EDWARD B . BARBIER MIKOŁAJ CZAJKOWSKI NICK HANLEY Is the income elasticity of the willingness to pay for pollution control constant ?

This paper explores both theoretically and empirically whether or not the willingness to pay (WTP) for pollution control varies with income. Our model indicates that the income elasticity of the marginal WTP for pollution reduction is only constant under very restrictive conditions, which are not necessary for an environmental Kuznets curve relationship between pollution and income. Our empirical analysis tests the null hypothesis that the elasticity of the WTP for pollution control with respect to income is constant, employing a multi-country contingent valuation study of eutrophication reduction in the Baltic Sea. Our findings reject this hypothesis, and estimate an income elasticity of the WTP for eutrophication control of 0.1 0.2 for low-income respondents and 0.6 0.7 for high-income respondents. Thus, our empirical results suggest that the elasticity is not constant and always less than one. Keywords: Baltic Sea, benefit transfer, environmental Kuznets curve, eutrophication, income elasticity of willingness to pay, non-market valuation. JEL: Q51; Q53; Q56 Acknowledgements The data collection was funded by the Swedish Research Council for Environment, Agricultural Sciences and Spatial Planning, Swedish Environmental Protection Agency, four Finnish Ministries Ministry of Agriculture and Forestry, Ministry of Environment, Ministry of Transport and Communications and Ministry of Finance), the Danish Strategic Research Council, and the German Federal Environment Agency. We would like to thank the BalticSTERN Secretariat and team consisting of researchers from all the nine Baltic Sea states for joint work in data collection and the willingness to share the data. The second author gratefully acknowledges the support of the Polish Ministry of Science and Higher Education and the Foundation for Polish Science.