Choice Experiments to Assess Farmers' Willingness to Participate in a Water Quality Trading Market

Interest has grown in Water Quality Trading (WQT) as a means to achieve water quality goals, with more than 70 such programs now in operation in the United States. Substantial evidence exists that nonpoint sources can reduce nutrient loading at a much lower cost than point sources, implying the existence of gains from trade. Despite the potential gains, however, the most commonly noted feature of existing WQT markets is low trading volume, with many markets resulting in zero trades. This paper evaluates one explanation for the lack of participation from agricultural nonpoint sources. We test for and quantify the intangible costs' that may deter farmers from trading even if the monetary benefits from doing so outweigh the observable out-of-pocket costs. We do so by designing and implementing a series of choice experiments to elicit WQT trading behavior of Great Plains crop producers in different situations. Attributes of the choice experiment included market rules and features (e.g., application time and effort, penalties for violations, means of monitoring compliance) that may affect farmers' willingness to trade. The choice experiments were conducted with a total of 135 producers at four locations in the state of Kansas between August 2006 and January 2007. A Random Parameters Logit model is appropriate to analyze the resulting data, revealing diversity in the way that the attributes affect farmers' choices.