Income inequality and the international transfer of environmental values

How income and the valuation of environmental goods are related is a key question for science and policy, but the role of income inequality is often neglected. This paper studies how income inequality impacts the international transfer of environmental values-a practice called value or benefit transfer. Specifically, we apply theory-driven transfer factors to examine whether adjusting for income inequality can improve benefit transfer, drawing on a multi-country case study on water quality improvement. We find that income inequality adjustment reduces benefit transfer errors significantly, and by 1.5 percentage points on average. Adjusting for income inequality is particularly important when income is distributed more unequally at the policy site relative to the study site, yielding reductions in transfer errors of up to 25 percentage points. Our results are relevant for the practice of policy appraisal and environmental accounting, and more generally for the role of income inequality in non-market valuation.