Omitted Downstream Attributes and the Economic Benefits of Nutrient Reductions
Yau-Huo Shr, Wendong Zhang
July 2022 [21-WP 620] (Revised)
Shr, Y.H. and W. Zhang. 2022. "Omitted Downstream Attributes and the Economic Benefits of Nutrient Reductions." Working paper 21-WP 620. Center for Agricultural and Rural Development, Iowa State University.
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 or misinterpreted welfare estimates of local water quality attributes. Using a split-sample design and a statewide survey of Iowa residents, we provide the first systematic evaluation of the effects of omitting downstream water quality benefits, Gulf of Mexico hypoxic zone reduction in our case, on households’ willingness-to-pay for water quality improvement. We find that omitting hypoxic zone reduction 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 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 among local residents who are not aware of the correlation between local and downstream water quality.