Resource title

Endowment effect theory and the Samuelson solution – a thought experiment

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Resource description

Thaler (1980) employs prospect theory to explain the endowment effect, i.e. the empirically observed disparity between the willingness to pay for a certain good (WTP) and the willingness to accept retribution payments in exchange for giving up this good (WTA). This disparity is caused either by the disutility from parting with one?s endowment and/or by an extra utility from ownership which is not anticipated by individuals who are not endowed with the good. These effects may not apply to public goods because consumers are not given exclusive property rights. The graphical tools introduced by Samuelson (1954) are applied to show how these effects influence the allocation of resources among private and public goods. An inefficient allocation only occurs if the ownership utility effect applies to one good but not to the other.

Resource author

Ivo Bischoff

Resource publisher

Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/22384

Resource license

Adapt according to the presented license agreement and reference the original author.