Incremental willingness to pay: a theoretical and empirical exposition
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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.
KeywordsWTP Contingent valuation Reference points Embedding effect Incremental approach Emergency care
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).
Compliance with ethical standards
Conflict of interest
There are no potential conflict of interest.
The research was approved by ethic committee at ESSEC Business School.
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