Abstract
How willingness to pay for environmental quality changes as incomes rise is a central question in several areas of environmental economics. This paper explores both theoretically and empirically whether or not the willingness to pay (WTP) for pollution control varies with income. Our model indicates that the income elasticity of the marginal WTP for pollution reduction is only constant under very restrictive conditions. Our empirical analysis tests the null hypothesis that the elasticity of the WTP for pollution control with respect to income is constant, employing a multi-country contingent valuation study of eutrophication reduction in the Baltic Sea. Our findings reject this hypothesis, and estimate an income elasticity of the WTP for eutrophication control of 0.1–0.2 for low-income respondents and 0.6–0.7 for high-income respondents. Thus, our empirical results suggest that the elasticity is not constant but is always less than one. This has implications for how benefits transfer exercises, and for theoretical explanations of the environmental Kuznets curve.
| Original language | English |
|---|---|
| Pages (from-to) | 663-682 |
| Number of pages | 20 |
| Journal | Environmental and Resource Economics |
| Volume | 68 |
| Issue number | 3 |
| Early online date | 14 Jun 2016 |
| DOIs | |
| Publication status | Published - Nov 2017 |
Keywords
- Baltic Sea
- Benefits transfer
- Environmental Kuznets curve
- Eutrophication
- Income
- Elasticity of willingness to pay
- Non-market valuation
Access to Document
- Hanley_2016_E&RE_WillingnessToPay_CC
© The Author(s) 2016. Open Access. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.