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Gain and Loss Domains and the Choice of Welfare Measure of Positive and Negative Changes

Published online by Cambridge University Press:  19 January 2015

Jack L. Knetsch ,
Yohanes E. Riyanto  and
Jichuan Zong
Jack L. Knetsch
Affiliation:
Simon Fraser University, Canada
Yohanes E. Riyanto
Affiliation:
Nanyang Technological University, Singapore
Jichuan Zong
Affiliation:
Dongbei University of Finance and Economics, China
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Abstract

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Mounting evidence continues to suggest that people value changes in terms of a neutral reference state and that those in the domain of losses are commonly valued far more than those in the gains. Consequently, both negative and positive changes in the domain of losses, including mitigation of losses such as restoring environmental quality and reducing accident rates, may be more accurately valued with the minimum acceptable-compensation (WTA) measure, those in the domain of gains are more accurate with the maximum willingness-to-pay (WTP) measure. Current practice, that assumes equivalence and that all positive changes are considered as gains, is therefore likely to often seriously mislead.

Keywords

gain and loss domainsvalue disparityreference statewillingness-to-paywillingness-to-acceptwelfare measurement

Information

Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 3 , Issue 4 , 17 December 2012 , pp. 1 - 18
Copyright
Copyright © Society for Benefit-Cost Analysis 2012

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