DP16917 Reflective Willingness to Pay: Preferences for Sustainable Consumption in a Consumer Welfare Analysis

Author(s): Roman Inderst, Stefan Thomas
Publication Date: January 2022
Keyword(s): Antitrust, consumer welfare, sustainability
JEL(s): A13, K21, K32
Programme Areas: Macroeconomics and Growth
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16917

Our starting point is the following simple but potentially underappreciated observation: When assessing willingness to pay (WTP) for hedonic features of a product, the results of such measurement are influenced by the context in which the consumer makes her real or hypothetical choice or in which the questions to which she replies are set (such as in a contingent valuation analysis). This observation is of particular relevance when WTP regards sustainability, the 'non-use value' of which does not derive from a direct (physical) sensation and where perceived benefits depend heavily on available information and deliberations. The recognition of such context sensitivity paves the way for a broader conception of consumer welfare (CW), and our proposed standard of 'reflective WTP' may materially change the scope for private market initiatives with regards to sustainability, while keeping the analytical framework within the realm of the CW paradigm. In terms of practical implications, we argue, for instance, that actual purchasing decisions may prove insufficient to measure consumer appreciation of sustainability, as they may rather echo learnt but unreflected heuristics and may be subject to the specific shopping context, such as heavy price promotions. Also, while preferences may reflect the current social norm, the latter may change considerably over time as more consumers adapt their behaviour.