Valuing Ecosystem Services Toward Better Environmental Decision-Making (2005) / Chapter Skim
Currently Skimming:
4 Methods of Nonmarket Valuation
4 Methods of Nonmarket Valuation
Pages 95-152
The Chapter Skim interface presents what we've algorithmically identified as the most significant single chunk of text within every page in the chapter.
Select key terms on the right to highlight them within pages of the chapter.
From page 95... ...
. The purpose of this chapter is to carefully lay out the basic valuation approaches and explain their linkages to valuing aquatic ecosystems.
|
From page 96... ...
2. Valuation methods are used to estimate the gains or losses that people may experience as a result of changes in aquatic ecosystems in order to inform policy discussions and decisions.
|
From page 97... ...
Why Valuation Is Required Chapter 2 discusses the importance of economic valuation as input into decision-making and, in particular, for aiding the assessment of policy choices or trade-offs concerning various management options for aquatic ecosystems. As Chapter 3 has illustrated, given the complex structure and functioning of aquatic and related terrestrial ecosystems, these systems often yield a vast array of continually changing goods and services.
|
From page 98... ...
Such information on nonmarket values will in turn assist in assessments of whether to protect certain types of aquatic ecosystems, to enhance the provision of selected ecosystem services, and to restore damaged ecosystems. Finally, economic values are often used in litigation involving damage to aquatic ecosystems from pollution or other human actions.
|
From page 99... ...
do not imply that the original services of this wetland area can be restored with certainty. It is also impossible to predict with certainty the changes in service provided by aquatic ecosystems due to global warming.
|
From page 100... ...
The economist's concept of TEV for ex ante valuation under uncertainty, from either the supply or the demand side, is option price (Bishop, 1983; Freeman, 1985; Larson and Flacco, 1992; Smith, 1983; Weisbrod, 1964) .5 The notion of option price follows that of TEV, whereas option value is simply the concept of TEV when uncertainty is present and includes all use and nonuse values an individual holds for a change in an aquatic ecosystem.
|
From page 101... ...
Simulated markets are typically used as a benchmark to judge the validity of value estimates derived from indirect methods, but simulated markets are rarely used to develop policy-relevant estimates of value. The open-ended format is not commonly used in contingent valuation studies due to problems with zero bids and protest responses (Bateman et al., 2002; Boyle, 2003)
|
From page 102... ...
Thus, information on the value of environmental quality can be extracted from information on the household's purchases of marketed goods. The following section illustrates the HPF framework with three examples applied to aquatic ecosystems: (1)
|
From page 103... ...
Alternatively, if one site has degraded water quality that results in a fish consumption advisory, this site would not be chosen. RUMs use information on these revealed choices to estimate the values people place on aquatic ecosystem services that support recreational opportunities.
|
From page 104... ...
(1993) included angler catch rates in their model and sportfishing as an indicator of the quality of the ecosystem services enjoyed by people.
|
From page 105... ...
The typical effects of ecosystem services valued in RUMs are changes in fish catch rates, the presence of fish consumption advisories, and degradation of surface waters due to eutrophication from nonpoint pollution. Rarely are other dimensions of ecological services of aquatic ecosystems valued.
|
From page 106... ...
A subjective decision by an analyst to include or exclude elements from the measurement of travel cost will increase or decrease the measurement of travel cost and affect value estimates. The second factor of particular concern for applications to aquatic ecosystems is the degree to which aquatic ecosystem services are correlated with each other and with other physical attributes of a site.
|
From page 107... ...
Thus, averting behavior analyzes the rate of substitution between changes in behavior and expenditures on and changes in environmental quality in order to infer the value of certain nonmarketed environmental attributes (see Appendix B)
|
From page 108... ...
In this case, averting expenditures overstate what would be spent just to avoid the contamination. Although averting behavior studies will generally provide a lower or upper bound on the damages to compromised drinking water, they are not likely to be useful in measuring other economic values of aquatic ecosystem services.
|
From page 109... ...
In terms of aquatic ecosystems, properties with lake frontage sell for more than similar properties that do not have lake frontage. Among properties with lake frontage, those located on lakes with good water quality would be expected to sell for more than those located on lakes with poor water quality.
|
From page 110... ...
may more be more closely aligned with buyer and seller perceptions than actual measures of water chemistry. This means that Secchi disk measurements may do a better job of explaining changes in sale prices of properties than measurements of dissolved oxygen, which implies a more accurate estimate of the implicit price placed on eutrophication by homeowners.
|
From page 111... ...
Thus, it may be impossible to statistically disentangle the implicit price for the protection of aquatic ecosystems along the coast and other benefits of building restrictions. Other applications of hedonic models to estimate implicit prices for aquatic ecosystems include the following: · effects of water clarity on sale prices of lakefront properties (Michael et al., 2000; Steinnes, 1992; Wilson and Carpenter, 1999)
|
From page 112... ...
the effects of aquatic ecosystems must be observable to property owners, and (2) there should be minimal correlation between aquatic ecosystem services that affect sale price of properties and other attributes that affect sale prices.
|
From page 113... ...
For some ecological services that are difficult to measure, an estimate of ecosystem area may be included in the production function of marketed output as a proxy for the ecological service input. For example, in models of coastal habitat-fishery linkages, allowing wetland area to be a determinant of fish catch is thought to "capture" some element of the economic contribution of this important ecological support function (Barbier and Strand, 1998; Barbier et al., 2002; Ellis and Fisher, 1987; Freeman, 1991; Lynne et al., 1981)
|
From page 114... ...
. A further issue is whether a static or dynamic model of the relationship between the ecological service and the economic activity is required.
|
From page 115... ...
. Since coastal wetland habitat affects the biological growth of the fishery, a decline in wetland area will shift back the long-run supply curve of the fishery and thus reduce long-run harvest levels.
|
From page 116... ...
In assuming an open-access crab fishery supported by Louisiana coastal wetland habitat, the value of an increase in wetland acreage from 25,000 to 100,000 acres could range from $47,898 to $269,436. If the fishery is optimally managed, the increase in coastal wetland is valued from $116,464 to $248,009.
|
From page 117... ...
The PF approach has the advantage of capturing more fully the ecosystem functioning and dynamics underlying the provision of key services and can be used to value multiple services arising from aquatic ecosystems. For example, Wu et al.
|
From page 118... ...
The integrated model predicts that the maximum optimal fixed budget for lake trout control is $169,000. Other applications of production function models to estimate the value of services of aquatic ecosystems include the following: · habitat-fishery linkages (Barbier, 2000 and 2003; Batie and Wilson, 1978; Bell, 1989; Costanza et al., 1989; Danielson and Leitch, 1986; Hammack
|
From page 119... ...
Contingent valuation is used to estimate values for applications, such as aquatic ecosystem services, where neither explicit nor implicit market prices exist. The first known application of contingent valuation was by Davis (1964)
|
From page 120... ...
Of the many contingent valuation studies that have been conducted, perhaps the two most well known involve aquatic ecosystems. In one of the earliest large-scale, contingent valuation studies, Mitchell and Carson (1981)
|
From page 121... ...
. The use of conjoint analysis in other types of applications in the literature is growing, and conjoint analysis is likely to become more prominent in the valuation of aquatic ecosystems in the future because of its ability to estimate values for multiple services.
|
From page 122... ...
Having noted and provided some examples of the limitations of statedpreference methods however, the vast number of stated-preference methods in the literature is testimony to the wide array of aquatic ecosystem applications in which contingent valuation and conjoint analysis can be employed. Nevertheless, it is also important to note that much of the criticism of stated-preference methods has arisen because they are not based on actual behavior (e.g., Diamond and Hausman, 1994; Hanemann, 1994; Portney, 1994)
|
From page 123... ...
These stated behaviors are added to the travel-cost data to estimate the preference model. This type of statedpreference data is sometimes referred to as "behavioral intentions." Some studies have framed the behavioral intention questions similar to contingent valuation questions, and visitation -- not a dollar value -- is the requested response (Cameron, 1992)
|
From page 124... ...
Second, most nonmarket valuation studies have been undertaken by economists in the abstract from specific information that links the resulting estimates of values to specific changes in aquatic ecosystem services and functions. Finally, studies that have investigated the validity of benefit transfers in valuing ecosystem services have demonstrated that this approach is not highly accurate (Desvouges et al., 1998; Kirchhoff et al., 1997; Vandenberg et al., 2001)
|
From page 125... ...
Because of the lack of data for many ecological services arising from aquatic ecosystems, valuation studies may consider resorting to a similar replacement cost or cost of treatment approach. For example, the presence of a wetland may reduce the cost of municipal water treatment for drinking water because the wetland system filters and removes pollutants.
|
From page 126... ...
This approach is important because many changes in important functions and service of aquatic ecosystems do not directly affect humans (e.g., water quality and habitat changes that influence coastal and riparian fisheries; eutrophication; biological invasions)
|
From page 127... ...
Area of aquatic ecosys tems proximate to a property Production function Use Commercial and Habitat-fishery linkages recreational Water quality-fishery fishing; linkages Hydrological Habitat restoration functions; Groundwater recharge by Residential property; wetlands Ecological-economic Biological invasions modeling of the Eutrophication effects of inva- Storm protection sions Stated preferences Use and nonuse Recreation, Groundwater protection Human health and Wetland values any other activity, Sportfishing including passive Waterfowl hunting use, that affects peoples' eco nomic values Benefit transfer Use and nonuse Recreation and Sportfishing passive use
|
From page 128... ...
Recent progress in developing dynamic production function approaches to modeling ecosystem services, such as habitat-fishery linkages and integrated ecological-economic analysis to incorporate multiple services and environmental benefit trade-offs, have illustrated that the production function approach may have a wider application to valuing the services of aquatic ecosystems as our knowledge of the ecological, hydrological, and economic features of these systems improves. In comparison to revealed-preference methods, stated-preference methods exhibit the following advantages, they are: (1)
|
From page 129... ...
One such ecosystem that has generated several valuation studies of key ecological services is the Great Lakes. The following section reviews these Great Lake studies as an illustration of many of the nonmarket valuation methods and approaches described in this chapter.
|
From page 130... ...
By the 1950s, lampreys had almost eliminated the self-sustaining lake trout populations in Lake Michigan and Lake Huron (Peeters, 1998)
|
From page 131... ...
The model was used to estimate benefits for policies that might change fishing quality at a particular site and aggregation of sites, such as inland regions and lakes. For example, an initial analysis indicated that a 10 percent improvement in Lake Michigan and Lake Huron salmon and trout catch rates would result in angler benefits of $3.3 million per year (Lupi and Hoehn, 1998)
|
From page 132... ...
For instance, PCBs were suspected of injury to fish populations, but it was not possible to quantitatively translate population injuries into estimates of changes in catch rates for sport and subsistence anglers. The uncertainties regarding service flow injuries led several investigators to two types of damage estimation studies.
|
From page 133... ...
The analysis estimated the economic demand for fishing as a function of travel cost, whether an FCA was in force at a given site, and other fishing site quality variables. The FCA effect on demand allowed researchers to estimate the shift in fishing demand and the change in consumer value due to presence of the FCA.
|
From page 134... ...
This comparison found that estimated total values were 8 to 28 percent greater than use values alone, suggesting that nonuse value was about 8 to 28 percent of use value in angler households. Lakeshore Erosion Shoreline erosion offers a short-term laboratory for examining the economic consequences of aquatic ecosystem change.
|
From page 135... ...
The first examined shoreline property values on Lake Erie (Kriesel et al., 1993) , and the second combined data for homes on both Lake Erie and Lake Michigan (Heinz, 2000)
|
From page 136... ...
If valuation methods can be applied successfully to a complex and geographically extensive aquatic ecosystem such as the Great Lakes, then nonmarket valuation can also be implemented for equally important aquatic ecosystems elsewhere. Second, the studies illustrate some of the limitations of revealed- and statedpreference valuation methods discussed earlier in the chapter.
|
From page 137... ...
. ISSUES In describing and discussing currently available nonmarket valuation methods and their applicability to aquatic ecosystem services, a number of key issues have emerged, these include assessing ecological disturbance and threshold effects, limitations to ex ante and ex post valuation, partial versus general equilibrium approaches, and the problem of scope.
|
From page 138... ...
Thus, substantial creativity and design effort may be required to develop plausible stated-preference valuation scenarios for large-scale disturbances to aquatic ecosystems that have threshold effects. Threshold effects can also occur in peoples' preferences.
|
From page 139... ...
In essence, these approaches represent the extension of the production function approach to a full ecosystem level. Scope Insensitivity to scope is a major issue in contingent valuation studies of nonuse values of ecosystem services.
|
From page 140... ...
Although the NOAA panel stated that contingent valuation can provide useful information on nonuse values, the ability of contingent valuation methods to demonstrate scope effects has not been shown clearly in the literature. This a major concern for valuing aquatic ecosystems because nonuse values would be expected to be an important and large component of any total economic value assessment.
|
From page 141... ...
Although the focus of this chapter has been on presenting the array of valuation methods and approaches currently available for estimating monetary values of aquatic and related terrestrial ecosystem services, it is important to remember that the purpose of such valuation is to aid decision-making and the effective management of these ecosystems. Building on this critical point, at least three basic questions arise for any method that is chosen to value aquatic ecosystem services: 1.
|
From page 142... ...
is the most appropriate. In presenting the various nonmarket valuation methods available for estimating monetary values of aquatic and related terrestrial ecosystem services, this chapter has also sought to provide some guidance on the appropriateness of the various methods available for a range of different services.
|
From page 143... ...
Journal of Environmental Economics and Management 26:271-292. Ahearn, M., K.J.
|
From page 144... ...
2003. Contingent valuation in practice.
|
From page 145... ...
In Determining the Value of Non-marketed Goods: Economics, Psychological, and Policy Relevant Aspects of Contingent Valuation Methods, R
|
From page 146... ...
1999. Unbiased value estimates for environmental goods: A cheap talk design for the contingent valuation method.
|
From page 147... ...
1994. Valuing the environment through contingent valuation.
|
From page 148... ...
1995. Contingent valuation focus groups: Insights from ethnographic interview techniques.
|
From page 149... ...
Wash ington, D.C.: The National Academies Press. NOAA (NOAA Panel on Contingent Valuation)
|
From page 150... ...
1994. The contingent valuation debate: Why economists should care.
|
From page 151... ...
2001. Assessing the accuracy of benefits transfers: Evidence from a multi-site contingent valuation study of ground water quality.
|
From page 152... ...
Ameri can Journal of Agricultural Economics 82(2)
|
Key Terms
This material may be derived from roughly machine-read images, and so is provided only to facilitate research.
More
information on Chapter Skim is available.