Incremental willingness to pay: a theoretical and empirical exposition

Karine Lamiraud*, Robert Oxoby, Cam Donaldson

*Corresponding author for this work

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Abstract

Applications of willingness to pay (WTP) have shown the difficultly to discriminate between various options. This reflects the problem of embedding in both its specific sense, of options being nested within one another, and its more general sense, whereby respondents cannot discriminate between close substitutes or between more-disparate rivals for the same budget. Furthermore, high proportions of reversals between WTP-value and simple preference based rankings of options are often highlighted. Although an incremental WTP approach was devised to encourage more differentiated answers and a higher degree of consistency among respondents, a theoretical basis for this approach has not been elucidated, and there is little evidence to show that this approach might indeed achieve greater consistency between explicit and implicit rankings inferred from WTP values. We address both these issues. Following our theoretical exposition, standard and incremental approaches were compared with explicit ranking in a study assessing preferences for different French emergency care services. 280 persons, representative of the French adult population, were interviewed. Half received the incremental version, the other half the standard version. Results suggest that the incremental approach provides a ranking of options fully in line with explicit ranking. The standard approach was reasonably consistent with explicit ranking but proved unable to differentiate between the five most preferred providers, as predicted by theory. Our findings suggest that the incremental approach provides results which can be used in priority-setting contexts.
Original languageEnglish
Pages (from-to)101-123
Number of pages23
JournalTheory and Decision
Volume80
Early online date3 Sep 2015
DOIs
Publication statusPublished - Jan 2016

Keywords

  • WTP
  • contingent valuation
  • reference points
  • incremental approach
  • emergency care

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