Eliciting Willingness to Pay Without Bias: Evidence from a Field Experiment

Abstract

Concern exists that hypothetical willingness to pay questions overestimate real willingness to pay. In a field experiment, we compare two methods of removing hypothetical bias, a cheap talk approach and a certainty approach, with real purchases. We find evidence of hypothetical bias for unadulterated contingent valuation. Contingent valuation with certainty statements removes the hypothetical bias, but the cheap talk approach has no significant impact. Our findings suggest that willingness to pay can be accurately estimated by adding a simple follow-up question about the certainty of responses and that cheap talk is not a generally effective approach. Information about the willingness to pay for non-market goods is crucial for under-standing the welfare implications of different policies. Ideally we would like to rely on actual choices for inferring willingness to pay. But for many public programmes, especially those in the environmental and health area, revealed preference information is limited. This limitation can arise from the lack of markets or third-party financing. Researchers have therefore tried to estimate willingness to pay based on stated pref-erences that are hypothetical choices. This methodology, known as contingent valua-tion, typically involves a survey or experiment in which there is a detailed description of the good being offered, a description of how the good would be provided, a method for eliciting preferences for the good, follow up debriefing questions and questions about socioeconomic characteristics (Portney, 1994; Carson, 2001). Contingent valuation is still somewhat controversial in economics (Diamond and Hausman, 1994; Carson et al.,