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Does the WTA/WTP ratio diminish as the severity of a health complaint is reduced? Testing for smoothness of the underlying utility of wealth function
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Chilton, Susan, Jones-Lee, Michael, McDonald, Rebecca and Metcalf, Hugh (2012) Does the WTA/WTP ratio diminish as the severity of a health complaint is reduced? Testing for smoothness of the underlying utility of wealth function. Journal of Risk and Uncertainty, Volume 45 (Number 1). pp. 1-24. doi:10.1007/s11166-012-9145-5 ISSN 0895-5646.
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Official URL: http://dx.doi.org/10.1007/s11166-012-9145-5
Abstract
The aim of the study reported in this paper is to test the hypothesis that individual utility of wealth functions may violate the assumption of smoothness that underpins the standard analysis of the Value of Statistical Life (VSL) and safety. In order to do so we examine the way in which the Willingness to Accept/Willingness to Pay (WTA/WTP) ratio varies as the severity of a health complaint is reduced. We find that as the severity of the health effect is reduced, the WTA/WTP ratio converges across the sample and tends to a level that does not significantly exceed unity. While we acknowledge that this does not constitute conclusive evidence of smoothness, it does suggest that the case in favour of the assumption that individual utility of wealth functions tend to display a kink at the current level of wealth is less than wholly persuasive.
| Item Type: | Journal Article | ||||||
|---|---|---|---|---|---|---|---|
| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||
| Journal or Publication Title: | Journal of Risk and Uncertainty | ||||||
| Publisher: | Springer New York LLC | ||||||
| ISSN: | 0895-5646 | ||||||
| Official Date: | August 2012 | ||||||
| Dates: |
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| Volume: | Volume 45 | ||||||
| Number: | Number 1 | ||||||
| Page Range: | pp. 1-24 | ||||||
| DOI: | 10.1007/s11166-012-9145-5 | ||||||
| Status: | Peer Reviewed | ||||||
| Publication Status: | Published | ||||||
| Access rights to Published version: | Restricted or Subscription Access |
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