Is the Income Elasticity of the Willingness to Pay for Pollution Control Constant?

Barbier, E.B. M. Czajkowski and N. Hanley. 2017. Environmental and Resource Economics 68:663-682.

Posted: 30 Jul 2018

See all articles by Edward B. Barbier

Edward B. Barbier

Colorado State University, Fort Collins - Department of Economics

Nick Hanley

University of Glasgow - Department of Economics

Michal Czajkowski

Independent

Date Written: July 8, 2018

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.

Keywords: Baltic Sea, Benefits Transfer, Environmental Kuznets Curve, Eutrophication, Income Elasticity Of Willingness To Pay, Non-Market Valuation

JEL Classification: Q51, Q53, Q56

Suggested Citation

Barbier, Edward B. and Hanley, Nick and Czajkowski, Michal, Is the Income Elasticity of the Willingness to Pay for Pollution Control Constant? (July 8, 2018). Barbier, E.B. M. Czajkowski and N. Hanley. 2017. Environmental and Resource Economics 68:663-682.. Available at SSRN: https://ssrn.com/abstract=3210354

Edward B. Barbier (Contact Author)

Colorado State University, Fort Collins - Department of Economics ( email )

Fort Collins, CO 80523-1771
United States

Nick Hanley

University of Glasgow - Department of Economics ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom
0141 330 4618 (Phone)
0141 330 4940 (Fax)

Michal Czajkowski

Independent ( email )

No Address Available

Register to save articles to
your library

Register

Paper statistics

Abstract Views
69
PlumX Metrics