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38 Yale J. on Reg. 503 (2021)
Willingness to Pay: A Welfarist Reassessment

handle is hein.journals/yjor38 and id is 503 raw text is: Willingness to Pay: A Welfarist Reassessment Oren Bar-Gillt From a welfarist perspective, willingness to pay (WTP) is relevant only as a proxy for individual preferences or utilities. Much of the criticism levied against the WTP criterion can be understood as saying that WTPis a bad proxy for utility, or that WTP contains limited information about preferences. Specifically, critics of WTP claim wealth effects prevent it from serving as a good proxy for utility. Iformalize and extend this critique by developing a methodology for quantifying the informational content of WTP. The informational content of WTP depends on how WTPis measured and applied First, I distinguish between two types ofpolicies: (i) policies that are not paid for by the individuals they affect and (ii) policies that are paid for by the individuals they affect. Second, I distinguish between two types of WTPmeasures: (i) individualized WTP and (ii) uniform, average WTP (like the value of a statistical life). When the cost of the policy is not borne by the affected individuals, individualized WTP has low informa- tional content and increases wealth disparity. Uniform, average WTP has higher informational content and reduces wealth disparity, at least in the case of universal benefits. Therefore, when possible, a uniform, average WTP should be preferred in this scenario. When the cost of the policy is borne by the affected individuals, individualized WTP has high informa- tional content but increases wealth disparity. Uniform, average WTP has lower informational content and indeterminate distributionalimplications. Here, the choice between individualized WTP and uniform, average WTP is more difficult. I briefly consider two extensions. The first involves time. I present a dynamic extension of the relationship between the informational content of WTP and the wealth distribution. The second extension emphasizes the effect of forward-looking rationality on the WTP measure. The question of rationality raises additional concerns about WTP-based policymaking. f William J. Friedman and Alicia Townsend Friedman Professor of Law and Economics, Harvard Law School. For helpful comments and discussions, I thank Matthew Adler, Jennifer Arlen, Lucian Bebchuk, Hanoch Dagan, Avihay Dorfman, Jeffrey Gordon, Duncan Kennedy, Lewis Kornhauser, Roy Kreitner, Ariel Porat, seminar participants at Tel Aviv University, and participants at the New Challenges for Law and Economics conference hosted by the Center for Contract and Economic Organization at Columbia Law School and the Edmond J. Safra Cen- ter for Ethics at Tel Aviv University. I am especially grateful to Cass Sunstein for numerous, in- sightful exchanges on the use of willingness to pay in policymaking and for extensive, constructive comments on earlier drafts. 503

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