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
£
£
Mean WTA
175
4807
Std. Dev
208
8614
Median
WTA
100
2000
n
58
Subsample 2
1 mth 3 mths
£
£
Subsample 3
1 mth 3 mths
£
£
130
1932
106
1555
189
2866
133
2400
50
600
50
750
155
155
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 (2nd PRICE
AUCTION) MECHANISM
SELLING A FLAT IN AN AUCTION
The key point:
If you sell, you receive the SEALED BID AMOUNT, not your
reserve price.
The bidding process:
Is your reserve price
more than, equal to,
or less than, the
sealed bid?
More
than
DON’T SELL
- Keep the item
- Get no money
Equal
to
SELL
- Receive the
sealed bid amount
- This is equal to
your reserve price
Less
than
SELL
- Receive the sealed
bid amount
- This is more than
your reserve price.
OPTIMAL WTA: INCENTIVE
COMPATIBILITY PROPERTY
Why you should give your true minimum willingness
to accept:
If your reserve price is MORE THAN your true
value ...
 If the sealed bid is more than your true
value (e.g. £100k) but less than your
“greedy bid” (e.g. £1m), you cannot sell
even at a price you’d like to accept, so
you miss out on the money.
If your asking price is LESS THAN your true
value...
 If the sealed bid is less than your true
value (e.g. £100k) but more than your
“giveaway bid” (e.g. £50k), you have to
sell for less than you think the flat is
worth.
EXPERIMENTAL DESIGN:
OPTIMAL RESPONSES
Purpose
Stage
1
&
(Hypothetical): Introduce “rules” of the game, truthful
2
Selling
a
Flat/Teddy, revelation = best strategy, role of the (secret)
sealed bid within the second price auction
Discussion
3 (Real): Selling a Draw Experience of selling using the mechanism,
Entry Ticket, Experiment
elicitation
of
minimum
WTA
in
an
incentivised context
4
(Hypothetical):
Health Elicitation
Valuation, WTA Survey
of
monetary
values
from
respondents with an understanding/intuition
of the economic meaning of ‘minimum
WTA’.
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)
Stomach Complaint
The symptoms are:
a) You will have some slight discomfort whilst eating;
b) You will have some pain in your stomach at certain times
in the day;
c) You will feel slightly ‘under the weather’;
d) Your normal daily activities will be otherwise unaffected.
The problem is self limiting, i.e. will go without any treatment after this period
Throat Complaint
of time.
The symptoms are:
a) You will have a slight sore throat;
b) You will have some difficulty talking;
c) You will feel slightly ‘under the weather’;
d) Your normal daily activities will be otherwise unaffected
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
Is your
reserve
price...
MORE THAN
LESS
the preset amount
TREATMENT
- Get the
treatment
- Get no money
EQUAL
TO the preset
amount
MONEY
- Receive the preset
amount
- This is equal to your
reserve price.
- Get no treatment.
THAN the preset amount
MONEY
- Receive the
preset
amount.
- This is more
than your reserve
price.
- Get no
treatment
MEM. JOGGER: HEALTH
VALUATION (cont.)
The key points:
1. Once you have told your doctor your reserve price, the rules
determine whether or not you get treatment or money.
2. If you receive any money, you receive the PRESET
AMOUNT, not your reserve price.
3. There’s NO POINT OVERSTATING what you’d accept
o GET THE TREATMENT when you would prefer the
money.
There’s NO POINT UNDERSTATING what you’d pay.
o GET THE MONEY when you actually think recovery is
worth more to you.
RESULTS
WTA Stomach
Mean
WTA Throat
1 week
1 month
3
months
1 week
1 month
3
months
130.75
579.39
1932.77
106.31
522.25
1555.32
(Std.
(189.61) (1280.10) (2886.67) (133.25) (1001.44) (2400.07)
Deviation)
Ratio to 1
week
Median
Ratio to 1
week
1
4.43
14.78
1
4.91
14.63
50.00
250.00
750.00
50.00
200.00
600.00
1
5.00
15.00
1
4.00
12.00
REGRESSION ANALYSIS
(E.G. STOMACH)
Tobit Regression
WTA Stomach
condition
N=363
LR Chi2 (8) = 74.46
Prob > Chi2 = 0.00
Pseudo R2 = 0.012
Log Likelihood
= -3127.99
Independent variable
Duration
Gender
Age
Number in Household
Further Education
Job Type
Experience of the
complaint
Perceived current health
state
Constant
Coefficient
Standard
error
t
P>|t|
140.88
196.86
12.40
131.57
452.03
212.14
17.80
170.04
6.03
81.80
190.31
113.89
7.91
1.16
2.06
1.61
2.38
1.86
0.00
0.25
0.04
0.11
0.02
0.06
344.35
173.70
1.98
0.05
94.23
150.91
0.62
0.53
-2133.38
586.48
-3.64
0.00
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?