In section 14.4 we presented the “substitutability” argument as one of several candidate explanations for the persistently observed gap between willingness to pay and willingness to accept. Other explanations are described, for example, in Morrison (1998), Zhao and Kling (2001), Kolstad and Guzman (1999), and Plott and Zeiler (2005). Examine the WTP vs. WTA literature to complete the following:

(a) Describe the different conceptual explanations for the WTP/WTA gap. Which do you find most compelling?

(b) Briefly summarize the empirical and experimental evidence for the different explanations. Has the research converged to consensus explanation for the gap? Which explanation is leading?

Data from section 14.4

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Thus far in the chapter we have used WTP and WTA more or less interchangeably, having only noted with little elaboration that the choice of one or the other for applied welfare analysis has associated with it an implicit assumption on the distribution of property rights. For many environmental applications this distinction can matter in principle, since it determines (a) whether agents suffering the consequences of pollution are endowed with the right to demand pollution reduction or compensation for losses; or (b) they have no such right, and therefore must implicitly "buy" a reduction. The WTP versus WTA distinction therefore relates to the perennial ethical debate regarding the rights and responsibilities of polluters versus those suffering pollution's consequences. It can have practical ramification as well. For example, if the willingness to accept compensation by a neighborhood association for the development of adjacent open space is substantially larger than its willingness to pay to prevent development, the choice of measure may influence whether development or preservation