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Two explanations to the willingness to accept and willingness to pay gap plus an alternative

Beja Jr, Edsel (2012): Two explanations to the willingness to accept and willingness to pay gap plus an alternative.

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Abstract

The gap between the willingness to accept and willingness to pay is the outcome of incomplete valuation. The problem therefore is more about completing the valuation procedure. The first part of the solution involves two items: one is the inclusion of the direct and indirect income effects and the other is the inclusion of the substitution effect between the numeraire good (i.e., income) and the good under consideration. The second part of the solution concerns the respective hedonic content of income, the good, and the setting. These two explanations point to a third solution that puts the setting together with the income and substitution effects.

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