RT Journal Article
SR Electronic
T1 Income Elasticity of Willingness to Pay for Better Air Quality: Effect of a Private Environmental Substitute
JF Land Economics
FD University of Wisconsin Press
SP 505
OP 525
DO 10.3368/le.100.3.022822-0018R2
VO 100
IS 3
A1 He, Jie
A1 He, Yue
A1 Zhang, Bing
YR 2024
UL http://le.uwpress.org/content/100/3/505.abstract
AB 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.