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The Becker–DeGroot–Marschak method (BDM), named after Gordon M. Becker, Morris H. DeGroot and Jacob Marschak for the 1964 Behavioral Science paper, "Measuring Utility by a Single-Response Sequential Method" is an incentive-compatible procedure used in experimental economics to measure willingness to pay (WTP).
According to the constructed preference view, consumer willingness to pay is a context-sensitive construct; that is, a consumer's WTP for a product depends on the concrete decision context. For example, consumers tend to be willing to pay more for a soft drink in a luxury hotel resort in comparison to a beach bar or a local retail store.
Several methods exist to measure consumer willingness to accept payment. These methods can be differentiated by whether they measure consumers' hypothetical or actual willingness to accept, and whether they measure it directly or indirectly. Choice modelling techniques may be used to estimate the value of WTA through a choice experiment.
Contingent valuation surveys were first proposed in theory by S.V. Ciriacy-Wantrup (1947) as a method for eliciting market valuation of a non-market good.The first practical application of the technique was in 1963 when Robert K. Davis used surveys to estimate the value hunters and tourists placed on a particular wilderness area.
The term "option value" and its theoretical underpinnings as a non-user benefit were initially developed in 1964 by Burton Weisbrod. [12] It was posited as an element of benefit distinct from the traditional concept of consumer surplus, and it depended on three factors: (1) uncertainty about future need for the asset, (2) irreversibility or high cost of replacement if the asset is lost, and (3 ...
This method shows an emphasis for cost recovery and profit maximisation which tends to result in lower prices in commodities and/or lower quality of goods. [3] This method can be utilized successfully by a business when the following circumstances exist: [6] The firm is a monopoly or has a capable level of control over the pricing market.
The travel cost method of economic valuation, travel cost analysis, or Clawson method is a revealed preference method of economic valuation used in cost–benefit analysis to calculate the value of something that cannot be obtained through market prices (i.e. national parks, beaches, ecosystems).
An example of mental accounting is people's willingness to pay more for goods when using credit cards than if they are paying with cash. [1] This phenomenon is referred to as payment decoupling. Mental accounting (or psychological accounting ) is a model of consumer behaviour developed by Richard Thaler that attempts to describe the process ...