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What do income tests tell us about the gap between WTA and WTP for public goods?

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  • Amiran, Edoh Y.
  • Hagen, Daniel A.

Abstract

Theory relates the gap between WTA (willingness to accept compensation) and WTP (willingness to pay) to the income elasticity of WTP. It has been suggested that empirical estimates of the income elasticity of WTP can therefore be used to test whether an observed gap between WTA and WTP is consistent with rational behavior. We examine this issue for the case of non-market public goods. We identify the theoretically appropriate tests of income sensitivity, and examine conditions for valid income sensitivity tests. We show that income tests may provide false signals in common settings, indicating an inconsistency where none exists.

Suggested Citation

  • Amiran, Edoh Y. & Hagen, Daniel A., 2018. "What do income tests tell us about the gap between WTA and WTP for public goods?," Journal of Environmental Economics and Management, Elsevier, vol. 90(C), pages 134-146.
    • Handle: RePEc:eee:jeeman:v:90:y:2018:i:c:p:134-146
    DOI: 10.1016/j.jeem.2018.05.001
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    More about this item

    Keywords

    Willingness to pay; Willingness to accept; Public goods; Income effects;
    All these keywords.

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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