Abstract
This paper extends the linear utility model commonly used for estimating the willingness to pay for non-market goods to a non-linear model with decreasing marginal utility. The proposed approach relaxes the assumption of constant rate of substitution between income and non-market commodities, an assumption which can be especially restrictive in cases when the non-market good is a luxury commodity or a new good whose benefits are not completely known. The adopted non-linear formulation can therefore accommodate risk-averse behavior with respect to nonmarket goods particularly when the non-market attributes are measured by discrete variables. The proposed models have been applied to data from a choice experiment for energy efficiency measures in apartment buildings. The econometric specification is based on a fixed-effect logit model. The results suggest that ignoring consumers’ risk-aversion toward new non-market goods could lead to an underestimation of the marginal willingness to pay. However, consistent with previous studies the non-linear effect of income does not have a considerable effect on the estimation results. Show more
Publication status
publishedExternal links
Journal / series
CEPE Working PaperVolume
(55)Pages / Article No.
Publisher
Swiss Federal Institute of Technology, CEPE - Centre for Energy Policy and EconomicsSubject
choice experiment; willingness to pay; risk aversion; energy efficiency; housing JEL classification: Q51; C25; D12; C91Organisational unit
03539 - Filippini, Massimo / Filippini, Massimo
03539 - Filippini, Massimo / Filippini, Massimo
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