ENVIRONMENTAL-POLICY IMPLICATIONS OF DISPARITIES BETWEEN WILLINGNESS TO PAY AND COMPENSATION DEMANDED MEASURES OF VALUES

Like most economic analyses, environmental loss assessments and policy prescriptions are based on the assumption that, income effects aside, willingness-to-pay and compensation-demanded valuations will be equivalent. The accumulating evidence from controlled tests indicates, however, that the compensation measure is commonly far larger than the payment measure. Consequently, it is likely that, among other implications, losses are understated, standards are set at inappropriate levels, policy selections are biased, too many environmentally degrading activities are encouraged, and too few mitigation efforts are undertaken. © 1990.