UCL Research Papers

A Structural Theory of the Willingness-to-Pay Gap: Valuation and Behaviour in Climate Mitigation

Author

• • Mr Haochen Ni zctphni@ucl.ac.uk Email Mr Haochen Ni. (compose email, opens in email app.)

Abstract

This paper offers a structural, micro-founded interpretation of the divergence between stated and behavioural willingness to pay (WTP) for climate mitigation. While the value-action gap is commonly attributed to hypothetical bias or behavioural distortions, we show that it can arise endogenously even under fully rational behaviour. The key insight is that welfare-based WTP, defined as compensating variation, is characterised by a level condition on utility, whereas behavioural WTP is determined by marginal conditions within an optimisation problem. Embedding both objects within a unified framework, we show that a wedge between the two measures arises generically, except under knife-edge conditions. We further introduce equilibrium feedback to capture the hypothetical nature of survey environments and analyse the role of observability in shaping behavioural incentives. Finally, we discuss SCC models, cheap talk, and empirical testing as extensions and implications of the framework.

Keywords: Willingness to pay, Compensating variation, Behavioural optimisation, Public goods, Environmental economics, Social image, Value-action gap

How to Cite: Ni, H. (2026) “A Structural Theory of the Willingness-to-Pay Gap: Valuation and Behaviour in Climate Mitigation”, UCL Journal of Economics. 5(1). doi: https://doi.org/10.14324/111.444.2755-0877.2238