July 2009

IZA DP No. 4307: The Effect of Power Outages and Cheap Talk on Willingness to Pay to Reduce Outages

revised version published in: Energy Economics, 2011, 33 (5), 790 - 798

Using an open-ended contingent valuation survey, we analyze how (i) experience of a power outage due to one of the worst storms ever to hit Sweden and (ii) a cheap talk script affect respondents' WTP to avoid power outages. Experience significantly increases and a cheap talk script decreases the proportion of respondents with zero WTP. There is no significant effect in either case on stated WTP conditional on a positive WTP. The paper concludes with a discussion on the use of valuation studies shortly after the occurrence of an undesirable event.