Willingness-to-Pay and Demand Curves: A Comparison of Results Obtained Using Different Elicitation Formats
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Willingness-to-Pay and Demand Curves: A Comparison of Results Obtained Using Different Elicitation Formats DAVID K. WHYNES∗
[email protected]
Health Economics, School of Economics, University of Nottingham
EMMA J. FREW Health Economics Facility, University of Birmingham
JANE L. WOLSTENHOLME† Health Economics Research Centre, University of Oxford
Health economists use “willingness-to-pay” to assess the prospective value of novel interventions. The technique remains controversial, not least with respect to the formats under which values are elicited. The paper analyses the results of a series of studies of the same intervention valued by the same population, in which different elicitation formats were employed. The findings support the hypothesis that data collected using different formats give rise to different demand curves, from which different inferences about demand elasticity, profitability and consumer surplus will be derived. Judgements as to the relative merits of rival interventions depend crucially upon whichever format has been used to evaluate each intervention. Keywords: consumer surplus, demand, market research, valuation, optimal pricing, willingness to pay JEL classification: D12, I10
Introduction The use of the willingness-to-pay (WTP) technique as a means of evaluating health care technologies has been increasing. The reasons are not difficult to identify. The technique is conceptually-simple and intuitive, even if not always easy to undertake, and its theoretical ∗ Address correspondence to: Professor DK Whynes, School of Economics, University of Nottingham, Nottingham NG7 2RD, United Kingdom. Tel: 0115 951 5463; FAX: 0115 951 4159 † This research was undertaken as a part of the UK Flexible Sigmoidoscopy Screening Trial, funded by Cancer Research UK, the UK Medical Research Council, NHS R&D and Keymed Ltd. None of the funding bodies had any involvement in the writing of this paper or in the decision to submit it for publication.
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foundations can be located in conventional economic theory (Birch and Donaldson, 2003). As WTP values benefits in monetary terms, outcomes are comparable across all technologies and are directly commensurate with costs. By way of precedent, environmental economists have already found the approach helpful in quantifying gains and losses in circumstances where, for whatever reason, market prices cannot be assigned to economic activities (Mitchell and Carson, 1989). The WTP technique requires each of its subjects to respond to a hypothetical, conditional question—in essence, what is the maximum amount you would be willing to pay to access a new intervention, were it to become available? Such a question is intended to elicit a monetary valuation of the merit, worth or benefit which each subject associates with the specific intervention under consideration. Actual market exchange would itself be governed by a similar calculus. In a market, the individual makes a purchasing decision based on the relationship between the preva
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