Willingness to pay for BMP-induced water quality benefits and deviations around expected water quality outcomes

Abstract

This paper investigates the economic valuation of the benefits accruing to farmers derived from expected water quality improvements stemming from the adoption of best management practices (BMPs). The study applies the stated-choice experiments administered on a sample of farmers located in the Chaudière and Etchemin watersheds just south of Quebec City to characterize the preferences of farmers in terms of the mean and standard deviation of phosphorus and coliform reductions, and the costs borne by local farmers and by taxpayers in the province of Quebec to support the adoption of BMPs. The results show significant observed and unobserved heterogeneity regarding farmers’ marginal utility of phosphorus and coliform reductions. The distribution of risk attitudes encompasses all three types: risk aversion, risk neutrality and risk loving. Benefit valuation decreases with age, but the age effect is smaller than the heterogeneity across farmers of a given age. Farmers experience disutility when their own cost or taxpayers’ cost increases, but a private dollar is worth substantially more to farmers than a public one.