• Farmers would rather receive compensation for soil and water conservation works than biodiversity.
• Significant costs can be shared by farmers for forest conservation.
• Investments in forestland create incentives for farmers to sustainably use forests.
• Accounting for heterogeneity allows better estimation of willingness to accept.
This study explored local communities’ willingness to accept compensation for the conservation of Desa’a state forest, which is located in northern Ethiopia. For this purpose, a sample of two hundred forty rural households living around the forest was randomly selected. A choice experiment approach encompassing three forest-related choice attributes namely, biodiversity, soil and water conservation, and agroforestry, was used to elicit willingness to accept compensation for conservation of the forest. A mixed logit model that helps account for differences in household preferences was then used to estimate marginal willingness to accept compensation for forest conservation. Results show that households would be willing to accept an average compensation of 7.7 USD to work for 5–10 additional days of public work on soil and water conservation as part of contributing to Desa’a forest conservation. On the other hand, households’ preferences to work on biodiversity conservation and agroforestry expansion were found to be negligible as the respective marginal willingness to accept estimates show. Given costs that the government of Ethiopia incurs for environmental rehabilitation programs through the soil and water conservation, strengthening such investments in and around forestlands could prove useful in creating incentives for households to sustainably conserve and use forests.