Households' preferences for hydrological services in Veracruz, Mexico: The importance of outcomes vs. program design

Payments for Ecosystem Services (PES) are transfer payments that incentivize natural resource owners and managers to carry out environmental conservation efforts that promote ecosystem service provision. A common issue that PES programs face is long-term financial sustainability. In the case of payments for hydrological services (PHS), this may be achieved by introducing fees in the water bill of water users and using the money to pay landowners to conserve their forests and the hydrological services they provide. However, these fees are often minuscule and chosen arbitrarily without assessing households' preferences for the outcomes and design of the programs that manage them. While programs that improve water quality and regularity are universally desired, we know less about household preferences for who administers the program and who is eligible to enroll. We design a choice experiment survey to study preferences for attributes of a PHS program in Xalapa and Coatapec, Mexico. Expectedly, both cities' residents are willing to pay more to support a PHS program that improves water quality and water quantity regulation. Trust in the municipal government in the case of Xalapa and watershed awareness in Coatepec increase the likelihood of selecting the proposed alternative PHS programs. Households in both cities are willing to pay a premium if an NGO is involved in managing the program. While residents of Xalapa prefer keeping the PHS program land eligibility restricted to forests, the residents of Coatepec are willing to pay significantly more for a program that expands land eligibility to include shade-grown coffee. Overall, the WTP for a PHS program is estimated to be 16% of the current average monthly water bill for Xalapa households and 70% of the current water bill for Coatepec households. Our findings suggest that downstream water users can serve as a viable option for financing a PHS program to conserve forestland upstream. Attention needs to be paid to differences in WTP magnitudes and the population characteristics that affect differences in WTP across cities, such as trust in the government and watershed awareness.