WTA-WTP Disparity: The Role of Perceived Realism of the Valuation Setting

Manuel Frondel, Stephan Sommer and Lukas Tomberg

Abstract

Based on a survey of more than 5,000 German households and a single-binary-choice experiment in which we randomly split the respondents into two groups, this article explores both households’ willingness to pay (WTP) for power supply security and their willingness to accept (WTA) compensation for a reduced security level. In accordance with numerous empirical studies, we find that the mean WTA value substantially exceeds the mean WTP value in our empirical example by a factor of 3.56. Yet, the WTA-WTP ratio decreases to 2.35 if respondents believe that the hypothetical valuation setting is likely to become true.

JEL

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