How Sensitive Are Environmental Valuations To Economic Downturns?

- This paper assesses the temporal stability of environmental assessments under changing economic conditions.
- Data come from two identical surveys conducted in two periods (pre-recession and after).
- Median estimates dropped for the Spanish society as a whole in almost 50%.
- We find that this drop is driven by a change in priorities during the recession.

This paper assesses the temporal stability of willingness to pay estimates (WTP) under changing economic conditions. Specifically, two questions are addressed: a) is WTP stable over time? And b) if it is not, are the changes just driven by socio-economic effects, or something else? In order to investigate these questions, we used data from the Contingent Valuation Method (CVM) study conducted after the Prestige oil spill in Spain in 2006, and a second wave of the same survey repeated in 2009, after Spain entered a serious recession. Median WTP estimates dropped from €60.36 in 2006 to €26.92 in 2009 per household, a statistically significant reduction. To investigate the amount of the drop in WTP due to observables versus changes in preferences between 2006 and 2009, we use the 2006 logit WTP coefficient estimates with 2009 levels of the independent variables and we obtain a WTP of €46.37. This estimate is statistically different from the 2009 estimate (€26.92). In the same fashion, by using 2009 logit WTP coefficients with 2006 data, we obtain an estimate of €50.29, also different from the 2006 estimate. Implications of these findings for temporal stability of welfare measures and benefit transfer exercises are also discussed.