Income inequality and willingness to pay for environmental public goods

We study how the distribution of income among members of society, and income inequality in particular, affects social willingness to pay (WTP) for environmental public goods. We find that social WTP for environmental goods decreases (increases) with income inequality if and only if environmental goods and manufactured goods are substitutes (complements). We derive adjustment factors for benefit transfer to control for differences in income distributions between a study site and a policy site. For illustration, we quantify how social WTP for environmental public goods depends on the respective income distributions for empirical case studies in Sweden and the World at large. We find that the adjustment for income inequality can be substantial.     

Valuing nature in a general equilibrium

We explore the consequences of modeling the demand for environmental quality improvements as a fully integrated part of a general equilibrium demand system in an applied general equilibrium (or CGE) analysis. Demand for non-market goods depends on a full range of relative prices as well as environmental outcomes. We simulate the effects of reducing two air pollutants to improve human health and three ecosystem services provided to households. The ecosystem services make non-separable contributions to household utility. We find that willingness to pay measures of use-based ecosystem services are impacted by changes in demand for complementary market goods. Demand for these goods shifts due to pollution reductions that enhance ecosystem services. Partial equilibrium estimates of these use values can be measured with substantial error if they fail to account for the general equilibrium adjustments caused by pollution. Over 300 calibrations of the model identify the model features important to these errors. We find that effects on ecosystem services associated with non-use values have important implications for the feedback effects on use related measures of economic tradeoffs. This is due to how our model integrates market and non-market effects, reflecting the non-market services importance to general equilibrium market outcomes.     

Sequencing and Valuing Public Goods

This paper establishes several propositions concerning the importance of context in valuing public goods. It first provides necessary and sufficient conditions for the value of a public good to be independent of context. Utility-constant valuation sequences are considered where public goods are systematically made available or taken away. For the case of strict Hicksian substitutes, willingness to pay for an increase in one of the public goods is strictly decreasing the farther out in a sequence it is valued. For the destruction of public goods the reverse is true for willingness to accept compensation. Sequencing has opposite implications for the assessment of the benefits of providing public goods than for the assessment of the damage from destroying them.     

Redistribution and pollution taxes with non-linear Engel curves

This paper analyses optimal corrective taxation and optimal income redistribution. The Pigouvian pollution tax is higher if pollution damages disproportionally hurt the poor due to equity weighting of pollution damages. Moreover, under general utility functions, optimal pollution taxes should be set below the Pigouvian tax if the poor spend a disproportionate fraction of their income on polluting goods. However, if Engel curves are linear, optimal pollution taxes should follow the first-best rule for the Pigouvian corrective tax even if the government wants to redistribute income and the poor spend a disproportional part of their income on polluting goods. The often-used quasi-linear, CES and Stone-Geary utility functions all have linear Engel curves. If Engel curves are linear, and if pollution taxes are not optimised, Pareto-improving green tax reforms exist that move the pollution tax closer to the Pigouvian tax. Simulations demonstrate that optimal corrective taxes should be Pigouvian if the demand for polluting goods is derived from a LES demand system, but deviate from the Pigouvian taxes if demand for polluting goods demand is derived from a PIGLOG demand system.     

Reliability of Conservation Actions Based on Elasticity Analysis of Matrix Models

Abstract: Matrix population models have entered the mainstream of conservation biology, with analysis of proportional sensitivities (elasticity analysis) of demographic rates becoming important components of conservation decision making. We identify areas where management applications using elasticity analysis potentially conflict with the mathematical basis of the technique, and we use a hypothetical example and three real data sets (Prairie Chicken [   Tympanuchus cupido ], desert tortoise [ Gopherus agassizii ], and killer whale [ Orcinus orca ]) to evaluate the extent to which conservation recommendations based on elasticities might be misleading. First, changes in one demographic rate can change the qualitative ranking of the elasticity values calculated from a population matrix, a result that dampens enthusiasm for ranking conservation actions based solely on which rates have the highest elasticity values. Second, although elasticities often provide accurate predictions of future changes in population growth rate under management perturbations that are large or that affect more than one rate concurrently, concordance frequently fails when different rates vary by different amounts. In particular, when vital rates change to their high or low values observed in nature, predictions of future growth rate based on elasticities of a mean matrix can be misleading, even predicting population increase when the population growth rate actually declines following a perturbation. Elasticity measures will continue to be useful tools for applied ecologists, but they should be interpreted with considerable care. We suggest that studies using analytical elasticity analysis explicitly consider the range of variation possible for different rates and that simulation methods are a useful tool to this end.     

Hedonic housing prices and the demand for clean air

This paper investigates the methodological problems associated with the use of housing market data to measure the willingness to pay for clean air. With the use of a hedonic housing price model and data for the Boston metropolitan area, quantitative estimates of the willingness to pay for air quality improvements are generated. Marginal air pollution damages (as revealed in the housing market) are found to increase with the level of air pollution and with household income. The results are relatively sensitive to the specification of the hedonic housing price equation, but insensitive to the specification of the air quality demand equation.     

A Review of WTA/WTP Studies

Willingness to accept (WTA) is usually substantially higher than willingness to pay (WTP). These constructs have been studied for roughly 30 years and with a wide variety of goods. This paper reviews those studies. We find that the less the good is like an “ordinary market good,” the higher is the ratio. The ratio is highest for non-market goods, next highest for ordinary private goods, and lowest for experiments involving forms of money. A generalization of this pattern holds even when we account for differences in survey design: ordinary goods have lower ratios than non-ordinary ones. We also find that ratios in real experiments are not significantly different from hypothetical experiments and that incentive-compatible elicitation yields higher ratios.     

Averting expenditure and the cost of pollution

The paper considers the relationship between the willingness to pay for environmental quality and averting expenditures—that is, the costs of measures undertaken in efforts to counteract the consequences of pollution. The models used assume perfect mobility among locations with different levels of environmental quality. The major results are: (1) Averting expenditures are not in general a good measure of willingness to pay; (2) averting expenditures are not always even a lower bound on willingness to pay; (3) even when averting expenditures are a lower bound, the difference between the level of such expenditures and willingness to pay cannot be attributed to the unavertible “aesthetic” consequences of pollution.     

Durable goods and long-run electricity demand: Evidence from air conditioner purchase behavior

I estimate a dynamic structural model of demand for air conditioners, the most energy-intensive home appliance in the US. The model explores the links between demand for durable goods and expected changes in key attributes: energy efficiency and price. I incorporate expectations explicitly as a feature of the choice setting, and use parameter estimates from the model to calculate durable good demand elasticities with respect to energy efficiency, electricity price, and price of the durable itself. These estimates fill a large gap in the literature, and also shed light on consumer behavior in this setting. Results indicate that consumers are forward-looking and value the stream of future savings derived from energy efficiency.     

Addressing onsite sampling in recreation site choice models

Independent experts and politicians have criticized statistical analyses of recreation behavior, which rely upon onsite samples due to their potential for biased inference. The use of onsite sampling usually reflects data or budgetary constraints, but can lead to two primary forms of bias in site choice models. First, the strategy entails sampling site choices rather than sampling individuals—a form of bias called endogenous stratification. Under these conditions, sample choices may not reflect the site choices of the true population. Second, exogenous attributes of the individuals sampled onsite may differ from the attributes of individuals in the population—the most common form in recreation demand is avidity bias. We propose addressing these biases by combining two the existing methods: Weighted Exogenous Stratification Maximum Likelihood estimation and propensity score estimation. We use the National Marine Fisheries Service's Marine Recreational Fishing Statistics Survey to illustrate methods of bias reduction, employing both simulated and empirical applications. We find that propensity score based weights can significantly reduce bias in estimation. Our results indicate that failure to account for these biases can overstate anglers' willingness to pay for improvements in fishing catch, but weighted models exhibit higher variance of parameter estimates and willingness to pay.     

Ease vs. noise: Long-run changes in the value of transport (dis)amenities

For a complete cost-benefit analysis of durable infrastructures, it is important to understand how the value of non-market goods such as transit time and environmental quality changes as incomes rise in the long-run. We use difference-in-differences and spatial differencing to estimate the land price capitalization effects of metro rail in Berlin, Germany today and a century ago. Over this period, the negative implicit hedonic price of rail noise tripled. Our results imply income elasticities of the value of noise reduction and transport access of 2.2 and 1.4, substantially exceeding cross-sectional contingent valuation estimates.     

The backward incidence of pollution control—some comparative statics in general equilibrium

The backward incidence of stronger pollution controls onto the factors of production is examined in a two sector (one polluting, one not), general equilibrium model. The real returns to labor and capital are found to move in opposite directions that depend on the factor intensity of the nonpolluting sector. The magnitudes of these effects are shown dependent upon the degree of factor intensity in that sector, the ease with which pollution can be removed from the effluent, the ease with which capital and labor can be substituted in either sector, and the price elasticities of demand for the sectors' products.     

Parental altruism and the value of avoiding acute illness: are kids worth more than parents?

A model describing parents’ preferences to relieve their own and their children's acute illnesses is estimated using stated-preference data. Estimated marginal rates of substitution (MRS) between child and parent illness are about two, indicating that parents value children's illness attributes twice as highly as their own. The MRS is larger for younger children, falls toward unity as the child approaches adulthood, and appears to reflect parental altruism rather than parent–child differences in initial health or illness costs. Intra-family allocations may compensate for chronic health impairments. Parents’ willingness to pay to avoid own or child illness increases with income, declines with fertility, increases at a decreasing rate with duration and number of symptoms, and depends on perceived discomfort and activity restrictions. Current methods of assessing morbidity benefits of environmental regulations may understate substantially the value of children's health, particularly in African-American families.     

Valuing high-seas ecosystem conservation

The high seas provide a variety of ecosystem services that benefit society. There have, however, been few attempts to quantify the human welfare impacts of changes to the delivery of these benefits. We assessed the values of several key ecosystem service benefits derived from protecting ecosystems in the high seas of the Flemish Cap through choice experiments conducted in Canada, Norway, and Scotland. Rather than solely eliciting public willingness to pay, we also explored the determinants of variance in the estimates of willingness to pay. We aimed to determine how much respondents were willing to pay for high-seas ecosystems conservation, which factors influence individuals’ willingness to pay, and whether individuals in Canada had a higher willingness to pay relative to those living in Norway and Scotland. This latter point captures distance-decay effects. On average, the public placed positive value on conserving high-seas ecosystems and on developing economic activities related to the exploitation and exploration of marine resources, despite a lack of awareness and familiarity with these environments. Distance-decay effects on willingness to pay were not clear. Scots had the highest willingness to pay and the Norwegians the lowest willingness to pay for all attributes, with the only exception being willingness to pay for a large increase in new jobs, in which case Canadians’ willingness to pay was higher than Scots’. The public's willingness to pay was influenced by sociodemographic characteristics and their perceptions of high-seas ecosystems. Our results provide evidence of the impacts of high-seas governance on human welfare and that improved governance could increase the value people place on high-seas ecosystems and the services they produce.     

Public Willingness to Pay for Recovering and Downlisting Threatened and Endangered Marine Species

Abstract: Nonmarket valuation research has produced economic value estimates for a variety of threatened, endangered, and rare species around the world. Although over 40 value estimates exist, it is often difficult to compare values from different studies due to variations in study design, implementation, and modeling specifications. We conducted a stated‐preference choice experiment to estimate the value of recovering or downlisting 8 threatened and endangered marine species in the United States: loggerhead sea turtle (Caretta caretta), leatherback sea turtle (Dermochelys coriacea), North Atlantic right whale (Eubalaena glacialis), North Pacific right whale (Eubalaena japonica), upper Willamette River Chinook salmon (Oncorhynchus tshawytscha), Puget Sound Chinook salmon (Oncorhynchus tshawytscha), Hawaiian monk seals (Monachus schauinslandi), and smalltooth sawfish (Pristis pectinata). In May 2009, we surveyed a random sample of U.S. households. We collected data from 8476 households and estimated willingness to pay for recovering and downlisting the 8 species from these data. Respondents were willing to pay for recovering and downlisting threatened and endangered marine taxa. Willingness‐to‐pay values ranged from $40/household for recovering Puget Sound Chinook salmon to $73/household for recovering the North Pacific right whale. Statistical comparisons among willingness‐to‐pay values suggest that some taxa are more economically valuable than others, which suggests that the U.S. public's willingness to pay for recovery may vary by species.     

Identifying social attitudes to assist urban energy planning in Leicester

A study of social attitudes to urban energy management strategies has been undertaken as part of a research project aiming to develop an energy planning tool for urban planners. The study used a social survey to predict attitudinal responses to proposed engineering solutions, namely load management, energy efficiency and alternative supply options (renewable energy). The principal influence on attitude formation, which emerges from the literature and this study, appears to be socio-economic conditioning.The results indicate that Leicester citizens are open to alternative energy strategies, such as a willingness to pay additional amounts of money for electricity generated from renewable or sustainable sources and the purchase of low energy appliances. Over half the sample surveyed would pay up to 5% extra for an energy-efficient appliance, and a significant minority would pay extra for 'green' energy. In addition, 73% of respondents are sympathetic to Demand-side Management measures such as interruptible tariffs. The use of 'social group' analysis has proved to be a useful and sensitive tool for the market analysis of energy-related behaviour. In this study, a positive relationship between energy-related attitudes and income is revealed.     

An integrated model of regional and local residential sorting with application to air quality

We examine the interconnectedness of demand for regionally and locally varying public goods using a residential sorting model. We propose a version of the model that describes household choices at the city (MSA) level and, conditional on city, the neighborhood (census tract) level. We use a two-stage budgeting argument to develop an empirically feasible sorting model that allows us to estimate preferences for regionally varying air quality while accounting for sorting at the local level. Our conceptual and empirical approach nests previous sorting models as special cases, allowing us to assess the importance of accounting for multiple spatial scales in our predictions for the cost of air pollution. Furthermore our preferred specification connects the city and neighborhood sorting margins to the upper and lower elements of a nested logit model, thereby establishing a useful correspondence between two stage budgeting and nested logit estimation. Empirically we find that estimates from a conventional model of sorting across MSAs imply a smaller marginal willingness to pay for air quality than estimates from our proposed model. We discuss how the difference is attributable in part to the omitted variable problems arising when tract level sorting is ignored.     

Interpreting measures of economic loss: Evidence from contingent valuation and experimental studies

From the standpoint of conventional welfare theory, it is surprising that responses to contingent valuation studies of environmental goods have shown a consistent difference between willingness to pay and compensation demanded measures of economic loss. This paper examines these results in light of four reasons most often given as grounds for their dismissal. New experimental evidence supports an interpretation of the observed disparity in payment-and compensation-based measures as both real and psychologically meaningful. An alternative conceptual framework, suggested by prospect theory, is outlined and its relevance for economic assessments of potential environmental change is discussed briefly.     

Effect of stage-specific vital rates on population growth rates and effective population sizes in an endangered iteroparous plant

Effective population size (N(e)) determines the strength of genetic drift and can influence the level of genetic diversity a population can maintain. Assessing how changes in demographic rates associated with environmental variables and management actions affect N(e) thus can be crucial to the conservation of endangered species. Calculation of N(e) through demographic models makes it possible to use elasticity analyses to study this issue. The elasticity of N(e) to a given vital rate is the proportional change in N(e) associated with a proportional increase in that vital rate. In addition, demographic models can be used to study N(e) and population growth rate (λ) simultaneously. Simultaneous examination is important because some vital rates differ diametrically in their associations with λ and N(e). For example, in some cases increasing these vital rates increases λ and decreases N(e). We used elasticity analysis to study the effect of stage-specific survival and flowering rates on N(e), annual effective population size (N(a)), and λ in seven populations of the endangered plant Austrian dragonhead (Dracocephalum austriacum). In populations with λ ≥ 1, the elasticities of N(e) and N(a) were similar to those of λ. Survival rates of adults were associated with greater elasticities than survival rates of juveniles, flowering rates, or fecundity. In populations with λ < 1, N(e) and N(a) exhibited greater elasticities to juvenile than to adult vital rates. These patterns are similar to those observed in other species with similar life histories. We did not observe contrasting effects of any vital rate on λ and N(e); thus, management actions that increase the λ of populations of Austrian dragonhead will not increase genetic drift. Our results show that elasticity analyses of N(e) and N(a) can complement elasticity analysis of λ. Moreover, such analyses do not require more data than standard matrix models of population dynamics.