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Understanding Farmers’ Decision Making in Agricultural Water Fee Payment in China: The Role of Mental Accounting

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Submitted:

05 August 2016

Posted:

05 August 2016

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Abstract
To better understand farmers’ refusal, as well as their corresponding negative emotions, to pay agricultural water fee under current policy in rural China, this paper applies mental accounting, a behavioral economics framework, to explore how the reform of rural taxes and fees, direct agricultural subsidy programs and agricultural water fee influence farmers’ decisions in paying agricultural water fee. Using fieldwork data from 577 farmers and 20 water managers in Sichuan, we explore farmers’ information processing regarding the payment decisions of agricultural water fee via three sequential mental accounting processes, with the associated underlying principles and measures behind each process. We find that the information processing in three mental accounting scenarios related to the agricultural water fee elucidates farmers’ observed behaviors in rural China. Generally, in the three mental accounting scenarios, two conditional intuitive expectations and nine other conditional intuitive preferences are formed; however, these conditions cannot be matched with the facts due to the reform of rural taxes and fees, the direct agricultural subsidy programs and the internal attributes of agricultural water fee. Additionally, this paper offers a view into how previous policies create negative psychological externalities (such as farmers’ psychological dependence on the government) through mental accounting that negatively influences agents’ subsequent decision making; it highlights the significance of underlying mental factors and information processing of negative behaviors in policymaking for managing or conserving common pool resources.
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Subject: Business, Economics and Management  -   Economics
Copyright: This open access article is published under a Creative Commons CC BY 4.0 license, which permit the free download, distribution, and reuse, provided that the author and preprint are cited in any reuse.
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