Willingness to Pay for Low Water Footprint Foods during Drought

Hannah Krovetz, Rebecca Taylor, Sofia B. Villas-Boas

Chapter in NBER book Agricultural Productivity and Producer Behavior (2019), Wolfram Schlenker, editor (p. 251 - 291)
Conference held May 11-12, 2017
Published in November 2019 by University of Chicago Press
© 2019 by the National Bureau of Economic Research

In the context of recent California drought years, we investigate empirically whether consumers are willing to pay for more efficient water usage in the production of four California agricultural products. We implement an internet survey choice experiment for avocados, almonds, lettuce, and tomatoes to elicit consumer valuation for water efficiency via revealed choices. We estimate a model of consumer choices where a product is defined as a bundle of three attributes: price, production method (conventional or organic), and water usage (average or efficient). Varying the attribute space presented to consumers in the experimental choice design gives us the data variation to estimate a discrete choice model—both conditional Logit specifications and random coefficient mixed Logit specifications. We find consumers have a significant positive marginal utility towards water-efficiency and estimate an average implied willingness to pay (WTP) of about 12 cents per gallon of water saved. Moreover, informing consumers about the drought severity increases the WTP for low water footprint options, but not significantly. We find that there is heterogeneity in the WTP along respondents’ education, race, and also with respect to stated environmental concern. Simulations of removing low water footprint labels from the choice set attributes imply significant consumer surplus losses, especially for the more educated, white, and more environmentally concerned respondents.

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This chapter first appeared as NBER working paper w23495, Willingness to Pay for Low Water Footprint Food Choices During Drought, Hannah Krovetz, Rebecca Taylor, Sofia Villas-Boas
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