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Income Elasticity of Willingness to Pay for Better Air Quality: Effect of a Private Environmental Substitute

Author

Listed:
  • Jie He
  • Yue He
  • Bing Zhang

Abstract

We use a nested constant elasticity of substitution utility function to introduce a private environmental substitute in a theoretical model. We find that a buyer’s income elasticity of willingness to pay (WTP) increases with the price of the substitute and decreases with income. A higher price and a lower income also discourage purchase of the substitute, reducing the proportion of buyers in population. We must therefore consider both dimensions when discussing societal mean WTP. An empirical check based on a contingent valuation survey confirms our theoretical findings. Projected income-WTP curves reveal inequality further reduces the mean WTP in the presence of private environmental substitutes.

Suggested Citation

  • Jie He & Yue He & Bing Zhang, 2024. "Income Elasticity of Willingness to Pay for Better Air Quality: Effect of a Private Environmental Substitute," Land Economics, University of Wisconsin Press, vol. 100(3), pages 505-525.
    • Handle: RePEc:uwp:landec:v:100:y:2024:i:3:p:505-525
    Note: DOI: https://doi.org/10.3368/le.100.3.022822-0018R2
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    File URL: http://le.uwpress.org/cgi/reprint/100/3/505
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    Cited by:

    1. Giovanni Bernardo & Pasquale Commendatore & Giovanni Fosco, 2024. "Revealing the Link Between Air Pollution and Internal Migration: Evidence from Italy," Discussion Papers 2024/312, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

    More about this item

    JEL classification:

    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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