World Development 117 (2019) 230–238

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World Development
journal homepage: www.elsevier.com/locate/worlddev

Opportunity cost, income structure, and energy structure for landholders

participating in payments for ecosystem services: Evidence from Wolong
National Nature Reserve, China
Jichuan Sheng a,⇑, Hong Qiu b, Sanfeng Zhang b
a
Collaborative Innovation Center on Forecast and Evaluation of Meteorological Disasters, and Business School, Nanjing University of Information Science & Technology,
219 Ningliu Road, Nanjing 210044, China
b
Business School, Nanjing University of Information Science & Technology, 219 Ningliu Road, Nanjing 210044, China

a r t i c l e i n f o a b s t r a c t

Article history: Payments for ecosystem services (PES) have become a valuable policy tool for the conservation and
Accepted 30 January 2019 restoration of ecosystems. The central premise of PES success is that landholders are willing to provide
Available online 6 February 2019 ecosystem services. However, previous studies failed to consider this willingness of landholders to par-
ticipate in PES within the theoretical frameworks of opportunity cost, income structure, and energy struc-
Keywords: ture. This lack results in the deviation of the existing PES project design from market-based incentives
Payments for ecosystem services and gravitation toward adopting command-and-control subsidies that are typically intended to be
Willingness to participation
replaced. To fill this gap, this study examines the effects of opportunity cost, income structure, and energy
Grain-to-Green Program
Opportunity cost
structure on the participation of landholders in PES, using the panel data of the household survey of the
Income structure Grain-to-Green Program in the Wolong National Nature Reserve, China. The obtained findings demon-
Energy structure strate an inverted U-shaped curve relationship between opportunity cost and landholder participation
rate, suggesting that the participation of landholders in PES does not always decrease with increasing
opportunity cost. The dependence of landholders on cropland income is inversely proportional to their
participation in PES. The effects of other agricultural income on the decision-making of householders
were not significant. Moreover, the fuelwood-based energy structure negatively affects the participation
of landholders in PES. Therefore, we argue that the formulation of PES incentives in line with local socioe-
conomic conditions and individual preferences can further stimulate the landholder participation in PES.
Ó 2019 Elsevier Ltd. All rights reserved.

1. Introduction market mechanisms and consequently, in some cases, PES is more

As a result of enabling landholders to receive payments for the
provision of ecosystem services, payments for ecosystem services
(PES) has received substantial attention as an incentive-based
environmental policy instrument (Fletcher, Dressler, Buscher, &
Anderson, 2016). The attraction of PES can be attributed to the
provision of landholders with economic incentives to change
behaviours that are unfavourable for ecosystems and turn these
toward conservation and restoration of ecosystems (Ferraro,
2008; Wunder, 2015). PES essentially transforms both ecological
conservation and restoration into a tradable commodity and
provides economic incentives for landholders who provide these
commodities (Farley & Costanza, 2010). Therefore, PES can achieve
the sustainable management of natural resources by employing
⇑ Corresponding author.
E-mail addresses: jsheng@nuist.edu.cn (J. Sheng), qiuhong1213@nuist.edu.cn
(H. Qiu).
effective and efficient than traditional regulatory policies (Wunder,
2007). Hundreds of PES projects have emerged around the world
over the past two decades for the conservation of forests and bio-
diversity, to increase carbon sequestration, and to improve water
quality (Fletcher & Büscher, 2017).
Although the PES practice is not complicated, many countries
face difficulties in PES design and its implementation due to the
nature of PES’s voluntary transactions (O’Hara, 2009). Since only
landholders would be willing to provide ecosystem services to
achieve PES goals, a critical issue about PES design is to assess
how to encourage sustained participation of landholders. There-
fore, it is necessary to fully understand the motivation of landhold-
ers to participate in PES (Bremer, Farley, & Lopez-Carr, 2014). Why
do landholders participate in PES in particular places and over
time? What drivers affect the willingness of landholders to partic-
ipate in PES? Why are landholders with higher opportunity costs
still willing to participate in PES? These questions of the complex

https://doi.org/10.1016/j.worlddev.2019.01.016
0305-750X/Ó 2019 Elsevier Ltd. All rights reserved.
 J. Sheng et al. / World Development 117 (2019) 230–238
entanglement between participation willingness and motivation in
PES have received surprisingly relatively less attention among
political ecologists compared to their extremely productive analy-
ses of the opportunity costs in PES. Only a few studies have exam-
ined the factors that affect the participation of landholders in PES
(Li, Bennett, Jiang, Zhang, & Yang, 2017). Several studies considered
economic incentives to be the most critical factor (e.g., Bremer
et al. (2014), Fisher (2012), and Kosoy, Corbera, and Brown
(2008), Wu, Cao, Xiao, and Guo (2018)). These authors argue that
the attitude of landholders toward PES is determined by the contri-
bution of payments to both household income and opportunity
cost (Wunder, 2005). Other studies have also considered land-
holder characteristics, including their age, education, household
size, income, and non-agricultural income (e.g., Defrancesco,
Gatto, Runge, and Trestini (2008), Démurger and Pelletier (2015),
and Hegde, Bull, Wunder, and Kozak (2015)); still others have con-
sidered land characteristics, including land size and location (e.g.,
Alarcon, Fantini, Salvador, and Farley (2017) and Zhang et al.
(2011)). Through a survey of participants and non-participants in
Costa Rica’s national PES program, Zbinden and Lee (2005) found
that most of the PES participants were relatively wealthy and
well-educated landholders, who owned large areas of land and
were not dependent on their agricultural income.
Furthermore, several non-economic factors also affect the par-
ticipation of landholders in PES. Corbera, Brown, and Adger
(2007) suggested that non-monetary benefits provided by PES,
such as land tenure security, improvements in internal organisa-
tion, and increased visibility of the community, also motivated
the active participation of local communities in PES projects. By
assessing the motivation of Australian farmers to participate in
PES, Page and Bellotti (2015) suggested that the attitudes of land-
holders toward ecosystem services are not related to demograph-
ics. The lack of Australian farmers to participate in PES is due to
a lack of awareness and sufficient information. According to previ-
ous studies, the factors that affect the participation of PES have not
yet reached a general conclusion; in particular, the effects of
income and land characteristics show different results in different
regions.
China applied PES to sustainable forest conservation as early as
1999 as part of the Grain-to-Green Program (GTGP) (Schomers &
Matzdorf, 2013). The GTGP aims to encourage landholders to con-
vert cropland into forests or grasslands to prevent soil erosion
(Zhen & Zhang, 2011). The importance of the GTGP in China is
increasing because it delivers a win-win outcome: increasing for-
est coverage while simultaneously reducing poverty (Groom,
Grosjean, Kontoleon, Swanson, & Zhang, 2010). Previous studied
provided insights into the factors that affect the participation of
landholders in the GTGP (e.g., Chen, Lupi, He, and Liu (2009) and
Démurger and Pelletier (2015)); however, the available studies
did not adequately consider the effects of opportunity cost, income
structure, and energy structure on the participation of landholders
in the GTGP. This has led to the deviation of existing PES designs
from market-based incentives to adopting command-and-control
subsidies that are typically intended to be replaced. Prominent
examples are available for Cambodia (Mahanty, Milne, Dressler,
& Filer, 2012), Mexico (Shapiro-Garza, 2013), and Vietnam
(McElwee, 2012). To fill this gap, this study expands the existing
studies on the participation in PES while focusing on the effects
of opportunity cost, income structure, and energy structure on
the participation of landholders in PES, using a two-way fixed
effect model. This study explores how to develop a more effective
PES design by investigating the factors that influence the participa-
tion of landholders in PES. Three main political and economic argu-
ments are presented that have been enabled through empirical
research on the GTGP in Wolong National Nature Reserve, China:
First, the participation of landholders in PES does not always
231
decrease with increasing opportunity costs, but rather presents
an inverted U-shaped relationship with opportunity cost; there-
fore, the increase of opportunity cost will not decrease the partic-
ipation of landholders in PES when the opportunity cost is small.
Second, the dependence of landholders on their cropland income
is inversely proportional to the participation in PES. Third, the
widespread fuelwood-based energy structure negatively affects
the participation of landholders in PES. Since previous PES studies
did not adequately examine the effects of opportunity cost, income
structure, and energy structure on the participation in PES, this
study is necessary to increase our understanding of the factors that
affect the participation in PES and the complex relationship
between participation and opportunity cost.
The remainder of this paper is organised as follows: Section 2
establishes a theoretical framework that can be used for the exam-
ination of the effects of opportunity cost, income structure, and
energy structure on the participation of landholders in PES. Sec-
tion 3 describes the data, econometric models, and method that
were utilised in this study. Section 4 presents the obtained empir-
ical results. Section 5 discusses these results, followed by the con-
clusion presented in Section 6.
2. Theoretical framework
2.1. Opportunity cost and participation in PES
Opportunity cost can significantly affect the land-use decisions
of landholders (Wunder, 2005). Opportunity cost in PES refers to
the expected benefits from the best alternative land use as a result
of participation in PES (White et al., 2011). For example, the oppor-
tunity cost for participating in the Reducing Emissions from Defor-
estation and Forest Degradation (REDD+) projects includes the
income from timber logging and agricultural production activities
(Rakatama, Pandit, Ma, & Iftekhar, 2017). From an economic point
of view, landholders will only participate in PES when the associ-
ated opportunity cost is lower than the compensation payments
(Arriagada, Sills, Pattanayak, & Ferraro, 2009). Most studies indi-
cate a significant negative correlation between the opportunity
cost and the PES participation of landholders (Gauvin, Uchida,
Rozelle, Xu, & Zhan, 2010; Xu, Tao, Xu, & Bennett, 2010). Zanella,
Schleyer, and Speelman (2014) reported that farmers with lower
opportunity cost are more likely to participate in PES after investi-
gating the reasons for the participation of Brazilian farmers in the
three PES water programs. A study on the participation of rural
households in PES in Inner Mongolia indicated that most of the
cropland included in the PES project is the land with low produc-
tivity and steep slopes (Démurger & Pelletier, 2015). Torres,
MacMillan, Skutsch, and Lovett (2013) surveyed the views of the
landholders and agricultural communities (ejidos) in western Mex-
ico concerning PES programs for forest conservation; the reported
results showed that higher opportunity cost led to low potential
participation rates in both rural and suburban areas.
While opportunity cost is often regarded as a critical factor that
affects the participation in PES, other factors may either weaken or
diminish these impacts (Arriagada et al., 2009). For example,
wealthy landholders with strong environmental awareness often
have a positive attitude towards PES, even if their opportunity
costs are high (Zhang et al., 2011). Other landholders, especially
those with large landholdings, participate in PES to protect their
land from land acquisition policies (Southgate & Wunder, 2009).
In such cases, the opportunity cost is not the most critical factor
for landholders when they consider whether to participate in
PES. Therefore, the effects of opportunity cost on different land-
holders may vary. According to existing studies, the first hypothe-
sis is proposed as follows:
232 J. Sheng et al. / World Development 117 (2019) 230–238
H1: Opportunity cost negatively affects the participation of
landholders in PES.
2.2. Income structure and participation in PES
Several previous studies argued that agricultural income or land
size negatively affect the participation of landholders in PES (Chen
et al., 2009; Kosoy et al., 2008). According to these studies, PES may
result in a reduction in available cropland, which means that land-
holders would have to use the remaining limited land to meet their
demand for either food or income. Furthermore, landholders are
also concerned that their loss caused by PES will not be sufficiently
compensated (Defrancesco et al., 2008). Landholders with more
land who depend on their agricultural income often have a deeper
understanding of ecosystem services, and are more likely to under-
stand the costs and benefits of each land-use plan; thus these land-
holders are better able to identify and adopt cost-effective
solutions (Wu, Xu, Liu, Guo, & Zhou, 2018; Xun, Hu, Lv, & Tong,
2017; Yu, Yu, & Lu, 2018). Therefore, landholders who are highly
dependent on their agricultural income are more sensitive to
land-use changes. However, the effects of agricultural income on
the participation of landholders in PES remain unclear due to their
different risk preferences (Zbinden & Lee, 2005). Several studies
demonstrated that landholders with high agricultural income and
strong management ability might enrol a larger area of their land
in PES (e.g., Lambert, Sullivan, Claassen, and Foreman (2012) and
Ma, Swinton, Lupi, and Jolejole-Foreman (2012)).
Moreover, the non-agricultural income of landholders is gener-
ally considered to be positively related to their participation in PES
(Bremer et al., 2014; Zbinden & Lee, 2005). Since the time and
efforts of landholders who rely on their non-agricultural income
for their ongoing agricultural production are relatively dispersed,
they can receive payments and redistribute both labour and time
by participating in PES (Chen et al., 2009). Therefore, landholders
who rely on their non-agricultural are more likely to participate
in PES. However, Arriagada et al. (2009) reported that landholders
who did not participate in PES in Costa Rica were those who
depended on their non-agricultural income. These landholders
claimed that they could not take time out of their non-
agricultural employment to manage their forests. In summary,
the effects of income structure on the participation of landholders
in PES are complicated and requires further investigation. There-
fore, the second hypothesis is introduced as follows:
H2: The dependence of landholders on their cropland income is
inversely proportional to the participation in PES.
2.3. Energy structures and participation in PES
Long-term use of fuelwood as the primary source of energy for
cooking and heating in rural areas often results in severe deforesta-
tion and land degradation (Kaygusuz, 2011). Forest conservation
projects based on PES may limit the resulting deforestation and
decrease the harvesting of fuelwood, which consequently con-
strains the energy use of landholders. Chen et al. (2009) suggested
that this prospect of fuelwood utilisation change after PES imple-
mentation could significantly affect the willingness of landholders
to participate in PES. Landholders who use alternative energy
sources (e.g., coal, electricity, and solar energy) are less dependent
on forests and are therefore less affected by PES (Wang, Yang, &
Zhang, 2012). However, the traditional energy structure of land-
holders who primarily rely on fuelwood may face challenges.
Therefore, energy structure is also a critical factor that affects the
land-use decisions of landholders. However, these effects of the
energy structure on the participation in PES are often overlooked
in existing research. This subconscious ignorance of the energy
structure makes the impact of the energy structure on the
Fig. 1. The theoretical framework and the corresponding three hypotheses.
willingness to participate in PES remains uncertain. Thus, it is nec-
essary to propose the third hypothesis to examine such an
influence:
H3: The fuelwood-based energy structure negatively affects the
participation of landholders in PES.
We finally construct a theoretical framework that included
opportunity costs, income structure, and energy structure. Fig. 1
shows the theoretical framework and the corresponding three
hypotheses. Next, we will attempt to validate these hypotheses
by using data from China’s PES project.
3. Method
3.1. Study area
The Wolong National Nature Reserve (WNNR) is located in
Wenchuan County, Sichuan Province, China, covering an area of
about 200,000 ha (see Fig. 2). The WNNR was established in 1963
to protect forest ecosystems and rare animal and plant species,
especially the giant panda, in southwestern China. The number of
giant pandas in the WNNR accounts for about 10% of the total
number of Chinese giant pandas (Wolong National Nature
Reserve, 2005). More than 5000 people and more than 1200 fami-
lies live in the WNNR, distributed in six administrative villages
(Yang, Liu, McConnell, & Luo, 2013). Most residents mainly live
on agricultural production activities, such as planting vegetables,
raising livestock, and collecting and selling herbs (Liu et al.,
2012). Moreover, the residents collect fuelwood as their primary
energy source for heating, cooking food, and curing bacon (He
et al., 2009). The socioeconomic activities of the local communities
are highly dependent on natural resources, which puts tremendous
pressure on the ecology and environment of the WNNR.
To better protect the habitat of the giant panda in the WNNR,
the State Council has formulated and implemented several PES
programs since 1999, including the Natural Forest Conservation
Program (NFCP), the GTGP, and a regional PES program called the
Grain-to-Bamboo Program (GTBP) (Yang, Dietz, Liu, Luo, & Liu,
2013; Zhen & Zhang, 2011). The NFCP aims to conserve natural for-
ests by prohibiting deforestation and providing incentives for fol-
lowing this prohibition (Yang, Liu, et al., 2013). The payments
received by each household that participates in the NFCP vary from
800 to 1000 yuan per year based on the location, land types, and
management difficulty (Shen, 2006). The GTGP integrates two con-
tents: converting cropland with a slope to the forest and afforesta-
tion/reforestation. Each household that participates in the GTGP
can receive an annual payment of 240 yuan per mu (0.0667 ha)
to convert cropland to either forest or pasture (Chen et al., 2009).
The contract period of the GTGP is eight years for the conversion
of cropland into ecological forests, five years for the conversion
of into economic forests, and two years for the conversion of into
pasture (Yang, Liu, et al., 2013). The GTBP as a local supplement
to the GTGP that began in 2000 to encourage residents to convert
 J. Sheng et al. / World Development 117 (2019) 230–238
Fig. 2. Map of Wolong National Nature Reserve.
cropland to bamboo forests in particular, which are the primary
food for giant pandas. Households that participate in the GTBP
are required to conclude an eight-year PES contract with the local
authority and consequently can receive an annual payment rang-
ing from 900 to 1200 yuan per mu (Shen, 2006).
This study mainly focuses on the GTGP in the WNNR. Since Chi-
na’s GTGP is the largest PES project in the world (Liu, Li, Ouyang,
Tam, & Chen, 2008), examining the factors that affect the participa-
tion of landholders in the GTGP could contribute to the design and
implementation of PES projects not only in China but also in other
countries around the world. Thus, the panel data of the Wolong
Household Study (WHS) released in 2013 was used to explore to
the role of opportunity cost, income structure, and energy
structure in the participation of landholders in PES. The WHS is a
regional representative survey project that is conducted by the
Inter-University Consortium for Political and Social Research
(ICPSR). It was started in 1999, using a stratified random sampling
approach to extract 220 households from 1056 households as an
initial sample (Liu, McConnell, & Luo, 2013). The definition of
households was based on 2000 population census and family reg-
istration records (Hukou) of the local WNNR administration. The
WHS adopts face-to-face interviews and collects yearly data from
the previous years for 1999, 2002, 2003, 2004, 2005, 2006, 2007,
and 2010. The initial sample of 220 households was revisited in
each year’s survey. However, a subset of household data was not
available due to the relocation of participants; the final collection
rate of the questionnaire was 92%.
3.2. Model specification
Since the data of the WHS demonstrates that the 220 house-
holds surveyed are involved in the GTGP, the intensity of participa-
tion of each household was more important than whether they
participated in the GTGP. Due to differences in the area of land
owned by different households, the total area of participation in
the GTGP cannot accurately reflect the willingness of each
233
household to participate. Thus, the intensity of participation in
the GTGP (IPG) was selected, i.e., the proportion of enrolled
cropland to the total land area of each household was used as
the dependent variable. A large IPG indicates that the household
is more willing to participate in the GTGP.
The independent variables include opportunity cost, the ratio of
payments from the GTGP to total household income, the ratio of
cropland income to the total household income, and the annual
fuelwood consumption. Following White et al. (2011) and
Alarcon et al. (2017), the annual net income of cropland (AIC)
was used to measure the opportunity cost of land. According to
the WHS, each household that participated in the GTGP can receive
the same annual payments (240 yuan per mu). Thus, the ratio of
payments from the GTGP to the total household income (RPG)
was selected to measure the effects of payments on the willingness
to participate. Moreover, agricultural income includes cropland
income and other agricultural income; therefore, the ratio of crop-
land income to total household income (RCI) was used to describe
the household dependence on cropland income. Thus, both RPG
and RCI were used to reflect the role of the income structure in
the willingness of participation in the GTGP. Finally, the utilised
energy of the residents in the WNNR mainly originates from fuel-
wood and electricity, which are substitutes for each other (An,
Lupi, Liu, Linderman, & Huang, 2002). Thus, the annual fuelwood
consumption (AFC) was used to measure the effects of the energy
structure on the willingness to participate.
Other factors may also affect the willingness to participate in
the GTGP. Due to the lack of relevant data in the Wolong House-
hold Study, the impacts of family structure and land condition on
the participation in PES were not explored. However, the ratio of
other agricultural income to the total household income and the
total land size were selected as control variables to control the
effects of these factors on the landowners’ willingness to partici-
pate. In addition to cropland income, other agricultural income
may also affect the willingness to participate in WNNR, which
mainly includes income from the sale of livestock, herbs, and
234 J. Sheng et al. / World Development 117 (2019) 230–238

Table 1
Summary of the variables.

Variables Descriptions Units Obs. Mean Std. Dev. Min Max

Dependent variable
IPG Intensity of participation in the GTGP % 1405 0.50 0.28 0 1.00
Independent variables
AIC Annual net income of cropland 10,000 yuan 1582 0.13 0.21 0 4.00
AIC2 Square of annual net income of cropland 10,000 yuan 1582 0.06 0.50 0 16.00
RPG Ratio of payments from the GTGP to total household income % 1649 0.13 0.14 0 1.00
RCI Ratio of cropland income to total household income % 1661 0.36 0.57 0 14.80
AFC Annual fuelwood consumption ton 1652 3.96 4.04 0 45.00
Control variables
ROI Ratio of other agricultural income to total household income % 1361 0.08 0.15 0 0.93
TLS Total land size mu (0.0667 ha) 1407 8.50 4.62 0 40.00

Table 2
bacon. Households with higher agricultural income are less depen-
The results of the preliminary regression.
dent on cropland and tend to have a higher willingness to partici-
pate in the GTGP (Liu et al., 2012). Thus, the ratio of other Models (1) (2)
OLS OLS
agricultural income to total household income (ROI) was used as
a variable to control the effects of other agricultural income on AIC 0.147*** 0.150***
the willingness to participate. Moreover, the land size is often (0.040) (0.049)
RPG 0.282*** 0.268***
highly correlated with the willingness to participate (Bremer (0.045) (0.067)
et al., 2014; Ma et al., 2012). Thus, the total land size (TLS) was used RCI 0.020*** 0.045
as a control variable to reflect such an impact. Table 1 presents a (0.007) (0.028)
summary of the utilised variables. AFC 0.002** 0.003***
(0.001) (0.001)
The general form of the econometric model is provided by
ROI 0.010
Eq. (1): (0.046)
TLS 0.008***
IPGit ¼ b0 þ b1 AIC it þ b2 RPGit þ b3 RCIit þ b4 AFC it þ c1 ROIit (0.003)

þ c2 TLSit þ ui þ tt þ eit
ð1Þ
where i (i = 1, 2,. . ., 220) represents the households; t (t = 1999,
2002, 2003, 2004, 2005, 2006, 2007, and 2010) represents the years;
b0 is a constant; bj (j = 1, 2, 3, 4) represents the coefficient of the j-th
independent variable; ck (k = 1, 2) represents the coefficient of the
k-th control variable; ui and tt represent the individual fixed effect
and time fixed effect, respectively; and eit represents the random
disturbance term that was normally distributed.
4. Results
4.1. Regression results
We first use the ordinary least squares (OLS) test to estimate
Eq. (1) for the exploration of the appropriate model. The results
of the preliminary regression are shown in Table 2.
Table 2 shows that the coefficients of AIC are significantly
positive in both models. This suggests that the opportunity cost
is positively correlated with the intensity of GTGP participation.
Since these results are contrary to the findings of existing studies,
the models were re-estimated by adding the quadratic term of the
opportunity cost. The obtained results are shown in Table 3. Mod-
els (3) and (6) present the OLS estimation results. Models (4) and
(7) present the estimation results of the fixed effects (FE) model,
while Models (5) and (8) present the estimation results of the ran-
dom effects (RE) model.
According to Table 3, the result of the Hausman test is signifi-
cant, suggesting that the FE model is more suitable for the panel
data than the RE model. Moreover, since the results in Table 3 indi-
cate that both individual fixed effects and time fixed effects are
essential, a two-sided fixed-effects model was used to estimate
the panel data.
Table 3 demonstrates that the coefficients of AIC and AIC2 are
significantly positive and negative in all models, respectively. This
indicates that an inverted U-shaped relationship exists between
Individual fixed effect Yes Yes
Time fixed effect Yes Yes
Constant 0.030*** 0.087***
(0.011) (0.023)
Obs. 1053 770
R-sq. 0.876 0.904
Note: robust standard error in parentheses; *, **, and *** represent significant at 10%,
5% and 1% levels, respectively.
the opportunity cost and the intensity of participation in the GTGP.
In other words, the intensity of participation in the GTGP first
increases and then decreases with increasing opportunity cost
when other variables remain fixed. This finding indicates that the
first hypothesis is wrong. The household is willing to increase
the amount of cropland that participates in the GTGP when the
opportunity cost is low, while the household will decrease the
amount of cropland when the opportunity cost exceeds the peak.
The results shown in Table 3 indicate that the coefficients of
RPG are significantly positive in all models, which suggests that
the intensity of participation increases with increasing ratio of pay-
ments from the GTGP to total household income. The relatively
large coefficients of RPG identify the incentives as the most impor-
tant factor for motivating households to participate in the GTGP.
The coefficients of RCI are significantly negative in all models, sug-
gesting that the intensity of participation decreases as the ratio of
cropland income to total household income increases. This means
that the dependence of households on their cropland income is
inversely proportional to their participation in the GTGP, thus con-
firming the second hypothesis. The households that depend on
their cropland income will only enrol a small portion of their land
in the GTGP because the payments are not sufficient to compensate
for the loss of providing ecosystem services. Therefore, high reli-
ance on their cropland income decreases the willingness of house-
holds to participate in the GTGP. Moreover, the coefficients of ROI
are not significant in Models (6)-(8), indicating that other agricul-
tural income is not the main factor that is considered by house-
holds when making decisions in the GTGP.
 J. Sheng et al. / World Development 117 (2019) 230–238 235

Table 3
The regression results with the quadratic term of opportunity cost.

Models (3) (4) (5) (6) (7) (8)

OLS FE RE OLS FE RE
AIC 0.328*** 0.328*** 0.985*** 0.442*** 0.442*** 1.279***
(0.051) (0.044) (0.058) (0.060) (0.058) (0.060)
AIC2 0.121*** 0.121*** 0.0384*** 0.172*** 0.172*** 0.506***
(0.029) (0.025) (0.038) (0.035) (0.030) (0.037)
RPG 0.314*** 0.314*** 0.993*** 0.314*** 0.314*** 1.217***
(0.044) (0.033) (0.041) (0.068) (0.052) (0.059)
RCI 0.027*** 0.027*** 0.117*** 0.084*** 0.084*** 0.386***
(0.009) (0.006) (0.009) (0.027) (0.024) (0.025)
AFC 0.002** 0.002** 0.005*** 0.002*** 0.002** 0.004***
(0.001) (0.001) (0.001) (0.001) (0.001) (0.001)
ROI 0.009 0.009 0.004
(0.045) (0.038) (0.047)
TLS 0.007** 0.007*** 0.007***
(0.003) (0.002) (0.002)
Individual fixed effect Yes Yes No Yes Yes No
Time fixed effect Yes Yes No Yes Yes No
Constant 0.025** 0.025** 0.303*** 0.087*** 0.087*** 0.284***
(0.011) (0.011) (0.013) (0.022) (0.019) (0.020)
Obs. 1053 1053 1053 770 770 770
R-sq. 0.880 0.829 0.440 0.909 0.875 0.655
Hausman test
Wald chi2 598.27*** 389.66***

Note: robust standard error in parentheses; *, **, and ***

represent significant at 10%, 5% and 1% levels, respectively.

Furthermore, the coefficients of AFC are significantly negative in
all models, suggesting that the annual fuelwood consumption is
negatively correlated to the intensity of participation in the GTGP.
This finding confirms the third hypothesis. Thus, improving the
energy structure and decreasing fuelwood consumption can help
to increase the willingness of households to participate in the
GTGP. The coefficients of TLS are significantly negative in Models
(6)-(8), suggesting that the land size is inversely proportional to
the willingness of landholders to participate. This finding is consis-
tent with previous studies, such as Zhang et al. (2011).
4.2. Robustness check
A robustness check was employed to verify the robustness of
the effects of opportunity cost on the intensity of participation
by using the panel data of the GTBP in the WNNR. The intensity
of participation in the GTBP (IPB) was selected, i.e., the proportion
of enrolled cropland in the GTGP to the total land area of each
household as the dependent variable. Moreover, the annual fuel-
wood consumption (AFC) was replaced with annual electricity
expenditure (AEE) as the dependent variable to further investigate
the robustness of the effects of energy structure on the intensity of
participation. Table 4 presents a summary of the variables for the
robustness check.
According to the results presented in Table 4, the average value
of IPB was only 6%, indicating that the intensity of participation in
the GTBP is zero in many households. This suggests that the depen-
dent variable IPB is censored at zero (censored data; (Ma et al.,
2012). At this time, the estimation result would be biased if the
OLS were to be used to estimate censored data. Following
Wooldridge (2010), the Tobit model was employed to address the
censored data issue and to obtain consistent estimates. The form
of the Tobit model for the robustness check is provided by Eq. (2):
IPBit ¼ b0 þ b1 AIC it þ b2 AIC 2it þ b3 RPBit þ b4 RCIit þ b5 AFC it
þ c1 ROIit þ c2 TLSit þ ui þ eit ð2Þ
where i (i = 1, 2,. . ., 220) represents the households; t (t = 1999,
2002, 2003, 2004, 2005, 2006, 2007, and 2010) represents the years;
b0 is a constant; bj (j = 1, 2, . . ., 5) represents the coefficient of the
j-th independent variable; ck (k = 1, 2) represents the coefficient
of the k-th control variable; ui represents the individual fixed effect;
and eit represents the random disturbance term. Since an autocorre-
lation exists between the disturbance term of the same individual in
different periods, the clustering robust standard error has been
applied for the estimation. The results are shown in Table 5.
According to the results shown in Table 5, the coefficients of AIC
and AIC2 are significantly positive and negative in all models,
respectively. These results are consistent with the results shown

Table 4
Summary of the variables for the robustness check.

Variables Descriptions Units Obs. Mean Std. Dev. Min Max

Dependent variable
IPB Intensity of participation in the GTBP % 1405 0.06 0.14 0 0.73
Independent variables
AIC Annual net income of cropland 10,000 yuan 1582 0.13 0.21 0 4.00
AIC2 Square of annual net income of cropland 10,000 yuan 1582 0.06 0.50 0 16.00
RPB Ratio of payments from the GTBP to total household income % 1690 0.08 0.16 0 1.66
RCI Ratio of cropland income to total household income % 1661 0.36 0.57 0 14.80
AEE Annual electricity expenditure 1000 yuan 1743 0.54 0.51 0 6.00
Control variables
ROI Ratio of other agricultural income to total household income % 1361 0.08 0.15 0 0.93
TLS Total land size mu (0.0667 ha) 1407 8.50 4.62 0 40.00
236 J. Sheng et al. / World Development 117 (2019) 230–238

Table 5 According to the results shown in Table 6, the coefficients of AEE

The regression results of the Tobit model by using the GTBP’s panel data. are significantly positive in all models, suggesting that the annual
Models (9) (10) electricity expenditure is positively correlated with the intensity of
Tobit Tobit participation in the GTGP. Since electricity is a substitute for fuel-
AIC 0.545*** 0.716*** wood, the obtained results provide another perspective to corrob-
(0.119) (0.144) orate the negative correlation between annual fuelwood
AIC2 0.176*** 0.223*** consumption and the intensity of participation. Moreover, the
(0.062) (0.075)
RPB 1.111*** 1.259***
signs of other variables in Table 6 are consistent with the results
(0.087) (0.105) shown in Table 3, suggesting that the findings are robust.
RCI 0.257*** 0.395***
(0.081) (0.077)
5. Discussion
AFC 0.008** 0.007**
(0.003) (0.004)
ROI 0.404*** Opportunity costs are a crucial factor affecting the participation
(0.123) of landholders in PES. The findings of this study demonstrate that
TLS 0.016*** the opportunity cost and the participation of landholders in PES
(0.003)
Constant 0.224*** 0.390***
do not follow a simple linear relationship, but instead follow an
(0.032) (0.049) inverted U-shaped relationship. The participation of landholders
Censored observations 829 644 in PES will increase with increasing opportunity cost when the
Uncensored observations 220 123 opportunity cost is small. However, the participation of landhold-
Log likelihood 213.71 129.58
ers will decrease as the opportunity cost continues to increase
Note: robust standard error in parentheses; *, **, and *** represent significant at 10%, and exceed the turning point. This is because landholders are only
5% and 1% levels, respectively. willing to enrol low-productivity land in PES and retain their high-
productivity land for themselves (Gauvin et al., 2010). Compared to
in Table 3, further demonstrating an inverted U-shaped relation- agricultural activities, the benefits for landholders to participate in
ship between the opportunity cost and the intensity of participa- PES include cash and in-kind payments, diversification of income
tion in PES. Moreover, the signs of the independent variables (i.e., sources, the provision of reliable and stable payments, and the pro-
SSB, RCI, and AFC) are also consistent with the results shown in vision of training (Grieg-Gran, Porras, & Wunder, 2005; Torres
Table 3. However, the signs of the control variables (i.e., ROI and et al., 2013). Therefore, the landholder has an overall incentive to
TLS) differ from the above results. This may be due to the use of participate in PES as long as the opportunity cost is below the pay-
data from different PES projects. ments. This may explain why the participation of landholders will
Furthermore, the annual fuelwood consumption (AFC) was increase despite increasing opportunity cost when the opportunity
replaced with the annual electricity expenditure (AEE) to investi- cost is relatively low. When the opportunity cost is equal to the
gate the robustness of the effects of energy structure on the inten- payments, the willingness of participation will reach a plateau.
sity of participation. Thus, the form of the econometric model for At this point, a continued increase in opportunity cost will
the robustness check can be provided by Eq. (3): decrease the willingness of participation. Consequently, landhold-
ers with higher opportunity costs often show lower willingness to
IPGit ¼ b0 þ b1 AIC it þ b2 AIC 2it þ b3 RPBit þ b4 RCIit þ b5 AEEit participate in PES (Zanella et al., 2014).
þ c1 ROIit þ c2 TLSit þ ui þ mt þ eit ð3Þ The obtained findings also indicate that the opportunity cost
impacts different PES participants differently. When the opportu-
where AEEit represents the annual electricity expenditure of the i-th nity costs of landowners are not equal to the ecological benefits
household in the t-th year. The results of the robustness check are they generate, uniform payment standards in PES become unrea-
shown in Table 6. sonable and unfair (Ferraro, 2008). By comparing the willingness

Table 6
The results of the robustness check by using the annual electricity expenditure.

Models (11) (12) (13) (14) (15) (16)

OLS FE RE OLS FE RE
AIC 0.333*** 0.333*** 0.955*** 0.456*** 0.456*** 1.209***
(0.050) (0.044) (0.056) (0.058) (0.056) (0.060)
AIC2 0.120*** 0.120*** 0.367*** 0.173*** 0.173*** 0.472***
(0.029) (0.025) (0.038) (0.035) (0.030) (0.037)
RPG 0.319*** 0.319*** 1.072*** 0.345*** 0.345*** 1.259***
(0.042) (0.034) (0.040) (0.065) (0.053) (0.058)
RCI 0.027*** 0.027*** 0.120*** 0.092*** 0.092*** 0.369***
(0.008) (0.006) (0.009) (0.026) (0.023) (0.024)
AEE 0.023** 0.023** 0.125*** 0.026** 0.026** 0.091***
(0.009) (0.010) (0.012) (0.012) (0.013) (0.015)
ROI 0.038 0.038 0.023
(0.040) (0.035) (0.042)
TLS 0.007*** 0.007*** 0.007***
(0.002) (0.002) (0.001)
Individual fixed effect Yes Yes No Yes Yes No
Time fixed effect Yes Yes No Yes Yes No
Constant 0.001 0.001 0.206*** 0.062*** 0.062*** 0.220***
(0.009) (0.008) (0.012) (0.022) (0.017) (0.019)
Obs. 1124 1124 1124 853 853 853
R-sq. 0.881 0.844 0.506 0.903 0.878 0.691

Note: robust standard error in parentheses; *, **, and ***

represent significant at 10%, 5% and 1% levels, respectively.
 J. Sheng et al. / World Development 117 (2019) 230–238
of landholders to participate in the GTGP in the WRRN under dif-
ferent payment schemes, Chen, Lupi, Vina, He, and Liu (2010)
found that discriminative payments based on opportunity costs
could effectively improve the participation of landholders in PES.
Since an increase in opportunity costs does not always decrease
the willingness of landholders to participate in PES, it is necessary
to consider the landholder heterogeneity in designing PES schemes
rather than adopting uniform payment standards. Thus, landhold-
ers with high opportunity costs should receive higher payments
compared to landholders with lower opportunity costs.
The proportion of payments to household income exerts an crit-
ical and positive impact on the participation in PES. The distinctive
feature of PES is its additionality, which assumes that there would
be no additional ecosystem conservation without PES intervention
(Pattanayak, Wunder, & Ferraro, 2010). Therefore, economic incen-
tives are an effective means for encouraging landholders to partic-
ipate in PES (Fisher, 2012). Moreover, the obtained findings also
demonstrate that the proportion of cropland income to household
income negatively affects the willingness of landholders to partic-
ipate in PES. This suggests that landholders who rely on cropland
for their livelihood are less willing to participate in PES. Based on
planting, landholders need sufficient land to concentrate on their
agricultural activities; therefore, they will only enrol less produc-
tive land in PES (De Koning et al., 2011).
In addition to determining optimal payments, the incentive
mechanism in PES should also consider how to optimise the
income structure of landholders and reduce their reliance on crop-
land income. It is also necessary to create more non-agricultural
employment opportunities for landholders to broaden their
income sources (Groom et al., 2010).
The willingness of landholders to participate in PES is also
related to their utilised energy structures. The findings of this
study indicate that landholders with higher fuelwood consumption
are less likely to participate in PES. However, electricity as a substi-
tute for fuelwood has a significantly positive impact on the willing-
ness of PES participation. Since participating in PES may limit the
traditional energy consumption patterns, the landholders who
use fuelwood as the primary energy source are significantly
affected by PES. These landholders may still be likely to re-
deforest to obtain fuelwood after the end of the PES projects (He
et al., 2009). Therefore, it is necessary to encourage landholders
to actively and voluntarily improve their utilised energy structures
to improve the participation in PES and consolidate its achieve-
ments continually. Improving the energy structure not only con-
tributes to ecosystem restoration but can also improve the living
standards of landholders (Peng, Tu, Elahi, & Wei, 2018; Wang
et al., 2012).
6. Conclusion
PES is a voluntary transaction between service providers and
service beneficiaries (Wunder, 2015); consequently, the willing-
ness of service providers to participate is critical for the effective-
ness and sustainability of PES (Chen, Lupi, He, Ouyang, & Liu, 2009).
Therefore, a better understanding of the drivers behind the land-
use decisions of service providers forms the basis for designing
effective incentives in PES. Within a valid theoretical framework,
this study examines the roles of opportunity cost, income struc-
ture, and energy structure with regard to the participation of land-
holders in PES, using the survey data of the GTGP in China’s WNNR.
The contributions of this study can be summarised as follows:
(i) a theoretical framework was established to examine the effects
of opportunity cost, income structure, and energy structure on the
participation of landholders in PES; (ii) it was confirmed that the
correlation between opportunity cost and the participation of land-
237
holders in PES is not negative, as indicated by the existing litera-
ture, but follows a more complex inverted U-shaped relationship;
and (iii) the robustness of the relationship between opportunity
cost, income structure, energy structure, and the participation of
landholders was tested by replacing energy variables and using
the GTBP’s panel data in China’s WNNR. The obtained findings
demonstrate that there is indeed an inverted U-shaped relation-
ship between opportunity cost and the participation of landholders
in PES. This suggests that the willingness of landholders to partic-
ipate in PES will increase with increasing opportunity cost for
small opportunity cost; however, it will decrease as the opportu-
nity cost continues to increase and exceeds the turning point.
Our findings also indicate that the dependence of landholders on
their cropland income has a significantly adverse effect on their
participation in PES, while the effects of other sources of agricul-
tural income are not significant. Furthermore, the energy structure
dominated by fuelwood is a crucial factor that discourages land-
holders from participating in PES.
Although economic incentives remain the most critical factor
for encouraging landholders to participate in PES, the role of other
non-monetary factors should not be ignored. This may be more
effective than simply increasing the payments if the roles of oppor-
tunity cost, income structure, and energy structure are considered
for the design of an incentive mechanism in PES. As pointed out by
Torres et al. (2013), ‘‘offering a mix of cash and non-cash benefits
based on local developmental needs might be the best way to pro-
mote participation in PES.”
Acknowledgements
The author is grateful to the financial support provided by the
National Natural Science Foundation of China (No. 71774088),
the Major Research Plan of National Social Science Foundation of
China (18ZDA052), and the Six Talent Peaks Project in Jiangsu
Province (2017-JNHB-058). This paper is also funded by the
Qing Lan Project.
Conflict of interest
None.
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