A Note on the WTA vs. WTP Choice of Measure

The monetary value of a loss is conceptually best measured by the minimum sum people require to accept it, willingness to accept (WTA), yet analysts routinely substitute the maximum amount people are willing to pay (WTP) to avoid it. This substitution has long been justified by the assumption that WTA and WTP are approximately equivalent. Decades of empirical evidence now decisively refute that assumption: WTA systematically and substantially exceeds WTP, a divergence rooted in the asymmetric structure of reference-dependent preferences. Continued reliance on WTP therefore leads to a serious understatement of the value of losses, biasing policy responses toward inadequate protection. We illustrate these consequences using the prominent valuation of the 2010 BP Deepwater Horizon oil spill.