Income distribution and willingness to pay for ecosystem services

We study how global income distribution, and income inequality in particular,
affects the average willingness to pay (WTP) for ecosystem services. We use a
model (extending Ebert 2003) where individual households have identical preferences over consumption goods and ecosystem services, which are represented by a constantelasticity-of-substitution utility function, and income is log-normally distributed over individuals with given mean and standard deviation. We show that (i) average WTP for ecosystem services increases with mean income if ecosystem services and consumption goods are substitutes or weak complements, and (ii) average WTP for ecosystem services decreases (increases) with income inequality if ecosystem services and consumption
goods are substitutes (complements). We illustrate our results with empirical data
on the global income distribution (from World Bank 2011) and on the income elasticity of WTP for ecosystem services (from the meta-study of Jacobsen and Hanley 2009).