The Damage Cost Avoided Method
The damage cost avoided method is based on the premise that the value of an ecosystem function can be calculated by estimating the amount of damage that would occur if the service was reduced or eliminated completely. Brading et al. (2009) used this method to value the pollination service by estimating the costs to the Egyptian economy of a catastrophic loss of pollinators.
Pollination is a crucial regulating service that is essential for the reproduction of numerous agricultural crops, as well as the vast majority of wild plants. This service is provided by a variety of pollinator species, such as honeybees, hoverflies, butterflies, and hummingbirds. Due to increasing anthropogenic activities that have a negative impact on the natural habitat of pollinators, there has been a global decline in both the number and species diversity of pollinators.
Brading et al. (2009) estimated the economic value of the pollination service by analyzing the impact of pollinator loss on 70 different plants that make up Egypt’s primary arable output, including fruits, nuts, vegetables, and non-food field crops (such as cotton).
The researchers determined the impact of pollinator decline on each crop by multiplying the crop’s overall economic value by the proportion of the crop’s yield that would be lost in the absence of pollinators. The total economic value of a crop was public information obtained from the publications of the Ministry of Agriculture, and the expected yield reduction was based on an earlier study — Klein et al. (2007), which classified various crops into five categories based on the extent to which their yield is impacted by pollinator loss:
| Category | Yield Reduction |
| essential | >90% |
| high | 40-90% |
| modest | 10-40% |
| little | 0-10% |
| none | 0% |
The impact of pollinator loss on each crop was then totaled to determine the overall monetary impact, which was found to be a $2.4 billion annual loss, accounting for 3.3% of Egypt’s GDP in 2003.
The Travel Cost Method
The travel cost method postulates that the recreational value of a site is indicated by the amount of time and money that people are willing to spend to travel to the site. Hanauer and Reid (2017) used this method to estimate the recreational value of Taylor Mountain Regional Park and Open Space Preserve, a prominent landmark in northern California.
The first step in the process of valuation was to construct an on-site survey that would be used for eliciting information such as the number of visits in the preceding year, the mode of transportation, the location of households, the income of households, and so on. During a four-week survey period in October 2015, a total of 510 surveys were collected. Based on the survey results, the authors concluded that the annual average number of visits was 32.8.
The authors then calculated the per-trip travel cost (TC) for each visitor as follows:
TC = foregone wage costs + vehicle operation costs + parking costs
The key step in the valuation process was to run a regression analysis, in which the number of visits was regressed on TC and various control variables. These variables included travel costs to substitute sites, income, and other demographic and individual characteristics that affect the demand for recreational services:
The estimated coefficient on TC (i.e., βTC) can then be used to calculate the per-trip consumer surplus:
Per-trip consumer surplus = 1/(-βTC)
The results from truncated negative binomial regression indicated that the per-trip consumer surplus was $13.70. Multiplying this with the estimate of total visitation led to a total consumer surplus of $1,480,782.42 per year.
The final step was to find the present value of the future stream of benefits from recreational services provided by Taylor Mountain in perpetuity:
Present value of perpetuity = annual consumer surplus/discount rate
= $1,480,782.42/discount rate
To estimate the present value, the authors employed three different discount rates: 1%, 3%, and 5%. The resulting present values were $148,078,242.44, $49,359,414.15, and $29,615,648.49, respectively.
The authors noted that the results should be considered as “very conservative lower-bound estimates” (Hanauer and Reid, 2017, 57) because the park has only been available to the public for the last three years and only 40% of the park is currently accessible.
References:
Brading, P., El-Gabbas, A., Zalat, S., & Gilbert, F. (2009). Biodiversity Economics: The Value of Pollination Services to Egypt. Egyptian Journal of Biology, 11, 46–51.
Hanauer, M. M., & Reid, J. (2017). Valuing urban open space using the travel-cost method and the implications of measurement error. Journal of Environmental Management, 198, 50–65. https://doi.org/10.1016/j.jenvman.2017.05.005
Klein A-M, Vaissière BE, Cane JH, Steffan-Dewenter I, Cunningham SA, Kremen C & Tscharntke T (2007) Importance of pollinators in changing landscapes for world crops. Proceedings of the Royal Society of London B 274: 303-313 https://royalsocietypublishing.org/doi/pdf/10.1098/rspb.2006.3721 (accessed 07/06/2022)
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