The Effect of Power Outages and Cheap Talk on Willingness to Pay to Reduce Outages

28 Pages Posted: 28 Jul 2009

See all articles by Fredrik Carlsson

Fredrik Carlsson

Goeteborg University - School of Economics & Commercial Law

Peter Martinsson

University of Gothenburg - Department of Economics and Statistics

Alpaslan Akay

IZA Institute of Labor Economics

Abstract

Using an open-ended contingent valuation survey, we analyze how (i) experience of a power outage due to one of the worst storms ever to hit Sweden and (ii) a cheap talk script affect respondents' WTP to avoid power outages. Experience significantly increases and a cheap talk script decreases the proportion of respondents with zero WTP. There is no significant effect in either case on stated WTP conditional on a positive WTP. The paper concludes with a discussion on the use of valuation studies shortly after the occurrence of an undesirable event.

Keywords: contingent valuation, cheap talk, experience, power outages

JEL Classification: C25, D12, Q41

Suggested Citation

Carlsson, Fredrik and Martinsson, Peter and Akay, Alpaslan, The Effect of Power Outages and Cheap Talk on Willingness to Pay to Reduce Outages. IZA Discussion Paper No. 4307, Available at SSRN: https://ssrn.com/abstract=1439160

Fredrik Carlsson (Contact Author)

Goeteborg University - School of Economics & Commercial Law ( email )

Box 640
SE 405 30 Goeteborg
Sweden
+46 31-773 4174 (Phone)
+46 31-773 1043 (Fax)

Peter Martinsson

University of Gothenburg - Department of Economics and Statistics ( email )

Box 640
Vasagatan 1, E-building, floor 5 & 6
Göteborg, 40530
Sweden

Alpaslan Akay

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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