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Estimating Willingness to Pay with Exaggeration Bias-Corrected Contingent Valuation Method

Department of Economics, Dongduk Women's University, Sungbuk-Gu, Seoul 136-714, Korea
Department of Marketing and International Business, Michael G. Foster School of Business, University of Washington, Seattle, Washington 98195
jpark{at}dongduk.ac.kr
macl{at}u.washington.edu

Estimates of the prices customers are willing to pay for new products or services using responses from survey questionnaires are notoriously biased on the high side. An approach to obtaining more realistic estimates is suggested here, called the exaggeration bias-corrected contingent valuation method (EBC-CVM). The method is an alternative to conventional contingent valuation methods (CVMs) that have been used in economics and, to a lesser extent, in marketing. Two experiments and one field study are presented to demonstrate the effectiveness of the method. In each case, the proposed method outperformed conventional CVMs in comparison with real choices or more realistic price estimates.

Key Words: willingness to pay; contingent valuation method; exaggeration bias; new product pricing
History: Received: February 15, 2007;