Ecosystem Services (Part IV): Issues in Valuing Ecosystem Services
This is the last posting in a 4-part series on ecosystem services. Ecosystem services are the services that nature provides to humans, society, and the economy. Today, I list below 5 articles that address issues in valuing ecosystem services. Please see prior postings for other works on ecosystem services and their relationships to land use, property, and environmental law and policy.
1) Alexander, Anne, List, John A. and Margolis, Michael, A Method for Valuing Global Ecosystem Services. Ecological Economics, Vol. 27, No. 2, 1998. Available at SSRN: http://ssrn.com/abstract=1075862
The goal of this paper is to provide an investigation of several approaches to valuing ecosystem services and to contribute additional techniques which may be used in evaluating `green' GDP accounts. Our estimates focus on the ecosystem as a productive economic input, not a stock which is depreciated or depleted over time; as such, it differs with other concepts more frequently employed in green GDP accounting. Most of our results are derived from the analytical fiction that a single owner of the biosphere establishes a market for all ecological resources. This monopolist then appropriates all rents from the human population. The maximum amount the monopolist charges is first assumed to be world gross product less the global human subsistence level. In addition, we examine the excess rents available in factor markets using the assumption of weak complementarity between factor inputs and ecosystem services. We also provide more conservative estimates of the value of ecosystem services by investigating the sustainable price the monopolist could charge the global population and by exploring the effects of compensating wage differentials and a non-monopolist owner of the ecosystem.
2) Winkler, Ralph, Valuation of Ecosystem Goods and Services Part 1: An Integrated Dynamic Approach. Ecological Economics, Vol. 59, No. 1, pp. 82-93, 2006. Available at SSRN: http://ssrn.com/abstract=978376
This is the first part of a two-part paper which offers a new approach to the valuation of ecosystem goods and services. The existing literature on environmental valuation is based on two distinct foundations. The ecological valuation methods derive values by a cost-of production approach. Their common characteristic is the neglect of consumer preferences. The economic valuation methods focus on the exchange value of ecosystem services. Their common characteristic is that they are finally based on consumer preferences, and do not adequately take account of the complex internal structure of ecosystems. As the existing methods for the valuation of ecosystem services emphasize either the economic system or the ecosystem, the main objective of part 1 is to provide the conceptual foundations for a new method of valuation of ecosystem services, which deals simultaneously with the ecosystem, the economic system and society in a balanced way. Within a simple pre-industrial model it is shown how the interdependencies between the three subsystems influence values, and how values change over time.
3) Boyd, James William and Banzhaf , H. Spencer, What are Ecosystem Services? The Need for Standardized Environmental Accounting Units (January 2006). Resources for the Future, Discussion Paper No. RFF DP 06-02. Available at SSRN: http://ssrn.com/abstract=892425
This paper advocates consistently defined units of account to measure the contributions of nature to human welfare. We argue that such units have to date not been defined by environmental accounting advocates and that the term "ecosystem services" is too ad hoc to be of practical use in welfare accounting. We propose a definition, rooted in economic principles, of ecosystem service units. A goal of these units is comparability with the definition of conventional goods and services found in GDP and the other national accounts. We illustrate our definition of ecological units of account with concrete examples. We also argue that these same units of account provide an architecture for environmental performance measurement by governments, conservancies, and environmental markets.
4) Boyd, James William, The Nonmarket Benefits of Nature: What Should be Counted in Green GDP?(May 2006). Resources for the Future Discussion Paper No. 06-24. Available at SSRN: http://ssrn.com/abstract=900581
Green gross domestic product (green GDP) is meant to account for nature's value on an equal footing with the market economy. Several problems bedevil green GDP, however. One is that nature does not come prepackaged in units like cars, houses, and bread. Even worse, green GDP requires measurement of the benefits arising from public goods provided by nature for which there are no market indicators of value. So what should green GDP count? That is the subject of this paper. Ecological and economic theory are used to describe what should be counted - and what should not - if green GDP is to account for the nonmarket benefits of nature.
5) Heal, Geoffrey M., Valuing Ecosystem Services (January 1999). Paine Webber Working Paper No. 98-12. Available at SSRN: http://ssrn.com/abstract=279191
The value of the services provided to human societies by natural ecosystems and biogeochemical cycles has recently been the topic of discussion and research. Here I review some of the basic economic principles necessary for understanding some of the questions that arise in this area. I argue that even with the best possible data and scientific understanding, the sense in which economists can value nature's services is limited. I also argue that valuing these services is much less important than providing incentives for their conservation, and that valuation and providing incentives for conservation are quite different. Valuation is neither necessary nor sufficient for conservation, whereas providing the right incentives is.