Willingness to Value

 If you were asked to establish your willingness to pay (WTP) or willingness to accept (WTA) for a specific good or service it would most likely vary depending on what is being valued. This idea of WTP and WTA is based on the economic concept of establishing monetary values for all goods and services, even if the good or service brings non-instrumental value to you. This concept was developed due to the homo sapiens suicidal tendencies to exploit all resources biotic and abiotic until they are virtually exhausted (and yes it is possible to exhaust biotic resources). But to continue we must first define some of the key terms that will assist us in establishing the relevance of WTP and WTA, and what exactly it means for the future of our planet.

Contingent Valuation: Hypothetical estimates of prices of non-market goods and services based on survey questions asking how much one would be willing to pay for an extra unit of the good or how much one would accept for the loss of a unit of the good.

Willingness to Pay: The price or dollar amount that someone is willing to give up or pay to acquire a good or service. Willingness to pay is the source of the demand price of a good. However, unlike demand price, in which buyers are on the spot of actually giving up the payment, willingness to pay does not require an actual payment.

Willingness to Accept: The price or dollar amount that someone is willing to receive or accept to give up a good or service. Willingness to accept is the source of the supply price of a good. However, unlike supply price, in which sellers are on the spot of actually giving up a good to receive payment, willingness to accept does not require an actual exchange.

 Now that we have defined the key terms related to establishing values for goods and services we may begin to discuss further the concepts of willingness to pay (WTP) and willingness to accept (WTA) and their differences. Willingness to pay is different from willingness to accept, because with WTP you are considering your personal willingness to pay to receive a good or service. This could range from buying household appliances to entering a national park to experience the scenery -- it all depends on your WTP and the good or service you are attempting at acquiring. With WTA it is your personal willingness to accept a certain value to give up a good or service, and this could also range from giving up drinking coffee in response to the economic savings it generates to giving up driving a car in exchange for knowing the amount of carbon dioxide you are personally diverting from the atmosphere.

 With contingent valuation (CV) studies survey design is critical because it formulates the questions that the recipient is answering in regard to their personal valuation practices. This means that if a questionnaire for a CV is formulated wrong the resulting answers from a recipient will be skewed and the precise valuation for a good or service -- such as a forest being considered for resource exploitation -- will be lost to unpredictable data failure.

 In regard to ecological resources contingent valuation measures tend to have an upward bias, because of social factors associated with WTP and WTA. When an individual is surveyed to determine their WTP or WTA regarding an ecological resource, and its instrumental and non-instrumental values, an individual will be compelled due to social factors to value their WTP or WTA for the ecological resource as worth more. This results in an upward bias regarding the valuation of ecological resources causing most economists to speculate on the true value that is placed on ecological resources when bias is replaced with Keynesian economic supply and demand theory.

 In all the valuation of goods and services, specifically those of environmental resources, through contingent valuation studies with questions relating to willingness to pay and willingness to accept have established some value on ecological resources to protect them from the current growth and profit hungry economic system that has exploited our resources for too long. Now it is time for the next step in our systematic evolution, the establishment of a monetary-free economy perhaps, the study of environmental economics being accepted as mainstream, or something even more “radical” in the philosophical context. We can only hope our ignorance is lifted before we meet our untimely demise.

Thank you for your interest, please comment and subscribe.

Onward,

Hayden van Andel