Testing structural benefit transfer: The role of income inequality

• Published in: Resource and energy economics Vol. 64; p. 101217
• Main Authors: Meya, Jasper N., Drupp, Moritz A., Hanley, Nick
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.05.2021
• Subjects: Environmental valuation; Income elasticity; Income inequality; Structural benefit transfer; Transfer error; Willingness-to-pay; D63; Transfer error; D31; Willingness-to-pay; H43; Environmental valuation; Income elasticity; Q51; Structural benefit transfer; Q53; Income inequality; Q25; D61
• ISSN: 0928-7655; 1873-0221
• DOI: 10.1016/j.reseneeco.2021.101217

•First convergent validity study on theory-based, structural benefit transfer.•Examination of whether income inequality adjusting affects benefit transfer errors.•Structural income inequality adjustment helps to reduce benefit transfer errors.•Adjustment for inequality is of second-order importance compared to mean income. How the valuation of environmental goods is related to income is a key question for economics, but the role of income inequality is often neglected. We study how income inequality affects the international transfer of the estimated value of environmental goods from a study to a policy site—a practice called value or benefit transfer. Specifically, we apply theory-driven, structural transfer factors to test whether adjusting for income inequality affects errors made in benefit transfer, drawing on a multi-country valuation study on water quality improvement. Our convergent validity analysis shows that the structural income inequality adjustment reduces benefit transfer errors by between 1.5 and 1.8 percentage points on average across all transfers. We therefore find that adjusting for income inequality offers only a minor improvement of benefit transfers as compared to adjusting for differences in mean income. Overall, our results shed light on the potential of structural approaches to benefit transfer for environmental valuation and public policy appraisal.