Why rational agents report zero or negative WTPs in valuation experiments

Abstract

In surveys of the willingness-to-pay for different policies, typically there are responses that are classified as protest responses. Such responses appear to defy efforts to address the issue through best practice in the design and testing of survey instruments. The general impression from the literature is that the predominant approach to identifying and handling outliers, including protest responses, is by econometric techniques. In contrast, in this paper we focus on a simple theoretical model of agents equipped with well-behaved (textbook) preferences. The model is used to identify one type of responses that, at first glance, might be characterized as protest responses or possibly as scenario rejection. The novel explanation of the, in fact, perfectly rational behaviour relates to the total tax burden faced by a respondent. A possibly provocative finding is that the agent is searching for the constrained optimum while the survey-designer, intentionally or unintentionally, is trying to induce/convince the agent to value a second-best option. In particular, we don’t have to turn to behavioural economics, i.e. question rational choice theory, to arrive at a plausible theoretical explanation of what could be taken for protest responses.