Price Elasticity of Household Demand for Forest Ecosystem Services: Evidence from Communities Adjacent to Nandi South Forest, Kenya

Abstract

This study examined the price elasticity of household demand for Payment for Ecosystem Services (PES) among communities adjacent to Nandi South Forest in Nandi County, Kenya. Guided by the Contingent Valuation Method, the study adopted a descriptive quantitative design. The target population comprised 10,456 households located within approximately five kilometres of the forest, from which 385 households were selected using Yamane’s formula. Data were collected through structured household questionnaires and contingent valuation surveys and analysed using descriptive statistics and binary logistic regression. Of the 385 questionnaires administered, 360 were completed and returned. The findings indicate that household demand for PES was generally price inelastic within the observed contribution range. The proportion reporting very high willingness to pay was 70.3% under a 20% price increase and 56.9% under a 50% increase, indicating greater sensitivity at the higher contribution level. The estimated demand elasticity was 0.042, while the offered compensation price significantly influenced participation in PES (p = 0.008). In addition, 76.9% of respondents indicated willingness to contribute funds towards conservation of Nandi South Forest. Overall, the findings suggest that modest changes in contribution levels have limited effects on participation, although affordability becomes more important as contribution levels rise. The study therefore supports affordable and differentiated payment structures that reflect household financial capacity and encourage broad participation in forest conservation.