Date of Award

Spring 2019

Project Type


Program or Major

Natural Resources and Environmental Studies

Degree Name

Master of Science

First Advisor

Shadi Atallah

Second Advisor

Kelly Giraud

Third Advisor

Ju-Chin Huang


Payments for Ecosystem Services (PES) are transfer payments from governing bodies, households, firms, or non-governmental organizations to incentivize natural resource owners and managers to carry out environmental conservation efforts that promote the provision of ecosystem services. PES programs targeting reduction of deforestation have gained popularity due to the extensive ecosystem services of forests including carbon storage, wildlife habitat, biodiversity, and the provision of hydrological services (HS), the ecosystem services that provide benefits such as water quality improvement, water damage mitigation, and non-use value.

There is evidence in the literature that PES programs, while theoretically beneficial, face issues with long-term financial sustainability (Nava-Lopez et al., 2018). An increase in financing can be achieved through the introduction of a fee in the water bill of water users. However, these fees are often chosen arbitrarily without any rigorous assessment of households’ willingness-to-pay (WTP) for HS provided upstream (i.e., by forest landowners upstream from the cities) and little is known about the preferences of these households. This paper aims to estimate the value consumers have for HS through the use of a choice experiment (CE). The use of a CE allows us to elicit the preferences of the consumers of HS with respect to both the cost and the attributes of the PES program. We choose the state of Veracruz to conduct the CE because it is one of the most intensely deforested states that also struggles with both water quality and water damage issues. (Nava-Lopez et al., 2018).

We developed and administered an in-person, tablet-based CE in October 2018 which used five attributes to describe the hypothetical Payments for Hydrological Services (PHS) program: Water Quality, Water Regulation Services, Eligible Land, Program Administration, and Fee. We obtained a sample of 777 observations, split between representative samples of Xalapa and Coatepec, the two cities of the state that have experience with hydrological PES programs. Water Quality and Water Regulation Services are the two attributes thought to be the main benefits that consumers would be interested in. Eligible Land has a policy implication because local governments are interested in increasing the eligibility to include shade-grown coffee. Program Administration will allow us to estimate whether consumer’s support for such PES program depends on the type of institution managing it. Fee is a variable with options 5, 20, 40, and 80 MXN per month, the amount added to household’s water bill to pay for the program.

In this thesis, we construct conditional logit and mixed logit models to analyze discrete choice data. The results show that for the four non-monetary attributes, the utility function parameters of the coefficients are positive, showing respondents propensity for an improved program. The sign of the Fee coefficient is negative, showing consumers demand for lower prices. Further, the coefficients of Water Quality and Water Regulation Service are higher than those for Eligible Land and Program Administration, showing that respondents care more about improved results than the organizational structure of program delivery. A key difference between Coatepec and Xalapa is the Eligible Land variable. It is significant for Coatepec while insignificantly different from zero in Xalapa. With Coatepec being more of an agricultural small-town and Xalapa being a larger city, it intuitively makes sense that Xalapa would not care about the land enrolled in the program, and Coatepec would. Both cities do care about the Program Administration variable, with Coatepec having a coefficient twice the magnitude of the coefficient Xalapa.

Our research has shown that the downstream water users in an area serve as a viable option for substantially extending the financial base of a PHS program. Evaluating the total economic value of ecosystem services and revising the level payments to landowners are two of the key policy improvements that are recommended in the future in order to make PES programs in Mexico more effective and efficient (Lara-Pulido, 2018). Our results also highlight the need to take local perceptions as well as income inequality into consideration in the design and promotion of PHS programs.