Welfare Impact of Information with Experiments: The Crucial Role of the Price Elasticity of Demand

Abstract

This paper focuses on the welfare effects of information computed from experimental methods eliciting willingness-to-pay. First, a theoretical model shows that the size of the welfare variation is related to the elasticity of the demand under the absence of information about a characteristic. Second, our estimates indicate that consumer demand from a laboratory auction is more price-elastic than time-series demand for similar products. As a result, the welfare change directly derived from individual willingness-to-pay is overestimated compared to the welfare change linked to an approach combining time-series demand with the mean willingness-to-pay premium.Experiment, Welfare, Consumers, Information, Demand