EMBEDDING AND SUBSTITUTION INWILLINGNESS TO PAY

The embedding effect has frequently been observed in willingness to pay (WTP) studies.Since policy implications of valuation studies can be very sensitive to the composition of thepackage being valued, respondents’ apparent insensitivity to such fundamental characteristicssuggests that it is inappropriate to use the WTP method to evaluate existing or potentialtargets of public expenditure. This paper presents a model explaining that responsesexhibiting embedding, while seemingly inconsistent, still conform to economic theory...