Willingness-To-Pay vs. Willingness-To-Accept: Legal and Economic Implications,

Do people value commodities more when they own the commodities than when they do not? Although economic models generally presume that economic agents evaluate commodities independently of whether the agents own those commodities--the "basic independence" assumptionresearchers in economics and law are starting to doubt whether this assumption is true. Doubts about the soundness of the basic independence assumption challenge accepted economic doctrines. Most theoretical and applied models in economics use the basic independence assumption both to predict and to assess the operation of markets. In the relatively new discipline that combines law and economics, the basic independence assumption produces the Coase Theorem, which is the starting point for much economic analysis of legal rules. This Article presents, organizes, and critiques the modem evidence on the basic independence assumption, drawing together the learning of economists and lawyers. The Article first investigates evidence on the divergence between willingness to accept ("WTA") and willingness to pay ("WTP") measures of value and possible explanations for this evidence. Next, the Article explores the implications of the divergence for analysis in law and economics. Finally, the Article shows that although the divergence between willingness to accept and willingness to pay measures of value may entail a substantial limitation on the role of * Professor of Economics and Associate Dean, Karl Eller Graduate School of Management, University of Arizona. ** William T. Dalessi Professor of Law, University of Southern California Law Center and Professor of Law and Social Science, Division of Social Sciences, California Institute of Technology. We acknowledge the valuable assistance of Brian R. Binger, Linda Cohen, Richard Craswell, Daniel Kahnemann, Jack Knetsch, James Krier, William Landes, John Ledyard, Charles Plott, William Schulze, Vernon Smith, Amos Tversky, and participants at workshops on this paper at the University of Arizona College of Law and the George Mason University School of Law. We thank Bruce Drossman, Jeff Richardson and Chris O'Brien for research assistance. Washington University Open Scholarship 60 WASHINGTON UNIVERSITY LAW QUARTERLY cost/benefit analysis, the scope of those limits cannot be precisely determined without answering some difficult questions regarding the source of the disparity between WTA and WTP.