Eliciting Reliable Willingness to Accept Responses S. Chilton, M. Jones-Lee, R. McDonald, H. Metcalf Economics Newcastle University Business School

OUTLINE Background/Motivation Optimum WTA Experiment/Survey: WTA responses for two health complaints - Methods - Results Conclusions

BACKGROUND & MOTIVATION (1) Many health/environmental valuations – theoretically & ethically more appropriate to elicit WTA (rather than WTP) measures But WTA rarely adopted (particularly for policy applications). Why not? Well-documented problems (WTA/WTP gap; implausibly large WTA; unfamiliarity; non-budget constrained…etc..) To (i) pass judgement on these problems and (ii) use WTA measures we require WTA (& WTP) to be robust and reliable “Much” experience with WTP; relatively less with WTA. Paper addresses this failing.

BACKGROUND & MOTIVATION (2) Subsample 1 1 mth 3 mths £ £ Subsample 2 1 mth 3 mths £ £ Subsample 3 1 mth 3 mths £ £ Mean WTA Std. Dev Median WTA n 58155

ELICITING OPTIMAL WTA: RATIONALITY SPILLOVERS Method Artefactual field experiment/contingent valuation survey, Newcastle 2009, n=155 2 health complaints “Rationality Spillover” effects”(Cherry et al., 2003; Seested Nielsen 2010) Respondents gain an understanding of min WTA & the elicitation mechanism in an incentivised setting which is ‘carried over’ to health valuation questions  economically optimum (“truthful”) responses

OPTIMAL WTA: THE (2 nd PRICE AUCTION) MECHANISM

OPTIMAL WTA: INCENTIVE COMPATIBILITY PROPERTY

EXPERIMENTAL DESIGN: OPTIMAL RESPONSES

STAGE 3: INCENTIVISED ‘TEACHING’ EXPERIMENT Based on the Plott and Zeiler (2005) mechanism (shown to generate theoretically predicted results) Participant given 2 tokens (2 rounds) which could be used to gain entry to a prize draw and recorded his/her ‘reserve price’ (minimum WTA to sell each token and forego draw entry), knowing it would be compared to a sealed bid, already randomly selected from a box of 100 bids ranging from £0.01 to £1.00 and visible at the front of the room. If his/her ‘reserve price’ was lower than or equal to this sealed bid they sold the token but received the higher (or equivalent) sealed bid. If higher, s/he did not sell the token and it was put into the draw. Supported by an ‘aide memoir’

STAGE 4: CONTINGENT VALUATION SURVEY (WTA 1 week, 1 month, 3 months)

CV WTA SCENARIO Imagine you have a health problem. Doctor tells you it will heal by itself in a given period of time. But: treatment available - remove all symptoms immediately Problem: manufacturer is temporarily unable to make enough Has been decided that the best way to cope with this problem is to ask those who will not be treated to accept money for putting up with the symptoms. Amount has already been decided - the ‘preset amount’. Not yet released but doctor will get it later today.

WTA SCENARIO (cont.) System: Let doctor know the lowest (minimum) amount you would accept to ‘put up with the symptoms’. Let’s call it your ‘reserve price’. Later - doctor will compare RP with the preset amount to see whether you value immediate recovery more than the money on offer, so he can make the right decision for you (money or treatment). If RP ≤ preset amount, you receive money (but have to put up with symptoms) - the preset amount rather than your RP. If RP > preset amount, you get treatment but receive no money Remember: ask too much - you may not be eligible for the money (preset amount may be lower than RP). Ask too little - you may get the money & not receive the treatment, even if you would prefer it as the preset amount is too low for you. So the preset amount works just like the sealed bid in the earlier questions.

MEMORY JOGGER: HEALTH VALUATION

MEM. JOGGER: HEALTH VALUATION (cont.)

RESULTS

REGRESSION ANALYSIS (E.G. STOMACH)

CONCLUSIONS Plott & Zeiler (2005) – based mechanism, rationality ‘spillover’ effects  plausible and well-behaved WTA responses Adds to the small but growing body of evidence on the potential for incorporating economic experiments into valuation studies (here, as a ‘teaching’ device) to generate more robust data on public preferences May be possible to reconcile the BCA mismatch (desire WTA; ask WTP) Health – but transferable to all public sector domains. ‘Do-able’ but requires careful planning and sufficient survey time– face to face, approx 1.5 hours. Is it a price ‘worth’ paying?