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Willingness to pay for environmental quality: a theoretical problem and its implications

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  • Alberto Pench

Abstract

This paper demonstrates a case where theoretical measures of willingness to pay to secure a beneficial change in environmental quality (or in the available quantity of a public good) or to avoid an exactly opposite change are incorrect measure of maximum willingness to pay. The key requirement is that indifference curves are allowed to intersect the axis corresponding to environmental quality (or the public good with zero price) and the source of this theoretical flaw is that in spite of a zero marginal willingness to pay marginal utility for environmental quality (or for the public good) is strictly positive. In such cases the paper suggests that only correct measures are the corresponding willingness to accept for the opposite change.

Suggested Citation

  • Alberto Pench, 2012. "Willingness to pay for environmental quality: a theoretical problem and its implications," STUDI ECONOMICI, FrancoAngeli Editore, vol. 2012(108), pages 113-119.
    • Handle: RePEc:fan:steste:v:html10.3280/ste2012-108003
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    References listed on IDEAS

    as
    1. Randall, Alan & Stoll, John R, 1980. "Consumer's Surplus in Commodity Space," American Economic Review, American Economic Association, vol. 70(3), pages 449-455, June.
    2. Hanemann, W Michael, 1991. "Willingness to Pay and Willingness to Accept: How Much Can They Differ?," American Economic Review, American Economic Association, vol. 81(3), pages 635-647, June.
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    More about this item

    JEL classification:

    • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects

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