14 BASICs of Ecosystem Services Valuation

• ECONOMIC VALUE EXISTS WHEN THERE IS SCARCITY
• Economic Value

  • WHEN (economic) DEMAND EXCEEDS (economic) SUPPLY
  • WHEN it costs to supply the service
• TEV (Total Economic Value)

  = USE VALUE (Consumers’ Surplus + Producers’ Surplus)

  + NON-USE Value

  – Negative externalities
• BUT, many ES are not marketed

  • Excludability problem

  • Free rider

  • Information Asymmetry

  • Externalities
• Total Economic Value (TEV): Sum of net benefits from ecosystem services

  A) Market Valuation

  B) Revealed Preference

  C) Stated Preference

  D) Ecological production function analysis

  E) Analysis of demand, behavior

  
• Use Values: Methods & Examples

  A) Market

  B) Supply Cost Replacement Cost (RC)

  C) Ecological Production Function (EPF)

  D) Averting Behavior (AB

  E) Travel Cost (TC)

  F) Hedonic Pricing HP

  G) Contingent Valuation (CVM)

  H) Choice Experi ments

  
• In a normal production process, the producer’s surplus generated is just sufficient to cover the entrepreneur’s expected return on his investment
• For extractive resources, estimate the unit resource rent - an “extra” surplus generated because the environment is a factor of production that demands no payment.

  Resource rent = Total revenue from resource sales less labor and materials costs less the cost of produced capital
• Resource rent

  A) depreciation of produced capital

  
• Example 1: Provisioning services: capture fisheries

  A) open-access

  
• Large number of suppliers and consumers : none can affect overall supply and demand significantly by individual actions

  • Use the observed market prices that would also reflect (economic (social) prices
• Otherwise, for imperfect markets such as monopolistic, monopsonistic, conditions, and the variants in-between these extremes adjust for the rents and excess consumer’s surplus to get the observed market price truly reflect the economic (social) prices.
• Perform valuation of non-market ecosystem services in order to explicit account for the externalities (intertemporal and interspatial/intersectoral).
• Cost of supplying ES from biodiverse landscapes/seascapes

  • DIRECT, FINANCIAL COSTS
  • Administrative: policy formulation, implementing rules and regulations
  • Management & Protection: planning, budgeting, monitoring of progress & results
  • Direct Production cost
  • Cost of inputs to supply the specific ES
  • Include fixed cost (esp. to meet safe minimum standards) & variable costs
  • Transaction costs:
  • Generating information on natural capital (stocks) and ES (flows)
  • Negotiating agreements, compliance monitoring, enforcement, assessment
• Cost of supplying ES from biodiverse landscapes/seascapes

  • ECONOMIC COSTS
  • Financial cost converted to shadow prices
  • Externalities
  • Opportunity cost of alternative use
• Supply side valuation: cost-based approach focusing on rehabilitation/restoration cost

  
• Example 2. Mt. Matutum: Cost-Based Valuation

  A) rehabilitation

  
• Mt. Matutum (cont’d)

  A) Water Districts

  
• But transactions costs are usual excluded. They should be part of total supply costs

  A) • Direct cost

  B) Administrative costs

  C) Transactions costs

  
• Non-Use Values: Methods & Examples

  A) Altruism

  B) Existence

  C) Bequest

  D) Revealed Preference

  E) Stated Preference

  
• ECOLOGICAL PRODUCTION FUNCTION:

  • Crop Produced = p(Land, Labor, Capital, Climate, Pollinators, Pests, r)
• TRAVEL COST METHOD (TCM):

  • Individual or zonal travel cost used to construct the demand for travel
  • TC = t (traveler characteristics, cost of travel, destination attributes, r)
• HEDONIC PRICING METHOD

  • Property values = h (Property characteristics, Location characteristics, Environmental quality, r)
• Model Estimation of Selected Ecosystem Services

  A) Production Function

  B) Individual Travel Cost Method

  C) Contingent Valuation Method

  
• The fishery value of a mangrove can be calculated by estimating the lost value of a catch in the degraded or destroyed mangrove area.

  • Mangrove ecosystem services are considered inputs in fishery production (often unpaid for)
  • Production function method values ecosystem services as inputs in production of commercially marketed goods
• Production Function Method: Step-by-Step

  
• Production Function Specification

  
• Economic Valuation: Revealed Preference (Hedonic Pricing Method)

  A) Positive

  B) Hedonic Equation

  C) Negative externalities

  
• Cursory Economic Valuation (EV): Casual Observation

  A) Adjustments to environmental degradation

  B) Replacement of reduced ecosystem services

  C) Willingness to pay for continued existence/conservation

  D) Bequest values

  
• Context and uses of economic valuation of ES