Effects of Experience, Knowledge and Signals on Willingness to Pay for a Public Good

Citation

LaRiviere J, Czajkowski M, Hanley N, Aanesen M, Falk-Peterson J & Tinch D (2014) Effects of Experience, Knowledge and Signals on Willingness to Pay for a Public Good [SEDP-2014-04]. Stirling Economics Discussion Paper, 2014-04.

Abstract
This paper compares how increases in experience versus increases in knowledge about a public good affect willingness to pay (WTP) for its provision. This is challenging because while consumers are often certain about their previous experiences with a good, they may be uncertain about the accuracy of their knowledge. We therefore design and conduct a field experiment in which treated subjects receive a precise and objective signal regarding their knowledge about a public good before estimating their WTP for it. Using data for two different public goods, we show qualitative equivalence of the effect of knowledge and experience on valuation for a public good. Surprisingly, though, we find that the causal effect of objective signals about the accuracy of a subject's knowledge for a public good can dramatically affect their valuation for it: treatment causes an increase of $150-$200 in WTP for well-informed individuals. We find no such effect for less informed subjects. Our results imply that WTP estimates for public goods are not only a function of true information states of the respondents but beliefs about those information states.

Keywords
Information; Beliefs; Field Experiment; Valuation; Uncertainty; Choice Experiment

JEL codes

• C93: Field Experiments
• Q51: Valuation of Environmental Effects
• D83: Search; Learning; Information and Knowledge; Communication; Belief; Unawareness