Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Monday, June 21, 2021

Reflective Willingness to Pay: Preferences for Sustainable Consumption in a Consumer Welfare Analysis

Reflective Willingness to Pay: Preferences for Sustainable Consumption in a Consumer Welfare Analysis

 

Stefan Thomas

University of Tuebingen - Faculty of Law

Roman Inderst

Goethe University Frankfurt

Abstract

Our starting point is the following simple but potentially underappreciated observation: When assessing willingness to pay (WTP) for hedonic features of a product, the results of such measurement are influenced by the context in which the consumer makes her real or hypothetical choice or in which the questions to which she replies are set (such as in a contingent valuation analysis). This observation is of particular relevance when WTP regards sustainability, the “non-use value” of which does not derive from a direct (physical) sensation and where perceived benefits depend heavily on available information and deliberations. The recognition of such context sensitivity paves the way for a broader conception of consumer welfare (CW), and our proposed standard of “reflective WTP” may materially change the scope for private market initiatives with regards to sustainability, while keeping the analytical framework within the realm of the CW paradigm. In terms of practical implications, we argue, for instance, that actual purchasing decisions may prove insufficient to measure consumer appreciation of sustainability, as they may rather echo learnt but unreflected heuristics and may be subject to the specific shopping context, such as heavy price promotions. Instead, when measuring WTP through hypothetical choices, the choice context can be adopted accordingly, and in the presence of non-negligible externalities, as is typical in the case of sustainability, consumers can be confronted with alternatives that escape the pitfall of free-riding and market failure.

https://lawprofessors.typepad.com/antitrustprof_blog/2021/06/reflective-willingness-to-pay-preferences-for-sustainable-consumption-in-a-consumer-welfare-analysis.html

| Permalink

Comments

Post a comment