A Behavioral Economic Analysis Of Arid Inland Area Farmers Willingness To Pay For Irrigation Water

Irrigation water is one of the most important inputs sustaining agricultural production in China. In response to the growing water scarcity, the water price has been increased. The intention is to stimulate water saving and avoid wasteful use of water. At the same time the increased income from the water fees is expected to cover the funding gaps for maintenance of irrigation infrastructure and payment of the water management bureaucracy. However, farmers are the ones who will have to bear the increased water price. Therefore, their attitude towards the water price reform and their willingness to pay must be taken into account in order to successfully implement a water price reform. Farmers’ willingness to pay does not only depend on the household’s economic situation, it also depends on some psychological features. A farmer’s mental acceptance influences his/her perception of the water price and his/her willingness to pay. From this perspective we study farmer’s economic capacity and mental willingness to pay a higher water prices. For this study we apply basic economic theory and perform and econometric analysis on household data from Minle County in Gansu Province. We perform a multiple regression analysis to determine the effect of three different aspects:members, resource factors and environmental. The study explores the willingness to pay of farmers in Minle County. It explores whether or not there is space to increase the water price; to what extent farmers are willing to pay a higher water price; and what aspects influence farmers’ willingness to pay. The study is expected to provide a reference for further implementation of the water price reform.The research results show that:1) Farmers economic capacity and mental willingness to pay water fees is rather high. Farmers are willing to pay water fees is0.15yuan/m3,the average is0.349yuan/m3,higher than current water fees21%and181%, Farmers are willing to pay between0.1～0.15yuan/m3.2) Farmers’ willingness to pay is, on the one hand, affected by the household’s income and the farming conditions. On the other hand, it is affected by farmers’ reference point and loss aversion In general, farmers base their attitude towards the water price on the water price paid in the past and their own mental perception. Moreover, it should be noted that farmers pay more attention to the question whether the water price increased, regardless from a parallel increase in income. So that they form a psychological aversion again rising water fees.The empirical analysis exposes several points:Further research should focus on the policy impact on agricultural water saving, the water price compensation mechanism, the reduction of land fragmentation and the maintenance of canal infrastructure. The government should enhance farmers’ willingness to pay and reduce wasteful use of water. In addition, the Suggestions from the development of intensive agriculture and modern agriculture, association and cooperation organization three aspects as a starting point. It is necessary to continue spreading information on water as an economic good and water price policies, in order to give farmers a correct and clear understanding of the increased in water price. Moreover, through cooperative initiatives the farmers’agricultural production should be increased to reduce farmers’risk and feeling of resentment towards increased water prices. This will contribute to the implementation of the water price reform and the development of irrigated agriculture.