Ecosystem services and agriculture: Cultivating agricultural ecosystems for diverse benefits

Crop and rangelands are over 25% of the Earth's land area, and they are expanding. Agricultural ecosystems rely on a suite of supporting ecosystem services to provide food, fiber and fuel as well as a range of accompanying but non-marketed ecosystem services (ES). Ecosystem services from agriculture include regulation of water and climate systems, aesthetic and cultural services, as well as enhanced supporting services (such as soil fertility). Many of these ES are appreciated by people, but they lack markets, so they lack the incentives for provision that come with prices. For public policy decisions to take them into account, non-market valuation techniques are needed, such as travel cost, contingent valuation, hedonic valuation, and cost-based or factor-income approaches. This article offers an overview of ES from agriculture and non-market valuation methods as it introduces the articles in this special section on “Ecosystem Services and Agriculture.” Understanding how ecological functions generate ES is fundamental to management, but so too is understanding how humans perceive and value those services. Research is required both to design cost-effective incentives to provide ES and to measure which kinds of ES could provide the greatest overall welfare benefits to society. Agricultural ecosystems offer newly recognized potential to deliver more diverse ecosystem services and mitigate the level of past ecosystem disservices. This special section of Ecological Economics conveys both how these are becoming possible and the challenges to science and public policy design of turning that potential into reality.     

Designing a payments for ecosystem services (PES) program to reduce deforestation in Tanzania: An assessment of payment approaches

Payments for ecosystem services (PES) programs aim to improve environmental outcomes by providing direct incentives to land managers for the provision of ecosystem services. Participation in PES programs is voluntary, so effective program design requires careful consideration of farmers' preferences. This study quantifies such preferences using a choice experiment. The study site is the East Usambara Mountains, Tanzania, an internationally recognized ‘biodiversity hotspot.’ We assess preferences for four payment approaches: constant and variable annual cash payments to individual farmers, a constant annual cash payment to a village fund on behalf of farmers, and an upfront manure fertilizer payment. We find that the manure fertilizer payment was statistically significant in motivating farmer participation while the group payment was non-significant. In addition, the relationship between the likelihood of participation and the stringency of conditionality is surprisingly non-linear. In a test of external validity, average willingness to accept (WTA) values are found to be similar to the average opportunity cost of maintaining land uses consistent with conservation objectives.     

The Environmental Supply of Farm Households: A Flexible Willingness to Accept Model

The purpose of the paper is toanalyse farmers' participation inenvironmental schemes, which are gaining agrowing importance within the Europeanagricultural policy. These schemes areimplemented through voluntary contracts thatpay farmers for the provision of environmentalservices. The microeconomic model that isdeveloped is a farm household model thatincorporates the producer and consumerbehaviour of the farmer to optimise hisenvironmental supply considering that theenvironmental service that he is supplying alsohas the characteristics of a public good. Defined as the difference between the profitloss in providing the environmental service andthe willingness to pay to consume this service,the household's willingness to accept (WTA)is compared with two flexible WTA measures thataccount for the technological flexibility ofthe environmental supply. Data come from asurvey of an agri-environmental schemeimplemented in the Walloon region of Belgiumsince 1995 and intended to protect the nestingof some endangered bird species. Econometricresults show that contingent valuation is areliable method to reveal the behaviours offarmers facing the invitation to participate inthis scheme. They also confirm that farmerbehaviour is also influenced by environmental preference.     

Reference Dependence Effects on WTA and WTP Value Functions and Their Disparity

In this study we investigate two reference dependence effects in a choice experiment. The first is the effect of the well-known distinction between gains and losses, the second is the effect of changing the reference value on willingness to pay (WTP) and willingness to accept (WTA). The latter has to our knowledge not been studied before. We hypothesize that there are differences between WTA and WTP, and that both value functions and their disparity are affected by the absolute value of the reference point. We test our hypotheses using a choice experiment with trade-offs between changes in flood probabilities and costs. The choice experiments elicit WTP and WTA, using two flood probability reference values, yielding four separate value functions. Our findings show that a substantial WTA–WTP disparity exists, and that this disparity increases when moving away from the reference point. Also, both WTA and WTP value functions are affected by the flood probability reference value, and the WTA–WTP disparity increases when the flood probability reference point increases. Both findings suggest that welfare effects caused by changes in public good provision depend not only on the direction of change (loss aversion), but also the reference value. Moreover, our results show that the latter effect is larger for losses than for gains. We introduce the concept of reference point updating as a possible explanation for these findings.     

Perfect competition and optimal product differentiation

This paper considers whether a competitive economy will achieve an optimal allocation when firms produce differentiated products.In the model studied, firms market those products which maximize profit given the demand curves facing them. Markets are assumed to be open only for goods actually traded. Competitive conditions are achieved by replicating the consumer sector. It is shown that market equilibrium may be suboptimal if those products not being produced are highly complementary in consumption. Sufficient conditions on preferences and production sets for the market equilibrium to be optimal are given.     

Improvement of a Bio-Economic Mathematical Programming Model in the Case of On-Farm Source Inputs and Outputs

We present a two-step process for solving nonlinear farm activity models inside a linear framework under the assumption that market prices approximate the shadow prices of the model’s constraints. In the event of market imperfections or missing prices (for example non-marketed outputs), the previous assumption is not justified and the derived solution is not optimal. To circumvent this problem and to avoid nonlinear algorithms that may prove unwieldy for large models, we propose an iterative computation method, based on the re-estimation of shadow prices in each step until a converging solution is found. The method is applied to the bio-economic model AROPAj, which consists of a number of linear programming (LP) farm sub-models representing different farming systems across the European Union. For most of LPs producing non-marketed outputs a converging solution is obtained in two iterations, while the remaining LPs lead to periodic solutions of very low amplitude.

     

The willingness to pay–willingness to accept gap: A failed replication of Plott and Zeiler

The well-known willingness to pay–willingness to accept (WTP–WTA) gap refers to the observation that individuals attach a higher value to objects they own (WTA) than to objects they do not own (WTP). We report on experiments to re-investigate the possibility that the WTP–WTA gap arises from subject misconceptions due to experimental procedures as suggested by Plott and Zeiler (2005). The contribution of this paper is two-fold: first, we attempt to replicate the findings by Plott and Zeiler that the WTP–WTA gap disappears when using procedures that are aimed at reducing misconceptions, such as extensive training and practice rounds for the BDM mechanism. However, we fail to do so as the WTP–WTA gap persists in the main task where subjects state their WTA or WTP for a mug. Second, we use the paid practice rounds to identify subjects without apparent misconceptions and find that also for those subjects who never make dominated choices in the lottery tasks, the WTP–WTA gap in the mug task exists. Thus, we find no evidence of the idea that subject misconceptions are the main source of the WTP–WTA gap.     

Money matters: an axiomatic theory of the endowment effect

We develop a framework that allows us to state precisely the relationship between leading concepts of the theoretical and empirical research on reference-dependent preferences, namely the status quo bias, the endowment effect and the willingness to accept (WTA)/willingness to pay (WTP) gap. We show that a monetary version of the status quo bias is a necessary condition for the WTA/WTP gap, and show how to factor out the part of the gap due to income effects from the part of the gap due to the endowment effect. As a byproduct, we show that reference-dependent phenomena are generated by reference-independent factors, i.e., an underlying reference-independent preference relation the properties of which are discussed at length.     

The Aggregation of Climate Change Damages: a Welfare Theoretic Approach

The economic value of environmental goods is commonly determined using the concepts of willingness to pay (WTP) or willingness to accept (WTA). However, the WTP/WTA observed in different countries (or between individuals) will differ according to socio-economic characteristics, in particular income. This notion of differentiated values for otherwise identical goods (say, a given reduction in mortality risk) has been criticized as unethical, most recently in the context of the 'social cost' chapter of the IPCC Second Assessment Report. These critics argue that, being a function of income, WTP/WTA estimates reflect the unfairness in the current income distribution, and for equity reasons uniform per-unit values should therefore be applied across individuals and countries. This paper analyses the role of equity in the aggregation of climate change damage estimates, using basic tools of welfare economics. It shows one way of how WTP/WTA estimates can be corrected in aggregation if the underlying income distribution is considered unfair. It proposes that in the aggregation process individual estimates be weighted with an equity factor derived from the social welfare and utility functions. Equity weighting can significantly increase aggregate (global) damage figures, although some specifications of weighting functions also imply reduced estimates. The paper also shows that while the postulate of uniform per-unit values is compatible with a wide range of 'reasonable' utility and welfare specifications, there are also cases where the common-value notion is not compatible with defensible welfare concepts.     

External Costs of Aquaculture Production in West Virginia

Temperate hill-lands of the U.S.A. such as those in West Virginia are areas from which increasing output of farm-raised fish may be possible. However, the downstream economic impacts of current and projected future effluent as a result of aquaculture production have not been extensively studied. Using an externality framework and a combination of primary and secondary data, this study determines pollution prevention costs (PPC), and downstream pollution damage costs resulting from fish farm wastewater effluent measured as willingness to pay (WTP) for restoring water quality. PPC is estimated at $0.11 per kg of trout produced (which would add 6% to private production cost), and WTP is estimated at $0.49 per kg of trout produced (representing 25% of private production cost) at current production and price levels. This study shows that installation of filtration units is a low-cost (less than 6% of total cost) and an effective technology for controlling pollution at the source. Internalizing external costs (adding this 6% to private production costs) is one strategy that could contribute to sustainable growth of the aquaculture industry.     

The Willingness to Accept Value of Statistical Life Relative to the Willingness to Pay Value: Evidence and Policy Implications

Large disparities between willingness to accept (WTA) and willingness to pay (WTP) based values of statistical life are commonly encountered in empirical studies. Standard economic theory suggests that if a public good is easily substitutable there should be no marked disparity between WTA and WTP values for the good, though the disparity increases with reduced substitutability. However, psychologists have shown that people often treat gains and losses asymmetrically and tend to require a substantially larger increase in wealth to compensate for a loss than the amount they would be willing to pay for an equivalent gain. Although most transport projects may aim to improve safety, situations arise when a relaxation of an existing regulation saves resources but increases the risk of death and injuries. A survey was recently carried out in New Zealand to determine people’s willingness to pay to reduce road risks and their willingness to accept compensation for an increase in risk. This paper reports the disparity observed between the two measures and considers some of the problems posed for policymakers.     

Households’ Willingness to Pay for Water Service Attributes

Water consumption and disposal are often taken for granted as essential services with required levels of service quality, yet little is known about how much consumers are willing to pay for specific service levels. As customers in many countries face changing levels of water availability (especially shortages linked possibly to climate change and limited catchment capacity), the need to assess the value (and hence benefit) to society of varying service levels and prices in an effort to secure the provision of and disposal of water has risen on public agendas. In an attempt to establish how much customers are willing to pay for specific levels of service, we use a series of stated choice experiments and mixed logit models to establish the willingness to pay to avoid interruptions in water service and overflows of wastewater, differentiated by the frequency, timing and duration of these events. The empirical evidence is an important input into the regulatory process for establishing service levels and tariffs, as well as useful planning information for agencies charged with finding cost effective ways of delivering services at prices that customers deem to be value for money.     

Eco-Labeling and Stages of Development

The paper examines the effectiveness of eco-labeling in providing a market-based solution to the under-consumption of eco-friendly products in developing and developed countries. The authors show that whether labeling is an effective device in solving the problem of asymmetric information between sellers and buyers, or whether false labeling severs the link between willingness to pay and environmental conscious production choices, depends crucially on how monitoring intensities respond endogenously to economic growth, openness to trade, and technology transfers. In particular, by accounting for endogenous policy responses to economic growth, it is shown that an inverted-U relationship exists between consumer spending on eco-unfriendly products and national income. In addition, while international trade unambiguously benefits the environment in the presence of eco-labeling with perfect enforcement, trade openness may nevertheless delay the turning point of the growth and environment relationship, when the cost of enforcement falls disproportionately on developing countries, and when environmental policies are employed to reap terms-of-trade gains.     

Modelling Winners and Losers in Contingent Valuation of Public Goods: Appropriate Welfare Measures and Econometric Analysis

Contingent valuation is now the most widely used method for valuing non-marketed goods in cost-benefit analysis. Yet, despite the fact that many externalities manifest themselves as costs to some and benefits to others, most studies restrict willingness to pay to being non-negative. This can result in significant errors in policymaking. This paper examines the importance of this, explores appropriate welfare measures for assessing losses and gains, demonstrates how these can be elicited explicitly, highlights the sensitivity of the results of such studies to the econometric specification employed and suggests ways of dealing with it. Finally, the implications for policy are examined.     

组合政策下双寡头企业绿色创新博弈分析

为研究政府组合政策对于绿色创新能力不同的寡头企业生产策略的影响,构建演化博弈模型,在环境税税率和创新补贴额度不同的情境下,通过数值仿真模拟企业生产决策的动态选择过程。研究表明:高强度环境税制和高额的创新补贴极大地激励了两寡头企业绿色创新。环境税一定时,补贴值到一定额度,创新能力强的企业率先选择生产绿色产品,进一步提高时,创新能力弱的企业也将选择绿色生产。当环境税税率和补贴都比较低时,两类企业均选择生产普通产品,政府的宽松管控,低额补贴无法激起企业的绿色创新积极性。生产绿色产品的单位成本增额越高,或者消费者对于绿色产品的消费意愿不足时,需要政府的补贴力度越大。     

Using the travel cost method to value visits and stigma in connection with ARV adherence in Uganda

This article uses the travel cost method to value both client visits to collect antiretroviral therapy (ARV) and stigma, which prevents ARV adherence. Using a representative sample for Uganda initiated specifically for this study, we found a willingness to pay (WTP) valuation for visits made in the range of US$14–US$17 and a willingness to accept (WTA) valuation of US$25 for visits missed. The valuations for stigma based on a novel measure of stigma using a new estimation method were close to the valuations for visits. These valuations can be used to estimate the benefits to carry out cost–benefit analyses (CBAs) of interventions aimed at increasing ARV coverage and adherence.     

Measuring Stigma: The Behavioral Implications of Disgust

Stigmatization of products and technologies can lead to large monetary losses even when there are no associative risks. This paper reports on experiments that provide insight into the behavioral responses of disgust from an economic perspective. We use a dead sterilized cockroach to ‘contaminate’ drinking water and generate willingness-to-pay (WTP) and willingness-to-accept (WTA) measures of participants’ reactions. These results are contrary to previous results from research not involving financial incentives, as most participants’ WTP and WTA values are near zero for drinking cockroach contaminated water. Additionally, filtration of cockroach water leads participants to become significantly more likely to request compensation compared to spring water, but it does not result in requesting significantly more money to drink it. Finally, WTP and WTA differences can be explained by participants’ decision on whether or not to request compensation and not by the amount of compensation.     

Software Provision and the Impact of Market Integration

Both deeper market integration and advances in digital technology have driven particularly large decreases in the costs of intermarket software provision. This study first explains the mechanism of how trade costs influence the software provision decisions of software firms. Then the transformation of production/trade patterns is investigated given gradually decreasing trade costs for software products. It is shown that if two incompatible types of hardware exist, deeper market integration may reduce the variety of hardware technologies. It is also shown that, if the variety of hardware technologies is reduced by deeper integration, some consumers are made worse off.     

Modelling the Non-market Environmental Costs and Benefits of Biodiversity Projects Using Contingent Valuation Data

CV studies rarely ask willingness to accept (WTA)questions, yet there are a range of environmentalprojects where there are likely to be potential losersas well as gainers. This paper presents evidence fromsix biodiversity projects that the inclusion ofcontingent compensation payments from thoserespondents who preferred the status quo cansubstantially reduce net project benefits, even whenthe proportion of losers is relatively small. Astatistical model for estimating the mean welfaremeasure from dichotomous choice data which allows forboth positive WTP, zero WTP, and WTA is described. Asmany environmental projects are likely to create bothgainers and losers, we recommend that CV analysts giveserious consideration to the collection and analysisof WTA data otherwise they risk generating biasedestimates of project benefits.     

ON CONSUMERS' VALUATION OF NUTRITION INFORMATION

The European Union (EU) is contemplating regulations requiring mandatory provision of nutritional information on food products. This study analyses consumers' valuation of nutritional information using data collected from a field survey. The results generally suggest that consumers value and are willing to pay about 5.9 percent of the original price for nutritional information on the food product we studied. Individuals who are non-price-sensitive, nutritionally knowledgeable and with longer time horizon are willing to pay more for nutritional information than others. Considering consumers' willingness to pay for nutritional information on food products and an EU impact assessment study, the costs of provision of this information are not prohibitive to firms. We estimate that the least conservative cost of labelling to the firm for a specific food product can be as much as €29,431, whereas the average economic value of nutrition information is estimated at €17,064. The firm can therefore recoup the associated costs in less than two months.