Willingness to Pay and Sensitivity to Time Framing: A Theoretical Analysis and an Application on Car Safety

Abstract

Stated preference (SP) surveys attempt to obtain monetary values for non-market goods that reflect individuals’ “true” preferences. Numerous empirical studies suggest that monetary values from SP studies are sensitive to survey design and so may not reflect respondents’ true preferences. This study examines the effect of time framing on respondents’ willingness to pay (WTP) for car safety. We explore how WTP per unit risk reduction depends on the time period over which respondents pay and face reduced risk in a theoretical model and by using data from a Swedish contingent valuation survey. Our theoretical model predicts the effect to be nontrivial in many scenarios used in empirical applications. In our empirical analysis we examine the sensitivity of WTP to an annual and a monthly scenario. Our theoretical model predicts the effect from the time framing to be negligible, but the empirical estimates from the annual scenario are about 70 % higher than estimates from the monthly scenario.

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Replaces

Henrik Andersson, James K. Hammitt, Gunnar Lindberg, and Kristian Sundström, “Willingness to Pay and Sensitivity to Time Framing: A Theoretical Analysis and an Application on Car Safety”, TSE Working Paper, n. 11-271, October 2011.

Reference

Henrik Andersson, James K. Hammitt, Gunnar Lindberg, and Kristian Sundström, “Willingness to Pay and Sensitivity to Time Framing: A Theoretical Analysis and an Application on Car Safety”, Environmental and Resource Economics, Springer Netherlands, vol. 56, n. 3, November 2013, pp. 437–456.