Willingness to Pay: A Contextualized Method of Valuation

Abstract

Willingness to pay (WTP) is a metric that is widely-used among both academics and practitioners. Despite decades of research and practical importance, the metric is surprisingly impoverished in its conceptualization and measurement. In this paper, we develop a conceptualization that clarifies consumers’ WTP is best understood as a distributional concept that varies among contexts, comparisons and consumers—we refer to this architecture as the three C’s of WTP. Our conceptualization emphasizes two pathways, direct and indirect, by which context influences WTP. We review existing methods to assess WTP and then introduce a new methodology designed to account for the inherently comparative and contextual nature of the construct: the Contextualized Method of Valuation (CMV). Two initial experiments illustrate how CMV differs from the classic BDM (Becker-DeGroot-Marschak) methodology. Four additional experiments demonstrate the ability of the CMV to capture contextual influences on WTP via both the direct and indirect pathways. In total, the paper offers both conceptual clarity and methodological advances to the measurement of WTP.

Type

Working Paper

Author(s)

Eric T. Anderson, Derek Rucker, Sharlene He

Date Published

2018

Citations

Anderson, T. Eric, Derek Rucker, and Sharlene He. 2018. Willingness to Pay: A Contextualized Method of Valuation.

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