Panel Probit Models Applied to Stated Preference Auctions: A Cost Discovery for Ecosystem Services through Wetland Restoration in the Canadian Prairies

This chapter presents a brief discussion on panel probit models and their estimation using an application in non-market valuation. Agricultural producers’ willingness to accept (WTA) for environmental conservation on agricultural land is the “true” cost of beneficial management practices (BMPs) but is also unobservable. In this study, producers’ WTA for restoring wetlands on their currently active farmland is estimated using stated preference (SP) methods and panel probit models in NLogit 5.0 based on the results of an in-person survey of 29 producers with farms located over four rural municipalities in Alberta and Saskatchewan. The producers’ WTA indicates that adoption of wetland restoration BMP imposes net private costs on the producers with significant within- and between-sample heterogeneity in costs. Own WTA is less than inferred WTA across all models indicating social desirability bias. The findings indicate that policy interventions in terms of compensation payments are required to encourage the uptake of wetland restoration BMP in Alberta and Saskatchewan. SP auctions could be employed as a valid and cheaper cost discovery tool compared to reverse auctions for facilitating wetland policy and design of compensation packages.