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Incentive compatibility in the field: a test of the Becker-De Groot-Marschak mechanism

By Jim Berry, Gregory Fischer and Raymond Guiteras

Abstract

This paper describes the field implementation and validation of the Becker‐DeGroot‐Marschak (BDM) (1964) mechanism to measure willingness to pay in the context of a point‐of‐use water treatment product in Ghana. BDM has the potential to provide precise data through which to study both screening and heterogeneous treatment effects, which are of central importance in understanding the optimal pricing and impact of health goods in the developing world. We validate BDM against valuations from a take it or leave it (TIOLI) offer in a true field setting, using sales of long‐lasting water filters to rural households in northern Ghana. We find that individuals systematically underbid in BDM relative to TIOLI. By this metric, BDM is not an accurate tool for eliciting willingness to pay. We find no evidence that these differences are driven by either anchoring to the TIOLI price or by strategic bidding on the part of respondents in the BDM treatment

Topics: HB Economic Theory
Year: 2010
OAI identifier: oai:eprints.lse.ac.uk:33535
Provided by: LSE Research Online
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