Chapter 12: Cost–benefit analysis and willingness to pay
Willingness to pay is at the core of CBA and in this chapter we explain why this is so. Willingness to pay should be used when consumer sovereignty holds. Consumer sovereignty requires rationality and full information. When we explain the principles of WTP, and discuss applications, we will do so with the requirements of consumer sovereignty explicitly in mind. In the introduction we start by affirming how WTP relies on consumer sovereignty and present the welfare economic base to WTP in CBA. We then go on to review some of the main methods for valuing WTP. Because WTP is constructed differently for some health care goods that are public goods, this difference needs explaining. Section 12.2 examines in detail the role of consumer sovereignty in WTP and CBA. Section 12.3 compares and contrasts WTP with WTA, willingness to accept. Section 12.4 deals with the special case where WTP is being used in the context of rationing by time rather than by price. The applications section highlights the many considerations that need to be understood when using WTP for health care CBAs.
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