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Willingness to pay and size of health benefit: an integrated model to test for ‘sensitivity to scale’
Author(s) -
Yeung Raymond Y.T.,
Smith Richard D.,
McGhee Sarah M.
Publication year - 2003
Publication title -
health economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.55
H-Index - 109
eISSN - 1099-1050
pISSN - 1057-9230
DOI - 10.1002/hec.786
Subject(s) - econometrics , willingness to pay , sample size determination , scale (ratio) , sensitivity (control systems) , scope (computer science) , sample (material) , statistics , statistical hypothesis testing , external validity , economics , computer science , mathematics , microeconomics , engineering , geography , programming language , chemistry , cartography , chromatography , electronic engineering
A key theoretical prediction concerning willingness to pay is that it is positively correlated with benefit size and is assessed by testing the ‘sensitivity to scale (scope)’. ‘External’ (between‐sample) sensitivity tests are usually regarded as less powerful than ‘internal’ (within‐subject) tests. However, the latter may suffer from ‘anchoring’ effects. This paper studies the statistical power of these tests by questioning the distributional assumption of empirical data. We present an integrated model to capture both internal and external variations, while controlling for sample heterogeneity, applied to data from a survey estimating the value of reducing symptom‐days. Results indicate that once data is properly transformed, WTP becomes ‘scale sensitive’ and consistent with diminishing marginal utility theory. Copyright © 2003 John Wiley & Sons, Ltd.