Willingness to pay for environmental quality

This chapter is a condensed version of a research paper that appeared in the Berkeley Electronic Journal of Economic Analysis and Policy (Israel and Levinson, 2004). Empirical evidence has documented some forms of local pollution (airborne lead, sulfur) that have declined significantly in industrialized countries despite robust economic growth. Poor countries appear relatively unpolluted, middle-income countries more polluted, and rich countries clean again. ² Because this evidence comes from reduced-form, country-level regressions of pollution on per capita gross domestic product (GDP), the cause of this inverse-U pattern is uncertain and the policy implications are ambiguous. Some have inferred that poor countries are not efficiently regulating externalities. Others have concluded that environmental progress eventually becomes an automatic consequence of economic growth. ³ If nothing else, these disparate claims highlight the need for a causal explanation of the relationship between economic growth and environmental quality.