Willingness-To-Accept Versus Willingness-To-Pay Measures of Value: Implications for Rent Control, Eminent Domain, and Zoning

Recent work suggests that individuals'willingness-to-accept (WA) measures of value differ from their willingness-to-pay (WP) measures of value. This divergence has been attributed to some combination of wealth and "endowment" effects. Because WA is always higher than WP, market-supported distributions across individuals that are efficient based on the WP criterion may not be efficient when using a WA criterion. The purpose of this article is to offer a positive explanation, one based on a WA measure of value, for government intervention in land-use situations. The authors achieve this with simple analysis that looks at both the divergences between a given individual's WA and WP measure of value and the different WA valuations across individuals. Significantly, they find instances in which government intervention with no efficiency basis under a WP efficiency criterion may be efficient if the standard is changed to a WA-based efficiency criterion instead.