When Stated Cost is Higher than Willingness to Pay

Theory dictates that willingness to pay to avoid an electricity outage should be at least as high as the direct cost incurred during the outage. In a contingent valuation survey of 4,000 Norwegian households, we estimate the willingness to pay to avoid an electricity outage. We ask the same individuals about their expected monetary cost related to the outage. More than half of respondents state that their cost is higher than their willingness to pay. Lack of information and deliberation cannot by itself explain the finding. Instead, it seems to be explained by individuals who incorporate probability in their willingness to pay response, and by individuals who do not relate the economic costs to the practice of coping with the outage