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Valuing language diversity: an environmental economics perspective Paulo A.L.D. Nunes International Summer School Valuing Cultural Diversity In Cities:

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Presentation on theme: "Valuing language diversity: an environmental economics perspective Paulo A.L.D. Nunes International Summer School Valuing Cultural Diversity In Cities:"— Presentation transcript:

1 Valuing language diversity: an environmental economics perspective Paulo A.L.D. Nunes International Summer School Valuing Cultural Diversity In Cities: Challenges To Cultural Economics Island of Procida, 4|8 September 2009

2 2 Contents Background Motivation Definition of the total economic value Biological diversity Vs Language diversity Take home message: interdisciplinarity

3 3 Background Economic Valuation methods Sustainable Development and Language Diversity

4 4 Motivation: price, values and human welfare Price is an output of the market mechanisms. Markets: consumers, producers. Equilibrium

5 5 Motivation: price, values and human welfare

6 6 Market failure Market price does not translate the economic value of the resource. Market price is zero, does not mean that the economic value is zero. If the market price is zero, moving towards a zero level of provision will have a welfare impact. From the sustainable allocation of resources view-point, it is not policy advisable to go for a zero supply of the resource.

7 7 TEV = Use values + + Non-Use values + + (Warmglow and altruism values) Definition of the total economic value Characterize!

8 8 Environmental quality: biological diversity

9 9 Arise without the need for any use or experience the environmental asset (e.g. natural park) Therefore the possible loss of the environmental asset would result in a welfare loss to the general public, including individuals that never visited the natural park and may never do so. Arise without the need for any use or experience the environmental asset (e.g. natural park) Therefore the possible loss of the environmental asset would result in a welfare loss to the general public, including individuals that never visited the natural park and may never do so.

10 10 Non-market valuation methods The economist needs to study this effect. The economist needs to estimate the magnitude of this effect. The economist needs to value this effect in monetary terms. Archaeologist type of behaviour. The economist has access to a rather rich tool box, in which one can explore a set of wide range of valuation tools. Or better, a wide range of non-market valuation methodologies. Before however.

11 11 Biological diversity Vs Language diversity

12 12 Source: MEA (2005), adapted. Forests systems Coastal and freshwater systems Marine systems Biodiversity, ecosystem services and well-being

13 13 Goods and Services provided by Marine and Coastal Ecosystems The Millennium Ecosystem Assessment defines four categories of ecosystems services: 1.Provisioning Services: e.g. fisheries, aquaculture, petroleum, natural gas 2.Regulating Services: e.g. shoreline stabilization and protection, climate regulation, nutrient regulation, carbon sequestration 3.Cultural and Amenity Services: e.g. culture, tourism, and recreation 4.Supporting Services: e.g. habitat provision, nutrient cycling, primary productivity, resilience against non-native species. Biodiversity, ecosystem services and well-being

14 14 The Economist, 15th October 2008

15 15 Why economic valuation Cost-benefit-analysis and policy formulation Legal claims and natural resource damage assessment Environmental accounting Marine Ecosystems are a scarce resource

16 16 TEEB: Stern like review on biodiversity COP9, May 2008, Bonn –FEEM - Nunes & Markandya has been the study leader of the review contract with DG Environment, Review on the economics of biodiversity loss – phase 1 (scoping) – Economic analysis and synthesis - a project under the Framework contract for economic analysis ENV.G.1/FRA/2006/0073 –FEEM – Nunes & Markandya has been the study leader of the European Environment Agency project on scaling up biodiversity values. –FEEM – Nunes and Markandya has been partner of the consortium COPI - The Cost of Policy Inaction (COPI): the case of not meeting the 2010 biodiversity target, ENV.G.1/ETU/2007/0044(4) Now phase 2 ( )

17 17 Economic valuation perspective Characterize!

18 18 Alternative perspectives (1) Welfare vs. intrinsic valuation. (2) Monetary vs. physical indicators. (3) Market vs. nonmarket values. (4) Direct vs. indirect values resources.

19 19 Alternative perspectives (5) Value of levels vs. values of changes (in the languistic system under consideration) (6) Local vs. global benefits. (7) Primary vs. transfer values. (8) Holistic vs. reductionist approaches. (9) Expert vs. general public assessments.

20 20 All in all… It is clear that many different valuation perspectives can be distinguished based on the above nine considerations. This means that different opinions on biodiversity value may in fact based on different perspectives. This does not mean that one is right and the other is wrong. Evidently, it is crucial to know the perspective being adopted.

21 21 Economic perspective, which underpins the concept of (economic) value Instrumental perspective Metric assessment providing a monetary indicator Valuation is operationalized through explicit system changes, preferably marginal or small (interpreted as alternative scenarios) Calls for interdisciplinarity

22 22 Take home message: interdisciplinarity Linguistics

23 23 HOMEWORK: mapping of the services! Language diversity, language services and well-being

24 24 Campo S. Maria Formosa Venezia - Italy tel+39 | 041 | fax+39 | 041 | webhttp://www.feem.it Contact: THANK YOU.

25 Overview of valuation methods Paulo A.L.D. Nunes International Summer School Valuing Cultural Diversity In Cities: Challenges To Cultural Economics Island of Procida, 4|8 September 2009

26 26 Contents Modeling the concept of economic value Types of Environmental Benefits Market and Non-Market Valuation Methods Conclusions and take home messages.

27 27 Types of Environmental Benefits (cont.) The concept of economic value v is the indirect utility function for individual i p is the market price (observed) of the private good M the amount of (monetary) income z a ecosystem quality indicator (e.g. species richness)

28 28 Types of Environmental Benefits (cont.) The concept of economic value (cont.) Policy/Regulation: z species richness: moving from z 0 to z 1 with z 0 > z 1 This change may be interpreted as the introduction of a set of new regulations designed to allow commercial development in protected areas.

29 29 Types of Environmental Benefits (cont.) The concept of economic value (cont.) The economic literature suggests two alternative measures that can be used to assess the magnitude of the welfare change as described by the introduction of the new regulation.

30 30 Types of Environmental Benefits (cont.) The concept of economic value (cont.) The economic literature suggests two alternative measures that can be used to assess the magnitude of the welfare change as described by the introduction of the new regulation. Task: empirical assessment of the HE/HC income magnitude

31 31 Types of Environmental Benefits/Values Use benefits refer to the utility arising from direct or indirect physical use of a resource including commercial use, recreational use, and aesthetic use. Non-use benefits refer to utility that is derived from environmental resources without physical interaction with the resource: Total Economic Value = Use values + Non-Use values

32 32 Use Benefits Consumptive use benefits are private benefits that are derived from resource consumption and contribute to resource depletion. Examples are farming, forestry, fishing, grazing, hunting, mining. Non-consumptive use benefits are generally public good benefits that do not contribute to resource depletion. Examples are swimming, boating, hiking, camping, viewing wildlife, observing scenic forests, mountains, rivers, waterfalls.

33 33 Non-use (or passive) benefits Existence benefits, or inherent benefits refer to utility derived from the knowledge of the mere existence of environmental resources. You might never see many of the endangered species but you might still value their existence. Bequest benefits refer to benefits derived from passing an environmental resource on to children and/or future generations. Warmglow benefits refer to benefits derived from impure altruistic reasons including from knowing that we feel with good with ourselves when contributing to good-causes such as the conservation of the worlds resources.

34 34 Non-use (or passive) benefits Existence benefits, or inherent benefits refer to utility derived from the knowledge of the mere existence of environmental resources. You might never see many of the endangered species but you might still value their existence. Bequest benefits refer to benefits derived from passing an environmental resource on to children and/or future generations. Warmglow benefits refer to benefits derived from impure altruistic reasons including from knowing that we feel with good with ourselves when contributing to good-causes such as the conservation of the worlds resources. public good benefits

35 35 Types of Environmental Benefits (cont.) Market and Non-Market Valuation Methods Market Valuation methods: The use of market prices is the most direct method (e.g. resort skiing, commercial whale watching). But 1) Market fails in capturing the public good benefits; 2) Environmental resource are characterized by a strong public good character; 3) Market prices do not embed the full value range of environmental resource… => Alternative valuation methods!

36 36 Alternative valuation methods Classification: Revealed preference methods Stated preference methods Dose response methods Anchored at consumer behaviour (utility function)

37 37 Dose response methods Production/Cost methods: if natural resources can be restored (such as species richness) engineering and nature development techniques can be applied to estimate the cost of restoration/replacement.

38 38 Non-Market Valuation Methods General public Revealed preferences methods; Stated preferences methods; Nota bene: If the economic valuation exercise is only based on special interest groups preferences we refer to expert value assessment (implicit valuation exercise, delphi valuation method, multicriteria analysis).

39 39 A classification of valuation methods attribute based method

40 40 Hedonic price method Goods in general can be thought of as bundles of characteristics. The hedonic pricing method is used to estimate economic values for environmental services that directly affect market prices. It can be used to estimate economic benefits or costs associated with: –environmental quality, including air pollution, water pollution, or noise –environmental amenities, such as aesthetic views or proximity to recreational sites ** think on tuition fees for private schools and the schooling program, professors cv, languages, etc…

41 41 Hedonic price method: regression analysis Market price of a commodity is related to a set of characteristics, including environmental quality.

42 42 Hedonic price method: regression analysis Market price of a commodity is related to a set of characteristics, including environmental quality. The hedonic price function approach is a method that infers the marginal value of each characteristic (Zi) form the price of the combined bundle: Implicit prices or valuation (ai) of environmental quality such as air quality can be deduced from market prices (e.g. Day, Bateman and Lake 2007)

43 43

44 44 Weaknesses It requires good quality data on each market transaction and information on how to map environmental quality into the market demand functions. Multiple demand equation is data demanding and may be difficult to estimate/econometrics Use values only. Hedonic price method

45 45 Travel cost method The travel cost method uses actual travel expenditures (e.g. gas, plane tickets, etc.), and opportunity costs of time (e.g. wage rate) to infer valuation of recreational activities.

46 46 Travel cost method Example: Zandvoort beach in the NL

47 47 Travel cost method Example: Zandvoort beach in the NL

48 48 Travel cost method Example: Zandvoort beach in the NL It attracts 2,400,000 visitors/year. Each visitor spends 1 and 1/2 hours traveling. The opportunity cost of time is 30 Euro/hr for the average visitor. Gas and car use cost 10 Euro per visitor. Parking cost is 5 Euro/visit. Thus, the total travel cost is: –2,400,000 * [1,5 * ] = 40,000 * 70 = 132,000,000 Euro (2003)

49 49

50 50 Travel cost method The 132 million is an estimate of a lower bound for recreational benefits from the visiting Zandvoort, because anyone that finds it optimal to spend time at the Zandvoort beach must receive at least enough benefit to cover the travel cost of getting there, but might receive considerably more. If there are other substitute, travel cost methods become more complex. For example, closure of one beach (in this case due to harm full algal blooms) for a specific recreational activity will cause some people to use substitute beaches. In turn, these get more congested and the benefits of using them will decline. Only visitors Use values only.

51 51 Survey Based Techniques The CV method uses survey questions to elicit peoples preferences for public goods by finding out what they are willing to pay (WTP) for specified improvements in them. The method thus aims at eliciting their WTP in dollar amounts. R. Carson. It circumvents the absence of markets for public goods by presenting consumers with hypothetical markets in which they have the opportunity to buy the good in question. Because the elicited WTP values are contingent upon the hypothetical market described to the respondents, this approach came to be called the contingent valuation method.

52 52 A set of survey based approaches for eliciting statements of willingness to pay (or be paid) for a survey described change in the environmental or cultural resource (quality or quantity). Contingent Valuation Method The use of surveys in economics is not a novelty: National Census Consumer Expenditures Surveys Panel Studies Labor Surveys National Education surveys The use of surveys in economics is not a novelty: National Census Consumer Expenditures Surveys Panel Studies Labor Surveys National Education surveys

53 53 A set of survey based approaches for eliciting statements of willingness to pay (WTP) for a survey described change in the environmental or cultural resource (quality or quantity). Elements of the CV survey: Commodity specification -- NON MARKET GOOD!! Contingent scenario -- POLICY OPTIONS Elicitation format -- HOW TO PRESENT the WTP questions Payment vehicle / Implementation rule -- HOW TO COLLECT or TO OPERATIONALIZE THE WTP PAYMENTS Definition: elements of the CV survey

54 54 Interdisciplinarity Linguistics

55 55 Willingness to pay (WTP) is the maximum amount of money an individual would give up in exchange for all the benefits associated with an environmental resource. Willingness to accept (WTA) is the minimum total amount of money an individual would accept to forego all the benefits associated with an environmental resource. It is the opposite of WTP in terms of resource allocation or property rights. Elicitation format

56 56 Survey design Payment vehicles The crucial point is to find a scheme that best fits the environmental change in a way that: First, creates a situation which convinces the respondents to accept the payment vehicle as a likely way to pay for the described program; Second, is associated with a fair method of paying for the program: all respondents, independently of their socio- economic characteristics, life experiences or residential localisation, would be equally compelled to pay; and, Third, is viewed as appropriate for the good being valued and not subject to waste and fraud.

57 57 Illustration Compulsory tax –The government proposes a referendum regarding the introduction, only for a period of one year, of the National Park Tax. All households would have to pay the tax if the majority votes in favour. If the tax amount to be paid was 100 Euro to protect the Natural Park, how would you vote?

58 58 Dichotomous choice (DC) Binary (yes/no) information on the maximum willingness to pay DC with follow-up Discrete/interval information on the maximum willingness to pay Compulsory tax

59 59 Contingent Valuation Method Example: Protected Area in Portugal. National sample, visitors, non-visitors and potential visitors. Average, annual WTP for a Portuguese household, is about 30 to 40 Euro. Portugal has about 3,1 million households, therefore the total value allocated to the protection of this area is about 12,4 million Euro.

60 60 Open-ended Continuous information on the maximum willingness to pay (WTP) Payment card or checklist -- respondents are offered a card which contains a list of bid amounts and asked to indicate which amount of money on the card they are willing to pay for the described environmental change Discrete/interval information on the maximum WTP Iterative bidding -- a series of questions has been asked, i.e., letting the interviewer iteratively raise, or decrease, the proposed bid until the respondent alters her yes or no answer. Continuous information on the maximum willingness to pay Alternative elicitation formats

61 61

62 62 - is the contingent valuation method capable of providing estimates of lost nonuse or existence values that are reliable enough to be used in the natural resource damage assessments? NOAA Panel "... the Panel concludes that well conducted CV studies can produce estimates reliable enough to be the starting point of a judicial process of damage assessment, including lost passive values." (Federal Register, Vol. 58, No. 10, page 4610)

63 63 1) The CV experiments should rely on face-to- face interviews rather than telephone interviews, and whenever this is not possible (specially because of the high costs associated with the personal interviews) telephone interviews are preferable to mail surveys; NOAA Panel guidelines

64 64 2) The CV experiments should elicit the respondents WTP to prevent a future incident rather than WTA for an incident already occurred; NOAA Panel guidelines

65 65 3) The CV experiments should use a dichotomous choice (DC) referendum elicitation format, i.e., the respondents should be asked how they would vote (favor or against) upon a described environmental quality change. NOAA Panel guidelines

66 66 4) The CV experiments should contain an accurate and understandable description of the program or policy under consideration and the associated environmental benefits in each of the two scenarios, i.e., with and without the policy. Interdisciplinary work with other research areas, namely the biological sciences, is here recommended; NOAA Panel guidelines

67 67 5) The CV experiments should include reminders of the substitutes for the commodity in question as well as its budget. NOAA Panel guidelines

68 68 6 ) The CV experiments should include a follow- up section at the end of the questionnaire to be sure if the respondents understood (or not) the choice that they were asked to make. NOAA Panel guidelines

69 69 Conclusions Different valuation instruments are available to the researcher to assess benefits provided by biodiversity conservation. CV is an important valuation technique and since it is the only one capable of assessing the value of the non-use benefits. Therefore, economists cannot glean information regarding these values by merely relying on market-based valuation approaches.

70 70 Conclusions The CV method consists of implementing a market with the help of a survey directed to the individual consumer. The principal idea underlying this method is that individuals not only have preferences defined over the described environmental good, but also are capable of transforming these preferences into monetary units.

71 71 Take Home Message Combining contingent and non-contingent valuation strategies can be opted so as to assess in more detail the complexity involved. This strategy signals the need for a multidisciplinary approach searching for a clear perspective on direct and indirect effects of scenario changes on human welfare. This will contribute to more robust economic value estimates that can serve to guide policy. Paulo A.L.D. Nunes, Ecological Economics 2003

72 72 Campo S. Maria Formosa Venezia - Italy tel+39 | 041 | fax+39 | 041 | webhttp://www.feem.it Contact: THANK YOU.


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