Hypothetical Willingness To Pay Research Articles

Hitting the bullseye: Accurately measuring willingness to pay for innovations with open and closed direct questions

Knowledge of a customer’s willingness to pay (WTP) at early stages of product development is key to the success of innovations. However, since innovative products do not exist yet, only the hypothetical WTP can be surveyed, inducing a measurement bias. Unfortunately, little is known about the factors that induce this bias and how it differs depending on the method utilized in measuring WTP. We address this gap by focusing on direct methods to survey hypothetical WTP. Based on anchoring theory and the corresponding psychological mechanisms for open questions as well as closed questions, we conducted two experiments, each comprised of a survey and a field study. The experiments differ regarding the product category and the product’s degree of innovativeness. Our results show that open questions are less accurate in estimating real WTP than closed questions. Further, our research offers insights into moderating factors that influence the efficacy of open and closed questions. For example, for customers with a very high product category knowledge, open questions are applicable, while closed questions result in higher accuracy when accounting for the customers’ cognitive abilities.

OP129 A Cost-Utility Analysis Of Denosumab (Prolia®) For Treating Osteoporosis In Postmenopausal Women: A Swiss Healthcare Payer Perspective

IntroductionOsteoporosis is characterized by decreased bone mass and density, increasing skeletal fragility, and the risk of fragility fracture. Fragility fractures are associated with a high economic burden. Denosumab (Prolia®) is a pharmacological therapy used to treat osteoporosis and reduce the risk of fragility fracture. This study aimed to assess the cost effectiveness of denosumab, compared with other pharmacological therapies (oral bisphosphonates, intravenous [IV] ibandronate, zoledronate, raloxifene, and bazedoxifene) and no treatment, for treating postmenopausal women with osteoporosis.MethodsA discrete event simulation model was developed using a lifetime time horizon. A Swiss healthcare payer perspective was adopted. Time-to-fracture distributions were derived from Swiss-specific Fracture Risk Assessment Tool (FRAX®) probabilities. Reductions in the risk of vertebral and nonvertebral fractures due to treatment were informed by a Bayesian network meta-analysis. Cost-effectiveness frontier analysis was utilized. Pairwise incremental cost-effectiveness ratios (ICERs) between denosumab and each comparator were also estimated. Sensitivity analyses were conducted to identify key drivers and explore the overall certainty of findings.ResultsAt a hypothetical willingness-to-pay (WTP) threshold of CHF100,000 (EUR101,630), IV ibandronate was the most cost-effective therapy in women aged 60 years who had a very high risk of fracture, and in women aged 70 or 80 years of any risk level. In women aged 60 years with a lower risk level, zoledronate was the most cost-effective option. Nevertheless, ICERs from pairwise comparisons between denosumab and some comparators (no treatment, bazedoxifene, raloxifene, and/or zoledronate depending on the cohort’s age and risk profile) were below the hypothetical WTP threshold. Higher intervention costs, smaller reductions in the risk of hip fracture, and shorter duration of residual benefit associated with denosumab contributed to the high ICER values seen in pairwise comparisons with oral bisphosphonates (as a class) and IV ibandronate.ConclusionsThe present evaluation supported the cost effectiveness of denosumab against some, but not all, comparators. Nevertheless, these results should be interpreted cautiously in light of uncertainty in the true effect of treatments on fracture risk.

The sample median as an estimator of population mean true willingness to pay under valuation uncertainty: a synthesis and analysis of the literature

ABSTRACT This paper reviews the contingent valuation literature on hypothetical bias and valuation uncertainty, with special emphasis on measures of central tendency suitable for applied welfare analysis. In a theoretical scenario without valuation uncertainty, sample mean willingness to pay (WTP) is an estimator of population mean true WTP, the appropriate welfare measure. It is proposed here that this may not hold under valuation uncertainty. In this case, mean true WTP should be bounded by mean hypothetical WTP and mean actual WTP (in turn, mean actual WTP should exceed mean certain WTP). Based on a theoretical model and a review of existing empirical studies, median hypothetical WTP was found to be an estimator of mean true WTP. It is therefore proposed that contingent valuation researchers should consider using the sample hypothetical median as an estimator of population mean true WTP when supporting data on the degree of valuation uncertainty are absent. This could be a straightforward approach, e.g. in a low income country context, where the possibility of financing elaborate research designs accounting for valuation uncertainty is limited. It can also prove useful to revisit existing contingent valuation studies with these findings in mind.

UK general population willingness to pay for scale and polish, and detailed and personalized oral hygiene advice.

Understanding the value the general population place on dentistry services is important for policymakers to aide service planning. Willingness to pay (WTP) is an economic method used to elicit the value of a good or service. The aim of this study is to estimate United Kingdom (UK) general population WTP for commonly provided scale and polish, and detailed and personalized oral hygiene advice (OHA), and to investigate what factors influence WTP. Participants completed an online hypothetical WTP survey for scale and polish and detailed and personalized oral hygiene advice. The estimation sample consisted of 1405 participants, nationally representative of the UK general population in terms of age and sex. Regression analysis was used to estimate WTP and determine what factors are associated with WTP. Analyses were conducted including and excluding protest answers. The mean (SD) WTP for a scale and polish is £26.77 (£21.91) excluding protest answers and £24.80 (£22.71) for the full sample. The mean (SD) WTP for detailed and personalized OHA is £16.56 (£19.75) excluding protest answers and £12.77 (£22.28) for the full sample. Participants on higher incomes, private attenders and those who stated that maintaining clean and healthy gums was important had higher WTP for both services. Participants in Scotland and Northern Ireland were WTP less than their English counterparts, reflecting the different regional specific payment systems. The general UK population value scale and polish, and detailed and personalized OHA. This study provides estimates of WTP for these services which can be used to inform resource allocation decisions.

Managing transportation externalities in the Pyrenees region: Measuring the willingness-to-pay for road freight noise reduction using an experimental auction mechanism

The estimation of the noise impact caused by road freight transportation is critical to have acknowledgment of the ambiance pollution caused by road traffic crossing geographical areas containing important natural resources. Thus, our work proposes a within-subject survey where a Contingent Valuation Method (CVM) is combined with a laboratory economic experimental auction. Our study objective is to measure the willingness-to-pay (WTP) for reducing traffic noise nuisances due to freight transportation in the region of Navarre, Spain. A special focus is made regarding the measurement of the hypothetical bias, when a comparison is done between hypothetical WTP, coming from the CVM study, with real-incentivized one, as the outcome of the economic experiment. Additionally, statistical analyses are conducted in order to find explanation factors for these outcomes. Results suggest a strong evidence for an upward hypothetical bias (from 50% to 160%) indicating the income, the educational level, the gender, and the age as the main factors which explain that bias.

Mitigating Hypothetical Bias: Evidence on the Effects of Correctives from a Large Field Study

The overestimation of willingness-to-pay (WTP) in hypothetical responses is a well-known finding in the literature. Various techniques have been proposed to remove or, at least, reduce this bias. Using about 30,000 responses on WTP for a variety of power mixes from a panel of 6500 German households and the fixed-effects estimator to control for unobserved heterogeneity, this article simultaneously explores the effects of two common ex-ante approaches—cheap talk and consequential script—and the ex-post certainty approach to calibrating hypothetical WTP responses. Based on a switching regression model that accounts for the potential endogeneity of respondent certainty, we find evidence for a lower WTP among those respondents who classify themselves as definitely certain about their answers. Although neither cheap talk nor the consequential-script corrective reduce WTP estimates, receiving either of these scripts increases the probability that respondents indicate definite certainty about their WTP bids.

How Much Are Floridians Willing to Pay for Protecting Sea Turtles from Sea Level Rise?

Sea level rise (SLR) is posing a great inundation risk to coastal areas. Some coastal nesting species, including sea turtle species, have experienced diminished habitat from SLR. Contingent valuation method (CVM) was used in an effort to assess the economic loss impacts of SLR on sea turtle nesting habitats for Florida coasts; and to elicit values of willingness to pay (WTP) of Central Florida residents to implement certain mitigation strategies, which would protect Florida's east coast sea turtle nesting areas. Using the open-ended and dichotomous choice CVM, we sampled residents of two Florida communities: Cocoa Beach and Oviedo. We estimated the WTP of households from these two cities to protect sea turtle habitat to be between $42 and $57 per year for 5 years. Additionally, we attempted to assess the impact of the both the respondents' demographics and their perception toward various situations on their WTP value. Findings include a negative correlation between the age of a respondent and the probability of an individual willing to pay the hypothetical WTP amount. We found that WTP of an individual was not dependent on prior knowledge of the effects of SLR on sea turtle habitat. The greatest indicators of whether or not an individual was willing to pay to protect sea turtle habitat were the respondents' perception regarding the trustworthiness and efficiency of the party which will implement the conservation measures and their confidence in the conservation methods used. Respondents who perceive sea turtles having an effect on their life were also more likely to pay.

Mitigating Hypothetical Bias Evidence on the Effects of Correctives from a Large Field Study

The overestimation of willingness-to-pay (WTP) in hypothetical responses is a well-known finding in the literature. Various techniques have been proposed to remove or, at least, reduce this bias. Using responses from a panel of about 6,500 German households on their WTP for a variety of power mixes, this article undertakes an analysis that combines two common ex-ante approaches – cheap talk and consequential script – with the ex-post certainty approach to calibrating hypothetical WTP responses. Based on a switching regression model that accounts for the potential endogeneity of respondent certainty, we find that while neither the cheap-talk nor the consequential script corrective bears on the estimates of WTP, there is evidence for a lower WTP among those respondents who classify themselves as definitely certain about their answers.

Putting Your Money Where Your Mouth Is: The Value of Low Purchase Intention Consumers to Product Pricing

Hypothetical bias is a common research problem in measuring intentions. This study examines differences in individuals' hypothetical and nonhypothetical willingness to pay (WTP) based on purchase intention level. The purpose of Study 1 is to see if hypothetical bias is affecting all groups of individuals when segmented by purchase intentions. The contingent valuation method (CVM) was used to assess to individuals' purchase intentions and hypothetical WTP for an environmentally friendly (EF) offering. Individuals then participated in an auction that required them to bid on the same offering, thus requiring an actual monetary commitment. Through segmenting individuals into three purchase intention groups (high, moderate, and low), WTP biases were found to be positively related to stated intention level. High and moderate purchase intenders significantly overstated their hypothetical WTP. However, low purchase intenders did not. Further, no significant differences existed in nonhypothetical WTP between the three groups. The price that low purchase intenders were willing to pay through the CVM represented closely what they and the rest of the market were willing to pay in practice.The purpose of Study 2 was to examine several reasons why higher purchase intenders may be overstating their hypothetical WTP, with normative pressure and social desirability bias taken into consideration. Individuals indicated their purchase intentions and hypothetical WTP for an EF and a non‐EF product, and then participated in an auction. The higher purchase intenders again overstated their actual WTP for both products, whereas low purchase intenders did not. Results suggest that both normative pressure and social desirability bias contribute to hypothetical bias for products that carry a normative dimension (EF products). Controlling for these two factors eliminated the differences between hypothetical and nonhypothetical WTP. For products that did not have a normative component (non‐EF products), controlling for social desirability eliminated the gap between the hypothetical and nonhypothetical WTP amounts.A main implication from this research is that hypothetical bias is not a universal phenomenon and does not operate equally in all groups of purchase intenders. Marketers may want to consider only using lower purchase intenders in their pricing estimates for new products, especially for those that carry a normative component. Further, the CVM has received much criticism for measuring hypothetical WTP. However, estimates produced by the CVM were nearly exact for the low purchase intender group and were reliable when controlling for social desirability bias and normative pressure for the higher purchase intenders.

Selected aspects of the forest recreational function in view of its users

Abstract The results of a survey conducted in several Promotional Forest Complexes (PFC) in the Śląskie and Podlaskie regions, as well as the urban forests in Łodź and Warsaw, indicate that visitor preferences vary among forest sites. Those forests where visitors prefer to rest should be located in forests designated for recreation, and include elements of recreational infrastructure. Depending on characteristics of the forest in question (seaside, lakeside, or mountains), respondents preferred forest located near to the water’s edge, whereas in mountainous areas they selected open places (roads and openings). Urban residents more commonly chose sites deep within the forest, while hikers selected forest edges. The desired recreational infrastructure, included garbage cans and hiking trails as the most important elements among city dwellers, while hikers pointed to rest areas and information boards. The respondents consistently agreed on the type of recreational activities conducted in forests as well as on type of elements which determine the attractiveness of forests for rest and recreation. Independently of site characteristics and the research location, the most common activities for respondents were hiking and riding bicycle; and attractive elements were silence and calm as well as cleanliness of the forests. The Contingent Valuation Method (CVM) was used to evaluate respondents’ Willingness to Pay (WTP) for intensification of selected public forest functions and forest management, including recreational functions. The number of respondents who declared a hypothetical monetary amount or WTP>0 depended on the place where research was conducted (forest or respondent’s home); forest area covered by financing (forests in general or local forests where respondents reside); the type of question used to obtain the information on WTP; as well as the scope of financing (all public forest functions or just a recreational function). The average WTP declared per household per year varied from 41 PLN (Gołos, Janeczko 2002) to 150 PLN (Gołos, Kaliszewski 2006) for selected forest areas. The average overall state statistics for WTP was 52 PLN (non-timber forest functions in municipality) and 41 PLN (recreational management of forests in municipality). The respondents also underlined that the goods and services provided should be co-financed from both state and local budgets, and that such financing should go directly to the organizations conducting forest management

Taxes, minimum-quality standards and/or product labeling to improve environmental quality and welfare: Experiments can provide answers

This study focuses on the welfare impact of taxes, minimum-quality standards, and/or product labeling. A theoretical framework shows that the combination of a label and a per-unit tax is socially optimal. Alternatively, if the label is unavailable, the theory cannot directly conclude which instrument should be socially preferred. Estimations of willingness-to-pay (WTP) are useful for completing the theoretical analysis and evaluating policies ex ante on case-by-case basis. Using hypothetical WTP for shrimp, we confirm that the combination of a label and a tax is socially optimal. In the absence of a label, simulations show that a minimum-quality standard leads to a higher welfare compared to a tax.

Giving Stated Preference Respondents “Time to Think”: Results From Four Countries

Previous studies have found that contingent valuation (CV) respondents who are given overnight to reflect on a CV scenario have 30–40% lower average willingness-to-pay (WTP) than respondents who are interviewed in a single session. This “time to think” (TTT) effect could explain much of the gap between real and hypothetical WTP observed in experimental studies. Yet giving time to think is still rare in binary or multinomial discrete choice studies. We review the literature on increasing survey respondents’ opportunities to reflect on their answers and synthesize results from parallel TTT studies on private vaccine demand in four countries. Across all four countries, we find robust and consistent evidence from both raw data and multivariate models for a TTT effect: giving respondents overnight to think reduced the probability that a respondent said he or she would buy the hypothetical vaccines. Average WTP fell approximately 40%. Respondents with time to think were also more certain of their answers, and a majority said they used the opportunity to consult with their spouse or family. We conclude with a discussion of why researchers might be hesitant to adopt the TTT methodology.

Estimating the value of the reduction in air pollution during the Beijing Olympics

AbstractThis study estimates the willingness-to-pay (WTP) of Beijing residents in order to maintain the improved air quality experienced during the Olympic Games. A double-bounded contingent valuation method is applied to a survey of 566 Beijing residents. The results indicate that the mean annual WTP per household is between CNY 22,000 and 24,000, and the median WTP is around CNY 1,700. The WTP for this actually experienced improvement is significantly higher than the results from previous hypothetical WTP surveys in China.

WHAT'S TO KNOW ABOUT HYPOTHETICAL BIAS IN STATED PREFERENCE VALUATION STUDIES?

Abstract Hypothetical bias arises in stated preference valuation studies when respondents report a willingness to pay (WTP) that exceeds what they actually pay using their own money in laboratory or field experiments. Although this bias is not found in all stated preference surveys, hypothetical WTP typically exceeds the actual value by a factor of two to three. Unfortunately, there is no widely accepted general theory of respondent behaviour that explains hypothetical bias. Therefore, two meta-analyses are reviewed to test current hypotheses regarding the causes of this overstatement of WTP and the associated recommendations to mitigate the bias. Suggestions for future research are made including the development of a general theory.

Strategy and response to purchase intention questions

Purchase intention and willingness-to-pay (WTP) questions are often analyzed without considering that a respondent's utility maximizing answer need not correspond to a truthful answer. In this paper, we argue that individuals act, at least partially, in their own self-interest when answering survey questions. Consumers are conceptualized as thinking along two strategic dimensions when asked hypothetical purchase intention and WTP questions: (a) whether their response will influence the future price of a product and (b) whether their response will influence whether a product will actually be offered. Results provide initial evidence that strategic behavior may exist for some goods and some people.

An empirical comparison of methods for measuring consumers’ willingness to pay

A valid procedure for measuring consumers’ willingness to pay (WTP) is crucial in designing optimal pricing policies or for estimating demand for new products. Understanding potential sources of differences in WTP estimates that emerge from value elicitation studies constitutes an important step in research on how managers should estimate consumers’ WTP. This research presents an empirical analysis of two potential sources of differences and discusses possible means of mitigating them. We find substantial and significant differences between the WTP reported by subjects when payment of the stated price is real or hypothetical. Notwithstanding the dichotomy between real and hypothetical WTP, we find significant differences among the WTP estimates of a broad range of value elicitation methods.

An Experimental Validation of Hypothetical WTP for a Recyclable Product

Using a within-subject experiment, we compare hypothetical andreal willingness to pay (WTP) for an improvement in therecyclability of a product. Subjects are faced with a real paymentscenario after they have responded to a hypothetical question.Contrary to most of the results obtained in similar studies, at apopulation level, there are no significant median differencesbetween actual and hypothetical stated values of WTP. However,within-subject comparisons between hypothetical and actual valuesindicate that subjects stating a low (high) hypothetical WTP tendto underestimate (overestimate) the value of their actualcontributions.

Stated and actual altruistic willingness to pay for insecticide‐treated nets in Nigeria: validity of open‐ended and binary with follow‐up questions

To determine whether the binary with follow-up (BWFU) or open-ended (OPED) contingent valuation question format would yield better valid estimates of altruistic willingness to pay (WTP) and examine the feasibility of using intra-community altruistic contributions to procure insecticide-treated nets (ITNs) for the poor in Nigeria. Structured questionnaires were used to elicit stated altruistic WTP from a random sub-sample of respondents that had either the OPED or BWFU used to elicit WTP in Southeast Nigeria. One month after the survey the respondents were asked to redeem their WTP pledges. Construct validity was determined using econometric analyses, while phi correlation coefficient was used to determine criterion validity. More than 57% of the respondents were hypothetically willing to pay for altruism in both BWFU and OPED groups. Altruistic WTP was positively related to respondents' WTP for own nets (p<0.01) and nets for other household members (p<0.05) in both groups. A total of 27.0% and 33.1% of the respondents with positive hypothetical WTP in the BWFU and OPED actually contributed. Phi correlation coefficient was 0.23 (95%CI 0.20-0.29) in BWFU and 0.49 (95%CI 0.44-0.54) in OPED. The money realised was used to buy some ITNs, which were presented to poor people selected by community leaders. The OPED elicited better valid estimates of altruistic WTP than BWFU. The potential for more capable people to contribute for the poor in ITNs programmes actually exist and malaria control programmes should explore altruistic contributions as a means to increase net coverage.

Inequalities in purchase of mosquito nets and willingness to pay for insecticide-treated nets in Nigeria: Challenges for malaria control interventions

ObjectiveTo explore the equity implications of insecticide-treated nets (ITN) distribution programmes that are based on user charges.MethodsA questionnaire was used to collect information on previous purchase of untreated nets and hypothetical willingness to pay (WTP) for ITNs from a random sample of householders. A second survey was conducted one month later to collect information on actual purchases of ITNs. An economic status index was used for characterizing inequity.Major findingsThe lower economic status quintiles were less likely to have previously purchased untreated nets and also had a lower hypothetical and actual WTP for ITNs.ConclusionITN distribution programmes need to take account of the diversity in WTP for ITNs if they are to ensure equity in access to the nets. This could form part of the overall poverty reduction strategy.

Validity of Willingness to Pay: hypothetical versus actual payment

Questions concerning the criterion validity of contingent valuation studies have been raised for years. However, the few examples that exist concentrate on willingness to pay (WTP) for goods like chocolate bars, where a market exists. This article examines the criterion validity of WTP for treated mosquito nets (TMNs) in Gujarat, India. Three hundred households, in 20 villages, were interviewed twice within one month. The first interview ascertained maximum hypothetical WTP for one TMN using a bidding format with an open-ended final question, along with questions about the socio-economic and health factors that were likely to influence demand. The second interview reminded the respondents about TMNs and asked whether they would be willing to buy one for Rs75 (the modal value). If so, they were invited to buy as many TMNs as desired for their household. Analysis is based on a 2 × 2 contingency table with estimates of the sensitivity and specificity of the hypothetical WTP. At an aggregate level, there is no discrepancy between hypothetical and observed WTP, although there was considerable variation amongst individuals. Sensitivity was 62% and specificity 67%. It is concluded that these WTP estimates are robust at the population level but less so at the individual level. Further research is required to examine the determinants of change in household behaviour between hypothetical and actual WTP.