The Relationship between Income and Stated WTP: What Elasticities are we Measuring?

Objectives: There have been growing uses and abuses of contingent valuation method (CVM) in middle income or emerging societies Through CVM one obtains a stated estimative of the willingness to pay (WTP) to conserve an environmental asset. Work on contingent valuation now typically comprises the largest single group of papers at major environmental economics conferences and in several of the leading journals in the field. In this paper we seek to achieve a more modest goal: to analyze income elasticity of WTP obtained by CVM applications in a middle income society like Brazil. Data/Methods:

As pointed out by Carson and Hanemann (2005) “drawing inferences about economic values from intuition regarding the demand for private goods, one expects to see a positive relationship between income and WTP, if the good being valued is a “normal” good. A frequent made claim, for which there is surprisingly little empirical support, is that most environmental goods are “luxury” goods”. If this were the case, one would expect the income elasticity to be greater than one. After reviewing the relevant literature, we surveyed empirical CVM studies made in Brazil in order to estimate income elasticity of WTP. Results:

We show that empirical results from CVM studies in Brazil have found a positive income elasticity of WTP substantially less than one for environmental goods and services. This empirical result suggests that contingent values are theoretically deficient.