Willingness to Pay for Improved Groundwater due to BMPs in PEI.

Abstract

This study uses stated preference techniques to evaluate the willingness to pay for improved groundwater in PEI, which allows us to estimate the social cost of nitrogen in this region. 'Beneficial Management Practices' (BMPs) are often employed in PEI's agricultural sector, to improve crop yields but also reduce adverse environmental effects such as nitrogen leaching that can affect ground and surface waters. PEI residents were surveyed to estimate a dollar value of improved water quality due to reduced nitrogen leaching due to BMPs. From the responses to a double-bounded dichotomous choice survey, models using maximum likelihood estimation showed that residents of PEI were willing to pay roughly $230 per year to see a reduction in nitrogen of either 20% or 50%, which translated to $5-13 per kg of nitrogen reduced. However, excluding 'yeah-sayers' and protest votes suggests that WTP is lower for the 20% reduction and increases as nitrogen reduction increases. Thus, a social cost of $13/kg should be considered an upper bound in PEI. WTP values, as well as estimates of the social cost of nitrogen are similar to values in previous literature. We find that variables such as cell phone usage, belief that farmers should pay for BMPs, and spending on water filtration have a statistically significant impact on WTP. Other variables are significant in some model specifications, however many demographic variables such as employment status and education do not affect WTP.