Revisiting money and labor for valuing environmental goods and services in developing countries

TL;DR

This paper examines how the choice of payment vehicle affects willingness to pay estimates in developing countries, emphasizing the importance of considering alternative measures like labor to avoid underestimating welfare benefits.

Contribution

It introduces a framework accounting for imperfect substitutability between money and labor, and institutional perceptions, to improve welfare valuation in developing countries.

Findings

Low WTP may be due to payment vehicle choice

Labor measures can better capture welfare benefits

Cash contributions are only 24.41% of total WTP

Abstract

Many Stated Preference studies conducted in developing countries provide a low willingness to pay (WTP) for a wide range of goods and services. However, recent studies in these countries indicate that this may partly be a result of the choice of payment vehicle, not the preference for the good. Thus, low WTP may not indicate a low welfare effect for public projects in developing countries. We argue that in a setting where 1) there is imperfect substitutability between money and other measures of wealth (e.g. labor), and 2) institutions are perceived to be corrupt, including payment vehicles that are currently available to the individual and less pron to corruption may be needed to obtain valid welfare estimates. Otherwise, we risk underestimating the welfare benefit of projects. We demonstrate this through a rural household contingent valuation (CV) survey designed to elicit the value of access to reliable irrigation water in Ethiopia. Of the total average annual WTP for access to reliable irrigation service, cash contribution comprises only 24.41 %. The implication is that socially desirable projects might be rejected based on cost-benefit analysis as a result of welfare gain underestimation due to mismatch of payment vehicles choice in valuation study.