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Incremental willingness to pay: a theoretical and empirical exposition

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Abstract

Applications of willingness to pay (WTP) have shown the difficultly to discriminate between various options. This reflects the problem of embedding in both its specific sense, of options being nested within one another, and its more general sense, whereby respondents cannot discriminate between close substitutes or between more-disparate rivals for the same budget. Furthermore, high proportions of reversals between WTP-value and simple preference based rankings of options are often highlighted. Although an incremental WTP approach was devised to encourage more differentiated answers and a higher degree of consistency among respondents, a theoretical basis for this approach has not been elucidated, and there is little evidence to show that this approach might indeed achieve greater consistency between explicit and implicit rankings inferred from WTP values. We address both these issues. Following our theoretical exposition, standard and incremental approaches were compared with explicit ranking in a study assessing preferences for different French emergency care services. 280 persons, representative of the French adult population, were interviewed. Half received the incremental version, the other half the standard version. Results suggest that the incremental approach provides a ranking of options fully in line with explicit ranking. The standard approach was reasonably consistent with explicit ranking but proved unable to differentiate between the five most preferred providers, as predicted by theory. Our findings suggest that the incremental approach provides results which can be used in priority-setting contexts.

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Notes

  1. In line with our empirical work, the theoretical section is devised based on health care goods. However it could be applied to any other types of goods (environment...).

  2. This choice was driven by the fact that the number of emergency and out-of-hours providers is much lower in rural areas.

  3. We bundled ranks 5 and 6 in order to have enough answers in this least preferred category. We also looked at rank 6th versus ranks 1–5 and the results are not qualitatively different from those displayed in Table 6.

  4. Note that the ordered probit model is run on a variable for which the preferred option is equal to one and the least preferred option is equal to 6. This is the reason why the signs of the coefficients differ between columns 1 and 2.

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Acknowledgments

We would like to acknowledge colleagues at the Joint Meeting of UK and French Health Economists, Aix en Provence, 11-13th January 2012, and, in particular, Stephen Birch of McMaster University. Although the term ‘marginal approach’ to contingent valuation was coined in earlier works of Donaldson and colleagues in the context of trying to get specific groups of patients involved in preference elicitation exercises to focus on differences between close substitutes, i.e. different ways of treating the same problem, Birch pointed out that the use of this term is problematic, in that it does not reflect the strict interpretation of the term ‘marginal’ in economic theory. Accordingly, we refer to the term ‘incremental’ to emphasize the continued focus of this method on the more general issue of differences between options. We also acknowledge support of Health Chair—a joint initiative by PSL, Université Paris-Dauphine, ENSAE, MGEN and ISTYA under the aegis of the Fondation du Risque (FDR).

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Correspondence to Karine Lamiraud.

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The research was approved by ethic committee at ESSEC Business School.

Appendices

Appendix 1: Possible amounts cited by the interviewer

5 euros

100 euros

10 euros

110 euros

20 euros

120 euros

30 euros

130 euros

40 euros

140 euros

50 euros

150 euros

60 euros

160 euros

70 euros

170 euros

80 euros

180 euros

90 euros

More than 180 euros

Appendix 2: Definition of fully consistent, partially consistent and inconsistent answers

Fully consistent answers, for a given provider, were those for which the explicit ranking was identical to the implied WTP ranking (e.g. SOS doctors were the second most preferred provider and values in monetary units were 60, 50, 30, 20, 40, 10 for respectively SAMU, SOS doctors, doctors on duty, ambulance/firemen, hospital emergency units, outpatient emergency centres. This means that SOS doctors were also ranked second, based on the ranking derived from WTP values).

Partially consistent answers for a given provider are those for which the explicit ranking did not exactly match the implied WTP ranking, but which could not be defined as inconsistent (e.g. explicit ranking ranked SAMU/SMUR as the fourth most preferred provider. Values in monetary units were 10, 10, 0, 10, 10, and 10 for, respectively, SAMU/SMUR, SOS doctors, doctors on duty, ambulance/firemen, hospital emergency units and outpatient emergency centres. Here the WTP values found suggest that SAMU/SMUR belongs to one of the five equally most preferred options. This is not inconsistent with the explicit ranking which ranked SAMU/SMUR as the fourth most preferred option. For some reason, the WTP questions did not provide differentiated answers between the most preferred options).

Inconsistent answers refer to all other cases, i.e. to rankings that are neither fully consistent nor partially inconsistent for a given provider (e.g explicit ranking ranked SAMU/SMUR as the first most preferred option. Values in monetary units were 80, 60, 30, 40, 90, and 20 for, respectively, SAMU/SMUR, SOS doctors, doctors on duty, ambulance/firemen, hospital emergency units and outpatient emergency centres. Hence monetary values suggest that SAMU/SMUR is ranked second after hospital emergency units, which is inconsistent with the explicit ranking).

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Lamiraud, K., Oxoby, R. & Donaldson, C. Incremental willingness to pay: a theoretical and empirical exposition. Theory Decis 80, 101–123 (2016). https://doi.org/10.1007/s11238-014-9480-x

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