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Willingness to Pay
Willingness to pay (WTP) is the maximum amount of money an individual is willing to pay to ensure that a proposed service or good is available. Determining WTP through the contingent valuation method (CVM) is increasingly being used to generate information on the benefits of, and demand for, healthcare programs. The method is called contingent valuation because the respondent is asked to consider the contingency of a market existing for the thing being valued. The WTP could be for the availability of a resource to the individual (own use); for others, for example, poor people (altruism); needed by others or the individual in the future (option or nonuse); or a combination of any of these measures. CVM is accepted as a theoretically correct method to estimate the value of goods and services to consumers and provides the monetary measure of benefit in cost-benefit analysis.
Question Formats
There is still paucity of knowledge about the relative validity of WTP elicited using different CVM question formats. There are many CVM question formats for eliciting WTP, which in turn might determine the level of validity of elicited responses. The various question formats (or elicitation methods) for eliciting WTP include open-ended, the bidding game, payment cards (or categorical scales), dichotomous choice (binary, close-ended, take-it-or-leave-it), and the dichotomous with follow-through question formats. There are also variants of all these question formats. However, it is potentially better to use the question formats that are more context specific as this would yield more valid estimates. Some question formats have been developed to improve the realism of the WTP elicitation for the hopeful elicitation of more valid WTP estimates. Two CVM question formats that mimic market transactions (price taking) are the bidding game and the structured haggling technique, which are described below.
Bidding Game
The bidding game operates by the respondent being presented with an amount and asked whether he or she would be willing to pay that amount. However, depending on the response, the respondent is bid up or down using a predetermined bidding iteration until the maximum number of predetermined bidding iteration is reached. The final amount is open-ended and represents the maximum amount the respondent is willing to pay.
Structured Haggling
The structured haggling technique was developed to mimic the usual haggling price-taking characteristics in open markets (e.g., those found in southeast Nigeria). It is structured so that the steps are standardized for use by different interviewers in the same study. The seller or interviewer initiates the haggling process, by offering the good to the buyer at a price that is well above the expected sale price. This is to give adequate room for the respondent to bargain so that in the end the seller will end up selling at a price that is equal or more than the sale price of the net. As it does often happen, the buyers who feel that sellers normally inflate the first offer will say no to the first price offered. However, the price-naive ones may agree to the first offer, whereby the sale is effected and goods and money exchange hands. The structured haggling technique has an additional step where the respondent is asked his or her WTP in case the price of the good rises in the future due to unforeseen circumstances. This step is aimed at eliciting the maximum WTP. Hence, the final amount is also open-ended and represents the maximum amount the respondent is willing to pay.
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