Choices(and(Tradeoffs( Quan1fying(the(Economic(Value(of(Natural( - - PDF document

Choices(and(Tradeoffs(

Quan1fying(the(Economic(Value(of(Natural( Resources(and(Services( (

Robert(J.(Johnston(

Clark(University(

(

Symposium)on)C/N)Cycling)and)Ecosystem)Valua7on)of)Tidal)Wetlands)in)the) Northeast.(Waquoit(Bay(Reserve,(Falmouth(MA.(January(24,(2013(

Markets(and(Economic(Value(

• Human(produc1on(provides(market(goods(and(

services(that(enhance(quality(of(life.(

• We(observe(people(purchasing(these(products(

at(known(prices.(This(provides(insight(into( economic(market(value.(

– The(most(that(people(would(be(willing,to,pay,to(

• btain(a(market(product,(rather(than(go(without.(

(

Ecosystem(Service(Values(

• Natural(ecosystems(also(provide(goods(and(

services(that(enhance(quality(of(life.(

– These(are(oRen(grouped(under(the(heading(of( “ecosystem,services”( – Examples:((The(sa1sfac1on(I(receive(from(catching(a( fish(in(a(local(river(or(benefit(of(clean(water(from( nutrient(processing(in(a(coastal(marsh.((

• Ecosystem(services(cannot((oRen)(be(purchased(

directly(in(markets.((

• The(value(of(these(services(is(oRen(overlooked.(

The(Economic(Benefit(of(Ecosystems(

• Ecosystem(service(values(are(economic(

benefits(provided(by(ecosystems.((

• Quan1fying(the(benefits(of(natural(systems(

prevents(policy(from(ignoring(them(and( enables(informed(policy(choices.((

• But(what(is(an(economic(benefit((or(value)?(

The(Economic(Benefit(of(Ecosystems(

• Ques5on:((Which(of(the(following(is(an(example(
• f(a(valid(economic(benefit(resul1ng(from(an(

improvement(in(water(quality(at(a(beach?(

• a. The(extra(money(that(visitors(spend(at(local(hotels.(
• b. The(addi1onal(sa1sfac1on(gained(by(beach(visitors.(
• c. The(addi1onal(jobs(created(in(the(affected(area.(
• d. The(addi1onal(tax(revenues(generated.(
• e. The(cost(of(restoring(the(beach(if(it(is(damaged.(

f. All(of(the(above.(

The(Economic(Benefit(of(Ecosystems(

• Answer:,Only((b),is(a(valid(measure(of(economic(

value(or(benefit.(

• Most(people(answer(incorrectly.(((
• This(is(based(on(the(mispercep1on(that(market(

ac1vity,(money(flows(or(replacement(costs(are(a( the(same(as(economic(benefits.((

• Thought(experiment:((Take(a($1(bill(and(pass(it(

from(hand(to(hand(around(a(room.((Has(any(net( value(been(created?(

• This(is(the(difference(between(a(transfer(and(a(

benefit.(

For(something(to(have(value…(

• It(must(be(valued(either(directly(or(indirectly(

by(humans,(because(it(enhances(quality(of(life(

– NO:(Whales(value(Stellwagen(Bank(as(an( important(feeding(area( – YES:((Humans(value(Stellwagen(( Bank(because(it’s(an(important(( feeding(ground(for(whales(and(( we(like(to(observe(them(there((

• r(just(know(that(the(ecosystem((

is(healthy.(

For(something(to(have(value…(

• It(must(be(measured(in(terms(of(tradeoffs—(what(

is(the(maximum(one(would(be(willing(to(give(up( in(terms(of((

– other(goods(and(services((I’ll(would(be(willing(to(give( up(my(sandwich(for(a(chocolate(bar)( – 1me((the(scenic(route(takes(me(an(extra(hour,(but(I( prefer(it)( – money((I’m(willing(to(pay($50(a(night(more(for(the( room(with(the(ocean(view)(

• Values(do(not(need(to(be(denominated(in(money(

terms,(nor(to(they(require(money(transac1ons.(

For(something(to(have(value…(

• It(must(be(measured(in(terms(of(a(marginal,

quan5ty(of(a(good(or(service,(from(a(known( baseline.((

– NO:((The(total(value(of(Narragansee(Bay(is($X.( – YES:((The(value(of(a(5%(increase(in(whale(sigh1ngs(in( the(Gulf(of(Maine,(from(the(current(level,(would(be( $Y.(((

• Example—it(is(possible,(in(principle,(to(es1mate(

the(economic(value(of(an(addi1onal(X(acres(of( coastal(wetland(in(a(specific(area.(((

– It(is(not(possible(to(es1mate(the(value(of(all(wetlands( in(the(world.((

Willingness(to(Pay(

• Economists(oRen(measure(economic(value(of(

ecosystems(in(terms(of(willingness(to(pay.(

• Defined(as(the(maximum(amount(of(money(or(

some(other(good(a(person(would(be(willing(to( give(up(in(exchange(for(a(good(or(service,( rather(than(go(without.(

• What’s(the(most(a(person(would(pay(for(a(

marginal(change(in(an(ecosystem(service,( rather(than(go(without?((if(they(could)((

Concept(of(Willingness(to(Pay(

Management, Outcome, Status,Quo,(No, Policy), Op5on,A, Quan1ty(of( Ecosystem(Service( X( X1( X1( Quan1ty(of( Ecosystem(Service( Y( Y1( Y1+A( Change(in(Annual( Household(Taxes( $0( $10( HOW(WOULD( YOU(VOTE?(

□, □,

,

Ecosystem(Service(Values(

• Ecosystem(services(may(be(defined(as(the(
• utputs(of(natural(systems(that(benefit(society.(
• These(values(are(some1mes(realized(in(markets

—as(inputs(to(market(produc1on((e.g.,(fish(in(the(

• cean(caught(and(sold).(
• But(many(ecosystem(service(values(are(nonD

market,values.(((

• These(are(improvements(in(human(quality(of(life(

that(are(not(related(directly(to(market(products.((

Conceptual(Model(of(Ecosystem( Service(Values( Examples(of(Ecosystem(Service(Values(

• If(I(go(recrea1onal(fishing(in(a(pris1ne(lake,(it(improves(

my(quality(of(life.((I(benefit(from(the(experience.(

• If(I(know(that(threatened(wildlife(are(thriving(in(my(

area,(it(improves(my(quality(of(life.((I(benefit(from(the( knowledge(that(these(wildlife(exist.(

• If(riparian(buffers(protect(my(home(from(flooding,(it(

improves(my(quality(of(life.((I(benefit(from(property( protec1on.(

• None(of(these(can(be(directly(purchased(in(a(market,(

but(all(provide(measurable(economic(benefits((my( sa1sfac1on(or(quality(of(life(is(improved).(

Types(of(Ecosystem(Service(Values(

NonnMarket( Use( NonnUse( Consump1ve( NonnConsump1ve( Existence( Bequest( Other( Market( Total(Value( Market(

Quan1fying(Ecosystem(Service(Value(

• Requires(coordina1on(of(ecological(methods(

that(quan1fy(the(“natural(produc1on”(of( services(with(economic(methods(that(quan1fy( the(value(of(this(produc1on.(( (

Common((Valid)(Valua1on(Methods(

• Revealed,Preference,(Use(Value)—Quan1fy(values(based(
• n(observed(behavior(

– Recrea1on(Demand(Models( – Hedonic(Property(Value(Methods( – Ecological(Produc1vity(Methods( – Defensive(Behavior(Methods( – Factor(Input(Methods(

• Stated,Preference,(Use(+(Nonuse(Value)—Quan1fy(values(

based(on(responses(to(carefully(designed(surveys(

– Con1ngent((Valua1on( – Choice(Experiments(or(Models(

• Benefit,Transfer—Use(results(from(a(study(elsewhere(to(

quan1fy(values(for(a(site(where(no(results(are(available(

Services(of(Coastal(Wetlands(

• Ecosystem(services(of(coastal(wetlands(depend(
• n(both(natural(func1ons(and(affected(human(

popula1ons.(Examples(include:(

– Provision(of(habitat/nurseries(to(support(valued(birds,( fish,(shellfish,(etc.,(both(onn(and(offnsite( – Nutrient(processing,(water(filtra1on,(removal(of(toxics( and(pathogens((provision(of(clean(water)( – Coastal(erosion,(flood(and(hazard(protec1on.( – Recrea1onal(opportuni1es( – Aesthe1c(benefits( – Carbon(sequestra1on((climate(benefits).(

Validity(

• In(all(cases,(quan1fying(ecosystem(service(values(

requires(coordina1on(of(valid(ecology(&(economics.(

• This(requires(exper1se(with(both(ecological(and(

economic(methods.(

• There(are(now(a(preponderance(of(analyses(using(

inappropriate(ecological(or(economic(methods.((

• While(claiming(to(provide(“good(approxima1ons,”(

many(of(these(analyses(provide(misleading(and( unhelpful(results.(

• Results(from(invalid(analyses(can(lead(to(choices(that(

reduce(sustainability(and(social(wellnbeing.( (

Common(Errors(

• Measuring(the(“total(value”(of(natural(capital(
• r(services(from(en1re(ecosystems.(
• Using(replacement(costs(to(measure(values.(
• Using(jobs(and(revenues(to(measure(values(

(e.g.,($(spent(at(local(businesses).(

• Confusing(intermediate(and(final(services(

(e.g.,(coun1ng(the(value(of(nutrient(processing( in(a(wetland(and(the(value(of(the(resul1ng( water(quality(changes).(

“Total(Values”(for(Ecosystems?((

• Values(are(only(meaningful(for(wellndefined(changes(

from(an(exis1ng(baseline.(

– Willingness(to(pay(for(a(gallon(of(milk( – Willingness(to(pay(to(preserve(50(acres(of(riparian(land( – Willingness(to(pay(to(increase(average(water(clarity((secchi( depth)(in(“Lake(X”(by(1(foot.(

• “Total”(ecosystem(values(lack(baselines(and(changes.((

What(are(you(“buying”?(

• Total(ecosystem(values(ignore(effects(of(scope(and(

scale((diminishing(marginal(returns).(

• Invalid(to(“scale(up”(based(on(ecosystem(size.(

– If(one(Big(Mac(is(worth($1(to(me,(are(100(Big(Macs(worth( $100(to(me?(

“Total(Values”(for(Ecosystems?(

• Imagine(the(value(of(all(the(natural(capital(in(

New(Jersey(is(claimed(to(be(worth($660(billion( (State(of(New(Jersey,(2007).(

• What(does(this(mean?(What(is(the(

measurable(change(we(are(valuing?(

• What(does(it(mean(to(be(“without”(New(

Jersey?((Is(this(meaningful?(

• Would(we(do(anything(differently(if(the(“total(

value”(was(reported(to(be($660(trillion?((

Replacement(Costs(Are(Not(Values(

• The(cost(of(doing(something(is(not(the(same(as(

the(benefit.((They(are(different(concepts.(

• Example:(((

– I(get(terribly(seasick.(The(benefit(of(an(ocean(cruise( for(me(is($0.((( – Assume(that(I(am(offered(a(cruise(that(costs($2000.((( – Is(the(benefit(of(the(cruise(to(me($2000?( – Is($2000(an(“okay(approxima1on”(of(my(value(($0)?(

• Replacement(costs(are(almost(never(good(benefit(

measures—even(as(a(crude(approxima1on.(

Summary(

• Economics(provides(a(number(of(methods(to(measure(

ecosystem(service(values(within(aqua1c(systems(such( as(coastal(wetlands.(

• Analysis(of(ecosystem(services(can(contribute(

structural(clarity(to(decisions(facing(policymakers.(

• Economic(values(relate(to(choices,(tradeoffs(and(social(

welfare(–(not(economic(ac1vity(alone.(

• It(is(crucial(to(be(aware(of(what(is(being(measured,(and(

not(measured,(by(any(value(es1mate.(

• Frameworks(and(methods(for(ecosystem(service(

valua1on(are(wellndeveloped,(but(beware(of(“back(of( the(envelope”(methods.(

Ques1ons?( (

( ( Robert(J.(Johnston( Director,(George(Perkins(Marsh(Ins1tute( Professor,(Department(of(Economics( Clark(University( 950(Main(St.( Worcester,(MA(01610( Phone:((508)(751n4619( Email:(rjohnston@clarku.edu(

(

Illustra1ve(Choice(Model(in(Wells,(ME(