Does Omitting Downstream Water Quality Change the Economic Benefits of Nutrient Reduction? Evidence from a Discrete Choice Experiment

Yau-Huo Shr, Wendong Zhang
August 2021  [21-WP 620]

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Suggested citation:

Shr, Y.H. and W. Zhang. 2021. "Does Omitting Downstream Water Quality Change the Economic Benefits of Nutrient Reduction? Evidence from a Discrete Choice Experiment." Working paper 21-WP 620. Center for Agricultural and Rural Development, Iowa State University.


Abstract

Discrete choice experiments have been extensively used to value environmental quality; however, some important attributes may often be omitted due to design challenges. In the case of agricultural water pollution, omitting downstream water quality benefits could lead to biased estimates and misinterpretations of local water quality attributes presented in choice experiments. Using a split-sample design and a statewide survey of Iowa residents, we provide the first systematic evaluation of how households’ willingness-to-pay for water quality improvement when downstream water quality benefits, hypoxic zone reduction in our case, are omitted. We find that omitting non-local water quality attributes significantly reduces the total economic value of nutrient reduction programs but does not bias the marginal willingness-to-pay for local water quality attributes. We also find suggestive evidence showing that such omission, in line with the theoretical prediction, only changes the preferences of respondents who are aware of the downstream impacts of plans that led to local water quality improvement. In addition, our results show that providing information on the non-local water quality benefits of nutrient reduction increases support for water quality improvement plans but only among local residents who are less informed on water quality issues.