In recent years, research on ecosystem services (ES) has garnered a lot of attention and has been recognized as a “cornerstone of sustainability science”, due to its focus on human-nature interactions (Clark and Dickson 2003). Motivated by a growing interest in the economic valuation of ES among scientists and policymakers, a large number of studies in this field have been carried out at the intersection of ecological science and economics.
The economic value of ES is a key focus of discussion in the field of ecological economics. Assigning monetary value to ES makes it possible to take nature into account in the process of socioeconomic development and the formulation of public policy. This approach is conducive to environmentally responsible utilization of natural resources and preservation of biological diversity(Admiraal et al., 2013).
The most inclusive way to economically value ES is through a total economic value (TEV) assessment (Admiraal et al., 2013). TEV is an expression of the overall economic value of a particular ES or natural resource, taking into account both use and non-use values. This overall economic value can subsequently be used in cost-benefit models.
Existing estimation techniques used in TEV assessments include market price methods and non-market valuation methods.
Market price methods are based on the exchange value of goods in the real market (Pisani et al., 2021). Examples of market price methods include, but are not limited to, the restoration cost method, the damage cost avoided method, and the production function method.
Non-market valuation methods include stated preference methods (e.g., the contingent valuation method, the choice experiment method) and revealed preference methods (e.g., the hedonic pricing method, the travel cost method).
Stated preference methods are approaches to estimating the economic value of an ES that involve asking individuals, through well-constructed surveys, how much they value the service in question. For example, the contingent valuation method involves asking survey respondents how much they are willing to pay for a specific change in the provision of an ES or the minimum amount of compensation they would require if the change were not carried out.
Revealed preference methods estimate the economic value of an ES by analyzing information from markets that are related to it, either directly or indirectly. These methods infer individuals’ valuations of a good or service based on their observable behavior in the market, such as the prices they pay for related goods. Hedonic pricing methods are an example of revealed preference methods. Hedonic pricing examines how variations in an ES affect the prices of other goods, such as houses or apartments. For example, if houses with access to an ES sell for higher prices than similar houses without such access, then the value of the ES can be estimated by the difference in price between the two.
Pascual et al. (2010) provide a comprehensive list of ES valuation techniques and how they are used in the context of wetland ecosystems:
The Economics of Valuing Ecosystem Services and Biodiversity (Accessed on 12/30/2022)
In the following section, we will provide an illustration of a market price approach – the damage cost avoided method – as well as an illustration of a non-market valuation method – the travel cost method.
References:
Admiraal, J. F., Wossink, A., de Groot, W. T., & de Snoo, G. R. (2013). More than total economic value: How to combine economic valuation of biodiversity with ecological resilience. Ecological Economics 89: 115–122. https://doi.org/10.1016/j.ecolecon.2013.02.009
Clark, WC, Dickson, NM. (2003). Sustainability science: the emerging research program. Proc Natl Acad Sci USA. 100(14): 8059–8061. https://doi.org/10.1073/pnas.1231333100
Pascual U, Muradian R, Brander L, et al., 2010. The economics of valuing ecosystem services and biodiversity. The Economics of Ecosystems and Biodiversity: Ecological and Economic Foundations (London: Earthscan) pp 183–256.
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