Cost of Public Goods Affects Willingness to Pay for Them

Abstract

We provided information about costs and benefits of public goods, mostly forms of risk reduction. Judgments of willingness to pay (WTP) for the goods was affected by cost as well as benefit, even when subjects judged the benefit to be unaffected by cost. Cost information affected WTP when it took the form of estimated cost or when it was simply implied by past expenditures or by descriptions of how a good would be provided. Cost affected WTP both when each subject judged two cases varying only in cost and when each subject judged only a single cost version of each case. The results can be understood as overextension of a somewhat useful heuristic: things that cost more often yield more benefit. The findings suggest that contingent valuation methods may be improved by eliminating information from which costs could be inferred, so that respondents can focus more easily on benefits alone.

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