Integrating cobenefits produced with water quality BMPs into credits markets: Conceptualization and experimental illustration for EPRI's Ohio River Basin Trading

Abstract

This paper develops a method that incorporates the public value for environmental cobenefits when a conservation buyer can purchase water quality credits based on nonmarket valuation results. We demonstrate this approach through an experiment with adult students in a classroom laboratory environment. Our application contributes to the study of individual preference and willingness to pay for cobenefits associated with the production of water quality credits in relation to the Ohio River Basin Trading Project. We use three different methods to elicit individuals' willingness to pay (WTP), including (1) a hypothetical referendum, (2) a real referendum lacking incentive compatibility, and (3) a real choice with incentive compatibility. Methodologically, our WTP estimates suggest individuals are more sensitive to the cost changes and reveal the lowest value in the real choice with incentive compatibility. Practically, we find individuals value certain cobenefits and credits as public goods. Incorporating public value toward cobenefits may improve the overall efficiency of a water quality trading market. Based on our specification of a planner's welfare function, results suggest a substantial welfare improvement after identifying an optimal allocation of a buyer's budget across credits derived from agricultural management practices producing different portfolios of cobenefits.

Determinants of Livestock Insurance Demand: Experimental Evidence from Chinese Herders

“…In addition, because the ASC interaction terms are not significant in Columns (2) and (4), the hypothetical bias, if it exists, is unlikely to depend on the respondents' demographic characteristics. The premium interaction terms in Columns (3) and ( 4) are all negatively significant, indicating that in the consequential treatment, respondents are more sensitive to the insurance premium changes, consistent with a large body of literature regarding hypothetical bias (e.g., Liu and Swallow, 2016). In the Appendix S1, Table S5, we have also used the total estimated insurance cost instead of the per-head insurance cost.…”

“…Although CE is more popular, the results are subject to the influence of potential hypothetical bias from stated preference (e.g. Carson and Groves, 2007;Loomis, 2011;Vossler et al, 2012;Bennett and Balcombe, 2012;Liu and Swallow, 2016;Penn and Hu, 2018). Hypothetical bias reflects the difference between hypothetical and real statements of value, where real statements of value can be approximated in experiments with binding economic commitments (List and Gallet, 2001).…”

Lakefront Property Owners' Willingness to Accept Easements for Conservation of Water Quality and Habitat

“…We are confident that some respondents did believe the survey results would be used to inform policy and thus was policy‐consequential, because we received follow‐up phone calls from survey recipients expressing interest in the potential program being started in their area. However, other authors have found that payment consequentiality (there is at least a chance that payments are real) is required for eliciting responses similar to a real choice (Liu & Swallow, ; Mitani & Flores, ). Because our easement was not payment‐consequential, our estimates may be biased as discussed above.…”

The influence of the Environmental Quality Incentives Program on local water quality

“…† Despite the scale and importance of EQIP, we lack quantitative evidence on the environmental benefits achieved under the program. One reason is the multiplicity of benefits associated with different types and often even a single type of conservation practices (Liu & Swallow 2016), in addition to the sheer number of practices that have been implemented. ‡ For example, reduced application of nitrogen fertilizer may improve both water quality and air quality.…”