What is Percentage Willingness To Pay?

An explanation of "Percentage Willingness to Pay" a method for measuring willingness to pay that is a more accurate way to measure underlying utility and a more just way to determine costs and benefits.

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Information for this video gathered from The Stanford Encyclopedia of Philosophy, The Internet Encyclopedia of Philosophy, The Cambridge Dictionary of Philosophy, The Oxford Dictionary of Philosophy, The Oxford Companion to Philosophy, The Routledge Encyclopedia of Philosophy, The Collier-MacMillan Encyclopedia of Philosophy, the Dictionary of Continental Philosophy, and more!

[-Milo]

I’m an economics and philosophy major, this topic is so relevant to all of the classes I am taking right now 👀

I am starting a project for my environment and resource economics class that is looking at how people being vegan leads to the economy being more efficient. Percentage willingness to pay is going to be something I will have to implement

[bennyandthejets]

Good summary. Very interesting thought to ponder. My first response is that in the case of the water bottle, it could be difficult to determine what the last water bottle is actually worth because both people could be dying of thirst and need it terribly. So the price could be jacked up infinitely if the two were bidding on it in theory (and the poor person is allowed to go into debt for it). Even if we allowed that the poor persons percentage value would be considered greater than the wealthy which means we would want to help the poor person first even though the poor person is willing to pay the same $ amount as the wealthy. So it biases towards poor people. I don’t like that the system has to bias one group or the other but I don’t know how to avoid it at the moment.

[Pfhorrest]

Called it back on the first video in this series 🙂

[InventiveHarvest]

Let's consider a single case of a public good. The market cannot provide true public goods because of their non-exclusionary nature. While people gain benefit from public goods (and hence have a WTP for them), they can free-ride, and not actually pay for them. Hence, provision of public goods could be a cause for intervention by government policy.

In this case, a municipality is considering a tax to pay for a park and playground that will be open to the public. The total cost for the project will be one million dollars. There are one hundred thousand people that will benefit from this and the tax will be distributed equally among them. Twenty thousand of those people make one hundred thousand dollars per year and have a AWTP of seven dollars each. The other eighty thousand people have an income of twenty thousand dollars and have a AWTP of eleven dollars each. Hence the total benefit to the city is one million two hundred thousand dollars. The %WTP of the first group is .007%. The %WTP of the second group is .055%.

Should the city charge the tax and complete the project?

[cliffordhodge]

This notion of the Percentage Willingness To Pay (PWTP) as a scale for comparing rich and poor seems too simple a basis for comparison. If you consider opportunity costs as a relevant consideration for willingness to pay (absolute dollars or percentage of wealth) it becomes apparent there is no special reason to think PWTP gives a meaningful comparison. Both persons may be willing to pay 10% of their wealth for something, but the expenditure of that 10% may mean the poor person must do without something quite valuable to him, while the rich person may not think much of spending the 10% even though the poor person values the purchased item much more highly. That is, the poor person's PWTP may be determined by his not even having enough total payment capability to acquire everything he considers extremely important. So 20% of the weekly income might buy healthy foods at the store, but giving up that percentage is not feasible, so the poor person will only spend 10% even though he considers healthy diet to be much more important than the somewhat richer person, who will also give 20%. If you consider more variables, PWTP seems pretty arbitrary as a measure of value.