Valuing Valuing Ecosystem Ecosystem ServicesServices

Methods and PracticesMethods and PracticesBolotina, Shah, Puma, WinokurBolotina, Shah, Puma, Winokur

Ecosystem Valuation:Ecosystem Valuation:A suite of methods for A suite of methods for assigning a dollar assigning a dollar value to ecosystem value to ecosystem services to aid in services to aid in decision-makingdecision-making

1.1. Market Prices Methods: Market Prices Methods: Revealed Willingness to Revealed Willingness to Pay (WTP)Pay (WTP)

Value an equivalent Value an equivalent product or service on product or service on the commercial market the commercial market and extrapolate to and extrapolate to ecosystemsecosystems

2.2. Circumstantial Evidence: Circumstantial Evidence: Imputed WTPImputed WTP

Value based on what Value based on what people are willing to people are willing to pay to avoid certain pay to avoid certain consequencesconsequences

3.3. Surveys: Expressed WTPSurveys: Expressed WTPValue based on direct Value based on direct questions or questions or hypothetical choiceshypothetical choices

Productivity(1)

Damage avoided, Replacement

Cost, Substitute Cost (2)

Benefit Transfer

(3)Contingent

Choice(3)

ContingentValuation

(3)

Travel Cost(1)

HedonicPricing

(1)

Market Price(1)

Dollar-BasedEV Methods

Ecosystem Valuation Ecosystem Valuation MethodsMethods

Ecosystem Valuation Ecosystem Valuation MethodsMethods

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Market Price MethodMarket Price MethodDefinitionDefinition

Measure economic surplus Measure economic surplus from ecosystem activityfrom ecosystem activity

AdvantagesAdvantagesPeople’s values are defined People’s values are defined Market data is available Market data is available and based on observed and based on observed preferencespreferencesRelies on standard Relies on standard economic techniqueseconomic techniques

DisadvantagesDisadvantagesAlternative costs/benefits Alternative costs/benefits are not accountedare not accountedIgnores intrinsic Ignores intrinsic externalitiesexternalitiesLacks whole spectrum Lacks whole spectrum analysisanalysis

Productivity MethodProductivity MethodDefinitionDefinition

Compare costs of Compare costs of prevention to costs of prevention to costs of action to improve/maintain action to improve/maintain ecosystemecosystem

AdvantagesAdvantagesStraightforwardStraightforwardLimited need for data & Limited need for data & data is availabledata is available

DisadvantagesDisadvantagesLimited to ecosystem Limited to ecosystem resources used in resources used in productionproductionValue captured is a Value captured is a component of overall worthcomponent of overall worthRequires a scientific Requires a scientific understanding of understanding of ecosystem inter-ecosystem inter-dependenciesdependenciesBased on static situationsBased on static situations

Hedonic PricingHedonic PricingDefinitionDefinition

Identify components of the Identify components of the wholewholeDetermine value and price of Determine value and price of each componenteach component

AdvantagesAdvantagesStraightforward Straightforward Uncontroversial to apply Uncontroversial to apply Based on actual market prices Based on actual market prices Uses easily measured data  Uses easily measured data  Inexpensive (if data are readily Inexpensive (if data are readily available)available)

DisadvantagesDisadvantagesCaptures Willingness to PayCaptures Willingness to PayIgnores unperceived benefitsIgnores unperceived benefitsVery data intensive Very data intensive Costly (if data is not readily Costly (if data is not readily available)available)

Travel CostTravel CostDefinitionDefinition

Determine amount of money Determine amount of money people pay to reach the sitepeople pay to reach the site

AdvantagesAdvantagesBased on market prices Based on market prices Based on actual behaviorBased on actual behaviorRelatively inexpensiveRelatively inexpensiveResults are easy to interpret Results are easy to interpret and explainand explain

DisadvantagesDisadvantagesOnly gives an estimateOnly gives an estimateOver-estimates are easily Over-estimates are easily mademadeRequires lot of quantitative Requires lot of quantitative datadataIneffective for unpopular travel Ineffective for unpopular travel destinationsdestinations

DefinitionDefinitionCarefully define ecosystem Carefully define ecosystem services and target populationservices and target populationCarefully construct survey Carefully construct survey methodology that produces methodology that produces relevant resultsrelevant results

AdvantagesAdvantagesVery flexible – can value almost Very flexible – can value almost anythinganythingEasy to use and understandEasy to use and understandWidely acceptedWidely accepted

DisadvantagesDisadvantagesComplicated, lengthy, Complicated, lengthy, expensive to do rightexpensive to do rightControversial - hypothetical Controversial - hypothetical results disputed by someresults disputed by someIndividuals don’t always know Individuals don’t always know how to value ecosystem how to value ecosystem servicesservicesChoice of scenarios influences Choice of scenarios influences resultsresults

Damage Cost Avoided/Damage Cost Avoided/Replacement/Substitute CostReplacement/Substitute Cost

DefinitionDefinition

Assess environmental Assess environmental services and estimate damage services and estimate damage or least costly or least costly substitute/replacementsubstitute/replacement

Estimate amounts to avoid Estimate amounts to avoid damages, potential damages damages, potential damages and substitute/replacementand substitute/replacement

AdvantagesAdvantages

Low cost to implementLow cost to implement

Easy to apply and analyzeEasy to apply and analyze

DisadvantagesDisadvantages

Env resources don’t usually Env resources don’t usually have direct substituteshave direct substitutes

Does not provide measure of Does not provide measure of true economic value true economic value

Contingent ValuationContingent Valuation

Contingent ChoiceContingent ChoiceDefinitionDefinition

Subjects consider Subjects consider hypothetical choices hypothetical choices between resource between resource management approachesmanagement approachesValuation is inferred by Valuation is inferred by ranking choicesranking choices

Advantages:Advantages:When cost/benefit is hard When cost/benefit is hard to quantify or estimateto quantify or estimateQualitative evaluation is Qualitative evaluation is easier than estimating easier than estimating dollar valuedollar value

Disadvantages: Disadvantages: Difficult to translate into Difficult to translate into dollar valuationsdollar valuationsDoesn’t scale wellDoesn’t scale well

Benefit TransferBenefit Transfer

DefinitionDefinitionIdentify another study of Identify another study of the same benefitthe same benefitTransfer the findings to the Transfer the findings to the situation in questionsituation in question

Advantages:Advantages:Cheap, quick and dirtyCheap, quick and dirtyProvides an initial lens for Provides an initial lens for subsequent valuationssubsequent valuations

DisadvantagesDisadvantagesTransferred values are only Transferred values are only as good as the original as good as the original studystudyNot a large pool of Not a large pool of established studies to pull established studies to pull fromfrom

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1.1. Discuss the advantages and Discuss the advantages and disadvantages of stated disadvantages of stated preference and revealed preference and revealed preference valuation preference valuation methods. Give a real-world methods. Give a real-world example.example.

2.2. The essential part of The essential part of ecosystem valuation is ecosystem valuation is Ecosystem Services Ecosystem Services evaluation. Do you think this evaluation. Do you think this graphic addresses all of its graphic addresses all of its components or would you add components or would you add any?any?

3.3. Which of the described Which of the described evaluation methods most evaluation methods most comprehensively addresses comprehensively addresses Ecosystem Service valuation?Ecosystem Service valuation?

4.4. How might your capstone How might your capstone venture use ecosystem venture use ecosystem valuation? Which method valuation? Which method would make the most sense would make the most sense for your purposes?for your purposes?

5.5. Do you think any of these Do you think any of these methods can capture the true methods can capture the true value of an ecosystem? What value of an ecosystem? What other methods might you other methods might you suggest?suggest?

Discussion QuestionsDiscussion QuestionsDiscussion QuestionsDiscussion Questions

References References http://www.ecosystemvaluation.org/travel_costs.htm

http://www.envirovaluation.org/index.php

http://www.worldchanging.com/archives/006048.html http://www.investopedia.com/terms/h/hedonicpricing.asp

http://moneyterms.co.uk/hedonic-pricing-model/

Economic Valuation of Wetlands: Economic Valuation of Wetlands: http://www.ramsar.org/features/features_econ_val1.htm

U.S. Fish and Wildlife Service U.S. Fish and Wildlife Service http://www.nctc.fws.gov/library/pubs3.html

http://books.google.com/books?id=UFVmiSAr-okC&pg=PA57&lpg=PA57&dq=contingent+choice+ecosystem+valuation&source=web&ots=l6CyUTV-Yj&sig=8_1OVUEUBne1Q4KIz3ddSVpEWu4&hl=en&sa=X&oi=book_result&resnum=1&ct=result#PPA58,M1

http://yosemite.epa.gov/EE/epa/funding.nsf/ecdcf15d986219bb852564c6007c157f/efcb4c7f9120244d85256f77004c999e!OpenDocument

The Economic Value of Nature’s Services in the Puget Sound Basin The Economic Value of Nature’s Services in the Puget Sound Basin http://www.eartheconomics.org/A_New_View_of_the_Puget_Sound_Economy.pdf

Ecosystem services: Ecosystem services: http://www.sos2006.jp/english/rsbs_summary_e/3-ecosystem-services-supporting-human-activity.html