Consumer/Household Economics, Demand and Price Analysis,

Chen, Huilan

Lupi, Frank

Swinton, Scott M.

English

Research Papers in Economics

Public's Willingness to Pay for Ecosystem Service 
Improvements From Agriculture 
 
 
 
 
 
 
 
 
Huilan Chen
1, Frank Lupi
1,2 and Scott M. Swinton
1  
1 Department of Agricultural Food and Resource Economics, Michigan 
State University, East Lansing, 48824 
2 Department of Fisheries and Wildlife, Michigan State University 
 
 
 
 
 
 
 
 
 
 
 
Poster prepared for presentation at the Agricultural & Applied Economics 
Association 2010 
AAEA,CAES, & WAEA Joint Annual Meeting, Denver, Colorado, July 
25-27, 2010 
 
 
 
 
 
 
Copyright 2010 by Huilan Chen, Frank Lupi and Scott M. Swinton. All rights reserved. 
Readers may make verbatim copies of this document for non-commercial purposes by any 
means, provided that this copyright notice appears on all such copies. Public's Willingness to Pay for Ecosystem Service Improvements From Agriculture
 
Huilan
 
Chen1, Frank Lupi1,2, Scott M. Swinton1 
1 Department of Agricultural Food and Resource Economics, Michigan State University, East Lansing, 48824    2 Department of Fisheries and Wildlife, Michigan State University
Introduction
Agriculture is the world’s largest managed ecosystem. Apart from producing food, 
fiber and fuel, agriculture can provide various other ecosystem services
Mitigated greenhouse gas (GHG) emission and reduced lake eutrophication
 
are two 
ecosystem services that the public would get from low input cropping practices. 
Research at the Long-term Ecological Research site (LTER) in row crop agriculture at 
the Michigan Kellogg Biological Station has identified several low-input cropping 
systems that maintain comparable yields to conventional farming practices, yet provide 
better carbon sequestration, less nitrate leaching, phosphorus retention in soil and less 
soil erosion. 
Rationale
Payments for Environmental Services (PES) are widely used to provide enhanced 
ecosystem services from agriculture.
Most empirical studies of PES programs focus on the supply-side, measuring costs 
to land owners for changing land management practices. 
Information on public demand is necessary to give a complete picture of the 
potential market for ecosystem services.
Objective
Estimate the public’s willingness to pay (WTP) for a set of ecosystem service 
improvements, including GHG reduction and eutrophic
 
lakes reduction.
Method
A mail survey was conducted in July 2009 with 6000 randomly selected Michigan 
residents in July yielding a 41% response rate. 
Five contacts were made with respondents using
 
a modified version of Dillman’s
 
tailored design method. 
The contingent valuation (CV) question was posed as a dichotomous choice 
referendum with income taxes as the payment vehicle.  The proposed programs 
provide GHG and eutrophic
 
lake reductions by paying for changes in land management 
practices.
Fourteen questionnaire versions were generated from an experimental design with 
three CV questions per respondent.
The data were analyzed using the random effects Probit
 
model with a spike in zero 
willingness to pay. 
Proposed model
Respondents’
 
willingness to pay for ΔX is estimated as a function of 4 sets of explanatory variables:
 
cost of the hypothetical program to be voted on (C), the proposed reductions in eutrophic
 
lakes and 
GHG (ΔX), people’s attitude towards global warming (A), demographics (Z). 
The GHG reduction did not pass the scope test in the sample. Therefore an interaction term  was 
added to see whether the scope test would pass for those who cared about global warming.
The vast majority of the sample were concerned about lakes, but only 67% were “concerned”
 
about 
global warming. Thus, an interaction term for concern was only included for GHG. 
Results
Variable 
Group Specific variables
coefficie
 
nt P>|z|
C log of program cost -1.3 0
ΔX
Reduction in lakes with 
excess nutrients 0.0033 0
% reduction in greenhouse 
gas emission (GHG)
-0.14 0.58
A Concerned about global 
warming (=1 if concerned)
1.4 0
ΔX* A Interaction of Concern & GHG 0.62 0.059
Z
Age 0.026 0.003
Household pretax income 0.013 0
Education level 0.19 0.012
Voter (=1 if yes) 1.5 0.003
The probability a 
respondent had zero WTP 
(the spike) was modeled, 
and it depended on the 
scope of the policy (ΔX), 
annual household pretax 
income and whether they 
are concerned about global 
warming. 
Category
Description of 
variables
coefficient P>|z|
ΔX
Reduction in lakes with 
excess nutrients -0.0040 0
% reduction in GHG -0.38 0.032
A Concerned about global 
warming (=1 if concerned)
-1.3 0
Z Househd
 
pretax income -0.0042 0.031
GHG reduction only 
affected the WTP of those 
who were concerned about 
global warming. The 
marginal WTP for a 1% 
GHG reduction of the 2000 
emission level was $100 
per person. 
Lakes had a significant 
effect on the WTP of all 
respondents. The marginal 
WTP for clean-up of one 
eutrophic
 
lake was $0.54 per 
person per year.
Conclusions
Despite the poor economy, an income tax payment vehicle only resulted in an 
anti-tax protest rate of 10%. 
Ecosystem services of global warming mitigation and eutrophic
 
lake reduction 
were of value to people. The value depended on the scope of environmental 
changes, people’s attitude towards global warming, age, income, education and 
whether they are voters.
Because the probability of a spike response (i.e., zero willingness to pay) 
decreases as the scope of the policy increases, the results illustrate the 
importance of modeling the spike as a function of the scope of the policy.
The results can be coupled with estimates of farmers’
 
willingness to supply 
these services by adopting low-input cropping practices to see if a “market”
 
for 
these services exists.
Comparison of Sample mean WTP as a function of ΔX under 
fixed spike and endogenous spike probabilities
Sample Mean WTP with Respect to Eutrophic Lake Reduction
0
50
100
150
200
250
300
350
400
450
2
2
6
5
0
7
4
9
8
1
2
2
1
4
6
1
7
0
1
9
4
2
1
8
2
4
2
2
6
6
2
9
0
3
1
4
3
3
8
3
6
2
3
8
6
4
1
0
4
3
4
4
5
8
4
8
2
lakes
$ per person per year
Fixed spike probability
Endogenous spike
probability
Sample Mean WTP with Respect to GHG Reduction
0
50
100
150
200
250
300
350
0
.
0
0
.
1
0
.
2
0
.
3
0
.
4
0
.
5
0
.
6
0
.
6
0
.
7
0
.
8
0
.
9
1
.
0
1
.
1
1
.
2
1
.
3
1
.
4
1
.
5
1
.
5
1
.
6
1
.
7
1
.
8
1
.
9
2
.
0
GHG (% of Yr 2000 level)
$ per person per year
Fixed spike probability
Endogenous spike
probability
With the 
endogenous spike, 
WTP for ΔX 
increases at a 
greater rate than 
with the fixed spike 
because as ΔX 
increases, the 
probability of zero 
WTP falls.
The probability that 
a respondent had 
zero WTP (the 
spike) was 
endogenous. As the 
reduction of lakes 
and GHG increases, 
the probability of 
the spike decreases. 
Table 1. Model estimation on the probability of voting yes
Table 2. Model estimation on the probability of zero WTP (spike probability)
( ) ij i i i i j i Z A X A X WTP ε γ ϕ δ β α + + Δ + + Δ + = * exp

Public's Willingness to Pay for Ecosystem Service Improvements From Agriculture

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