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In this subsection: Also in this Section:
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The ecosystem valuation Website is a work in progress. Earlier sections dealing with dollar-based valuation methods are in good shape and meet the goal of providing noneconomists with a clear understanding of the pros and cons of each methodological alternative. The same cannot be said for this section which deals with relative (non-monetary) indicators of ecosystem values. The problem here is that unlike dollar-based methods that are based on well-documented conceptual research and field testing, the methods for developing relative value indicators are still under development and have not been widely tested. Any proposal to use a measure of value other than dollars to guide environmental investment decisions will attract careful scrutiny and deserves careful consideration. Until work in this area is further along it will not be possible for valuation researchers to provide field staff with anything more than the general guidance offered earlier. This Food for Thought page serves as a dumping ground for information that valuation researchers and indicator developers may find useful. The contents may be too abstract or technical for those interested in tools that are usable in the field now; however it should be useful for those involved in research to develop and justify the use of such tools. Until research in this area results in a coherent set of principles and guidelines we will continue to add to this section. We encourage anyone involved in valuation research or indicator development to browse this section every so often, and to to use feedback to provide contributions or leads about contributions. Assessing Environmental Investment Risk Risk Risk may be described as the volatility of potential outcomes. Managing Risk How
do we manage risk? One approach considers the following:
Measuring
Risk
Predictability What data exist to suggest the probability of undesired Outcomes? Working Hypothesis In assessing the potential benefits from environmental investments, it is impossible to distinguish between well-reasoned risk assessment and well-reasoned benefit assessment. Therefore, we consider the following assumptions in an evaluation of risk and benefit. General
Operating Assumptions
If the endpoint involves people it is impossible to distinguish between good risk assessment and good benefit assessment. Specific
Operating Assumptions
The
expected values of service flows resulting from restoration projects depends
on the likelihood that necessary site and landscape conditions will exist
and persist. Characteristics
Services
Preferences
There are many useful measures of value. However, in conventional economics the economic value that an individual places on a particular ecosystem service is presumed to be reflected by that individuals willingness to pay for it. Although often immeasurable this is generally understood to depend upon: a) preferences; b) income; c) the cost in time and money of gaining access to the service; d) the availability of perfect substitute; and e) the availability of near-perfect or, at least acceptable, substitutes. For
example, an individual's willingness to pay for improved recreational
fishing at a particular lake depends on how much the individual enjoys
fishing; how much discretionary time and money the individual has to spend;
how much it costs to get to and participate in fishing at that lake; the
quality, cost, and accessibility of fishing at other nearby lakes; and
the availability of other similar types of fishing opportunities in rivers,
streams and other forms of outdoor and indoor recreational opportunities.
Economic values are not the only useful measure of value for ecosystems or anything else. However, in conventional economics, it is generally accepted that a measure of value should be based on what people want and that people, not the government, scientists, or preachers, should be the judge of what they want. Based on this individualistic notion of value, the amount of one thing a person is willing to give up to get more of something else is considered a fair measure of the relative value of the two things in the eyes of that person. Dollars are an enormously useful and universally accepted basis for expressing and comparing economic values because the number of dollars that people are willing to pay for something reflects how much of all other for-sale goods and services they are willing to give up to get it. In the case of ecosystems it is important that measuring the economic value of something based on this notion does not require that it be bought and sold in markets. It only requires that someone estimate how much purchasing power (dollars) people would be willing to give up to get it (or would need to be paid to give it up) if they were forced to make a choice. The three general approaches to estimating the economic value of ecosystem services are outlined in the above Table. People can reveal the dollar value they place on some services by their purchasing decisions; people can express the dollar value they place on some services through "willingness to pay" surveys; and people's "willingness to pay" for some services can be imputed based on the costs they would incur if the services were not provided.
Strengths and Weaknesses of Non-monetary Indices
Case 1: The Willingness to Pay Survey At a coastal zone hearing, a wetland advocate bases his testimony on survey results published in the journal Wetlands (July, 1995) showing that people are willing to pay $100 per household to protect wetlands within 25 miles of their homes. An opposing expert points out that the survey did not specify the type, size, or condition of the wetland or how many other wetlands were in the survey area. She presents evidence that the survey results in a nearly infinite dollar value being placed on tiny degraded wetlands in an urban settings ö where there are many households ö and a very low value being assigned to large pristine wetlands in rural areas. Admitting that the cost of doing the survey correctly would be prohibitive the wetland advocate withdraws his testimony and the wetland in question is permitted for development. Bad willingness to pay surveys do not hold up; good ones are expensive and still may not hold up. Case # 2: The Derived Fishery Value Approach Studies show that coastal wetlands in Massachusetts support over 75% of commercially valuable fish species. However, Massachusetts fisheries have been so mismanaged and overfished over the past twenty years that their economic value is near zero. A contracted study to estimate the derived value of wetlands to the state's fisheries yields estimates that are less than one dollar per wetland acre. Using this method, the mismanagement of fisheries results in very little justification for protecting the wetlands on which fishery recovery may depend. Case # 3: The Hedonic Housing Value Approach At a public hearing to consider a wetland development, a wetland advocate cites a wetland valuation study showing that the average price of a home adjacent to a wetland in the Chesapeake Bay area is $10,000 higher than an identical home that is not adjacent to a wetland. Later in the day experts representing the prospective wetland developer accept this as a valid basis for comparing economic value. They then provide results from a similar study showing that the average price of a home adjacent to a wetland area that has been filled and bulkheaded with a dock on an adjacent water body is $50,000 to $80,000 higher than a house not adjacent to a wetland. It is dangerous to validate a statistical method unless you know how it can be used against you. Case # 4: Benefit Transfer Approach An environmental group presents testimony in Oregon based on a widely disputed study in Louisiana that generated a wetland economic value of $28,000 per acre. After disputing the validity of the estimating method and of using estimates from Louisiana in Oregon, the opposing side agrees to accept the number as fact, and points out that the county already requires $40,000 per acre in compensation for wetland impacts as part of its in lieu mitigation fee program. Later in the year a group of wetland developers who are also paying $40,000 per acre as wetland impact fees sue the state to reduce the fee and, using evidence presented by the environmental group, get the fee lowered to $28,000. Case # 5: The Innovative Valuation Approach A county ecologist cites the results of an innovative wetland valuation study that assigned a dollar value of $20,000 per acre to wetlands based on their embodied energy. However, several university scientists contracted by the developer's expert provide evidence that the embodied energy in an acre of wetland, an acre of poison ivy, or an acre of strawberries is about the same; they go on to note that it is not much different than the embodied energy in a swarm of malaria-infested mosquitoes or the last humpback whale. The county economist then testifies that the embodied energy in wetlands or anything else has absolutely no relationship to how much people are willing to pay to protect them or for the services or products they provide. The county ecologist is taken off the list of county officials asked to provide comments on wetland development proposals. Case # 6: The Replacement Cost Approach At the request of state wetland managers, local engineers estimate that the cost of trying to restore a 1,000 acre bottom land non-tidal wetland area that is being threatened with development to pre-colonial conditions is over $300,000 per acre. This figure is used at a public hearing as an indicator of wetland value. Under questioning, the wetland manager agrees that no one in his right mind would spend $300 million to try to restore this 1,000-acre site to pre-colonial conditions. When asked if it was fair to offer the $300,000 per acre figure as an estimate of the economic value of this wetland area the wetland manager admits he is not sure it is. When asked if the $3,000 in fees paid to the engineering firm to estimate restoration cost was a good use of tax dollars he admits that he is sure it wasn't. |
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