Behavioral Economics Commons^™

If The Large Wta-Wtp Gap For Public Goods Is Real (And There Are Good Reasons To Think So) Conventional Welfare Measures Are Simply Incorrect, Philip E. Graves

PHILIP E GRAVES

A robust finding in economics is that decision-makers often exhibit a much smaller dollar willingness to pay (WTP) for an item than the minimum amount that they claim to be willing to accept (WTA) to part with it. The spread between these two numbers is particularly large for public goods, raising serious public policy concerns regarding which number, if either, is appropriate for valuing such goods. A traditional utility maximizing model is presented here that predicts–as both measures are currently calculated–that WTA will exceed WTP, quite plausibly by a substantial amount for public goods. Moreover, it is shown here that …