Scandinavian Working Papers in Economics
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CERE - the Center for Environmental and Resource Economics CERE Working Papers, CERE - the Center for Environmental and Resource Economics

No 2015:13:
Is there a valuation gap? The case of interval valuations

Oben K. Bayrak () and Bengt Kriström ()

Abstract: We extend the literature on the willingness-to-pay/willingness-to-accept (WTP/WTA) disparity by testing two hypotheses, distilled from the literature. We also introduce a modified mechanism for eliciting the subjective valuation range if the individual cannot articulate the subjective value as a precise amount confidently. Our key finding is that the disparity disappears under the intervals treatment, suggesting that response format is important, given that earlier experimental studies invariably uses point values (i.e. open ended questions about WTP/WTA). Moreover, for the risky prospect we observe that from their admissible range the buyers state the lower bound as their WTP whereas sellers state the upper bound as their WTA. We conclude that this type of behavior can to some extent explain the observed disparity at least for the risky prospects.

Keywords: Valuation Gap; Imprecise Preferences; Interval Valuation; Willingness to Pay and Accept Disparity; Endowment Effect; (follow links to similar papers)

JEL-Codes: C90; Q50; (follow links to similar papers)

23 pages, November 26, 2015

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