Effect of Future Availability of Information on Willingness to Pay, The
December 2001 [01-WP 290]
Corrigan, J. 2001. "Effect of Future Availability of Information on Willingness to Pay, The." Working paper 01-WP 290. Center for Agricultural and Rural Development, Iowa State University.
This paper analyzes the effect that potential future availability of information has on willingness to pay in a contingent market characterized by uncertainty and irreversibility. In particular, I test whether the effect is consistent with the predictions of Zhao and Kling's (forthcoming) theory of commitment cost. The analysis is performed using the results of a contingent valuation study designed to estimate the degree to which local residents value improved water quality in Clear Lake, a spring-fed, glacial lake located in north-central Iowa. The results show that willingness to pay is highly sensitive to the potential for future learning. Offering survey respondents the opportunity to delay their purchasing decision until more information is available led to a significant decrease in willingness to pay. This suggests that contingent valuation practitioners must take care to accurately represent the potential for future learning or else risk biased valuation estimates.