The role of social perceptions on willingness-to-pay for innovations

Abstract

Innovations might be catalysts for societal progress, driving economic growth, and elevating living standards. By estimating willingness-to-pay (WTP), we can gain insight into the extent to which individuals are willing to adopt innovations. WTP studies so far have estimated individual WTP (WTP_I), which refers to the amount individuals are willing to pay for an innovation. We argue that adoption is likely also affected by an individual’s perception of how much others are willing to pay, thus setting the standard, which we refer to as others’ WTP (WTP_O). WTP_O can affect WTP_I, as people may think this is a sensible amount to pay for an innovation (cf. follow social norms). At the same time, WTP_I can influence WTP_O, because when individuals are not sure about what others prefer, they may rely on their own preference as a proxy. Hence, WTP_I and WTP_O are likely to mutually influence each other. Yet, studies have not considered the role of WTP_O. We extend the literature by also accounting for WTP_O in the estimation of WTP. As a case in point, we focus on WTP for automated vehicles (AVs). Results reveal that WTP_I and WTP_O positively influence each other. Further, we examined which factors affect WTP, and found that the overall WTP (i.e., the strength of the correlation between WTP_I and WTP_O) is higher among certain population segments, such as current electric vehicle users and people with a higher level of innovativeness. Interestingly, overall WTP is more strongly affected by WTP_O than WTP_I, indicating that the perception of how much others will be willing to pay may have a greater impact on the adoption likelihood of an innovation than the perception of our own willingness to pay.