An Experimental Study on the Gap between Willingness to Pay and Willingness to Donate for Green Electricity

Abstract

Abstract.According to Champ et al. (1997), we have to differentiate between willingness to pay (WTP) and willingness to donate (WTD) in eliciting individual preferences for public goods. Because strong incentives exist to understate the willingness to spend on the public good and to freeride on other people's contributions, WTP forms the upper limit for WTD. This paper presents an experimental study on the size of the gap between WTP and WTD in the context of green electricity promotion, where making electricity markets ''greener'' can be interpreted contributing to the public good "environmental quality". Our theoretical model is based on the impure public good model Sandler, 1984, 1994). It enables us to directly investigate the extent of free-riding in the sample. In the individual-choice scenario, subjects are induced to act as market participants and thereby reveal their WTP, while the public-choice scenario is designed as a majority vote on the preferred level of green electricity. Since free-riding is impossible, the latter treatment reveals subjects' WTD. The data analysis reveals a strong treatment effect concerning the decision mode: under the public choice treatments, participants were willing to pay about three times higher contributions to green electricity than under the individual choice treatments. This observation highlights the large extent of free-riding in the private provision of the public good "environmental quality".

Revealed Preferences for Climate Protection when the Purely Individual Perspective is Relaxed - Evidence from a Framed Field Experiment

“…21 The free riding effect in BASE is therefore significant and leads to a 32% lower WTP relative to COLL. Compared to the results from Menges and Traub (2009), who find that the WTP is three times higher in a public choice treatment, our free riding effect is relatively small. Comparing the expected with the actual quantities in Table 8, it can be seen that average expectations are usually higher than actual demand, except for COLL.…”

“…This result provides further evidence for the free riding reduction through collective decision making, which was also observed by Menges and Traub (2009) for the case of provision of green electricity.…”

“…This advantage, however, is accompanied with a significant drawback in that it seems impossible to implement the appropriate "real" collective action frame. In companion with other studies, such as Menges and Traub (2009), this experiment has demonstrated that the demand for public goods depends upon the implemented collective action or inaction frame. Hence, we are still some distance away from claiming that our approach gives the "true" demand or WTP for climate protection.…”

“…Furthermore, he reports that stated preference responses are strongly correlated with expectations for the WTP of others. Menges and Traub (2009) investigate individual preferences for green electricity under alternative payment vehicles; an individual-choice treatment where subjects act as market participants and a public-choice treatment where the level of green electricity consumed by all subjects was determined by a majority vote. They report a strong treatment effect which highlights the large extent of free riding in the private provision of the public good green electricity.…”

“…Cherry 2001, Cherry et al 2002, it was emphasised in the initial letter that 5 Some studies (Champ et al 1997, Wiser 2007, Menges and Traub 2009) distinguish between the notion of willingness-to-pay (WTP) under a public-choice decision design where free riding is prevented and the lower willingness-to-donate (WTD) under an individual-choice design where free riding incentives will prevent (most) attendants to state their true WTP. In this paper, however, we stick to the WTP notion since the existing literature on the valuation of climate protection usually refers to WTP.…”