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Abstract In addition to standard methods of environmental valuation, a novel approach has recently emerged which models individuals' self‐rated happiness as a function of their incomes and the prevailing environmental conditions. The estimated relationship is used to calculate the trade‐off people would be willing to make between income and environmental conditions, i.e. the increase in income necessary to compensate individuals for any given decline in environmental quality. While the basic idea is simple, the theoretical and empirical details may be complex, and they may vary from application to application. This paper discusses the relevant conceptual and methodological issues and reviews applications to air and water pollution, noise nuisance, climate parameters, and natural hazards.
Welsch et al. (Mon,) studied this question.