Is the income elasticity of the willingness to pay for pollution control constant?

Edward B. Barbier, Mikołaj Czajkowski, Nick Hanley

    Research output: Contribution to journalArticlepeer-review

    26 Citations (Scopus)

    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 languageEnglish
    Pages (from-to)663-682
    Number of pages20
    JournalEnvironmental and Resource Economics
    Volume68
    Issue number3
    Early online date14 Jun 2016
    DOIs
    Publication statusPublished - Nov 2017

    Keywords

    • Baltic Sea
    • Benefits transfer
    • Environmental Kuznets curve
    • Eutrophication
    • Income
    • Elasticity of willingness to pay
    • Non-market valuation

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