay (WTP) and willingness-to-accept (WTA) are commonly encountered in empirical studies and raise some important controversies. Nevertheless, the relationships between WTA and WTP can help understand not only how a service is valued but also how it can be substituted or how its loss can be resisted. The purpose of this study was to examine cancer patients’ preferences for blood transfusion setting from the perspective of WTA and WTP. A contingent valuation (CV) survey was administered to 139 patients receiving transfusions either at home or in the hospital. While few patients (6%) gave WTP protest responses, the WTA approach generated more protest responses (18%). The WTA-WTP discrepancy was confirmed. One in four of the patients reported that no amount was deemed sufficient to compensate for the renunciation of their home BT management. The main determinants of WTP were significantly different from WTA predictors. Our results suggest that individuals’ strategies towards constructing WTP and WTA differ in terms of determinants, reasoning, use of information and economic rationality. They give empirical evidence on the usefulness to elicit both WTP and WTA responses in healthsurveys to help understand the economic evaluation of health technology assessment and care organization