This study highlights an important environmental problem of crop residue burning in open fields and investigates the main 'cost-push' factors of rice and wheat crop residue management in the district Gujranwala of Punjab, Pakistan. Burning of residue, is the second largest contributor to global warming after carbon dioxide, and it disturbs the key components of the agricultural ecosystem. Burning of residue is a quick way of clearing the field for the next crop. It also aids in controlling various pests, weeds, and diseases. The majority of the farmers are inclined to burn residue completely, followed by its complete removal in the study region because of the aforementioned benefits. This paper is based on a survey of 200 farmers interviewed from 28 villages of four Tehsils of the district Gujranwala, with a maximum number of 7 farmers from each village. A multinomial logit model technique is adopted to analyze the problem. Size of farm, length of straw, cattle ownership, avoiding late plantation of next crop and distance of the field from farmers' homes were found significantly affecting farmers' decision of following a particular residue management practice for rice crop. The use of wheat chopper machine, reading habits of agricultural publications and combine harvester were found main determinants for wheat residue management practices. Based on the results, we suggest a compensation mechanism to the farmers, similar to Payment for Ecosystem (PES) for the complete removal or incorporation of residue as it is an expensive solution. We also recommend an awareness-raising campaign regarding the use of wheat chopper machine and Kubota harvester to reduce open field burning of residue and the use of crop residue for bio-energy consumption.