THE RELATIONSHIP BETWEEN THE INCOME ELASTICITIES OF DEMAND AND WILLINGNESS-TO-PAY

The relationship between income and willingness to pay for collectivel y provided public/environmental goods is investigated. We show that wh ile the income elasticity of willingness to pay and the ordinary incom e elasticity of demand are related, knowledge of one is insufficient t o determine the magnitude or even the sign of the other. The income el asticity of willingness to pay is influenced by additional factors whi ch are generally unobservable. Examples are provided to illustrate the degree to which the two income elasticities may diverge. Our results indicate that even when goods are demand luxuries they may or may not have income elasticities of willingness to pay which are greater than one. (C) 1997 Academic Press.