Question

What are the advantages and disadvantages of using willingness to pay as a measure of value? What are some alternatives?

Answer 1

Advantages:

• Plays important role in cost benefit Analysis.
• Results in society's benefits.
• Provide information to private decision making firms.
• Analyses customer's desire.
• It influences estimates of customers valuation.

Disadvantages:

• Due to overestimation there will be considerable budget losses.
• Large difference between customers statement and actual behavior.
• Inconsistency between open ended and close ended choices.
• Other alternatives of willingness to pay can be defined for measurements and can be used in cost benefit Analysis.
• Another such alternative for showing willingness to pay is the range WTP which allows for preference uncertainty responses.

Hope this was helpful!