Study on benefit transfer in an international setting. How to improve welfare estimates in the case of the countriesʹ income heterogeneity?

The paper aims at investigating the validity of benefit transfer in the case of transfers between countries highly heterogeneous in income, and demonstrates relative performance of different benefit transfer methods under these conditions. Lake water quality valuation studies were conducted in two countries in transition — Poland and the Czech Republic. They reflected two earlier studies carried out in Norway. We examine how income elasticity of WTP varies with the levels of income and find support for applying the income elasticity of 1 to adjust transferred welfare estimates in case of high differences in income between countries. In addition, we show that using site-specific measures of income outperforms transfers based on GPD per capita. The accuracy of benefit transfer is compared using equivalence testing following the TOSC (two one-sided convolutions) test. A new, more informative way of reporting equivalence is proposed, based on computing minimum tolerance level rather than specifying it a priori.