Economic Valuation of Environmental attributes Larry Dwyer Qantas Professor of Travel and Tourism Economics School of Marketing University of New South Wales, Australia International Advisory Committee, BESTEN

Valuing the impacts of tourism on the environment: Total Economic Value

Estimating the non use value of environmental amenities Economists use three methods for measuring the non use value of an environmental amenity:  stated preference – in which value is determined through a survey of peoples’ preferences in hypothetical market situations in which people state what they would do in a given situation(s)  revealed preference – in which value is determined through peoples’ observed behaviour in related markets  imputed valuation - in which value is determined through the actual costs that people undertake either to avoid loss of an amenity or to store a lost amenity

Stated Preference Stated preference techniques (direct valuation) attempt to elicit preferences in direct way by use of survey or questionnaire. The same techniques enable economic values to be estimated for a wide range of commodities which are not traded in real markets. The two basic stated preference approaches are  contingent valuation method  contingent choice method

Revealed Preference Revealed preference techniques are based on preferences from actual, observed, market-based information. These preferences for environmental goods and services are revealed indirectly when individuals purchase marketed goods which are related to the environmental good in some way. Revealed preference techniques infer an environmental amenity’s value from the actual choices that people make in related markets, rather than from their “stated” preferences. Two well known revealed preference approaches are  the Hedonic Pricing Method  the Travel Cost method

Imputed Valuation Replacement Cost Damage Cost Avoided Production factor Method

Replacement Cost values the negative environmental impacts of an activity by measuring the cost of replacing a lost asset or restoring a damaged asset to its original state. Thus the cost of restoring a park following devastation by a tsunami taken to be its (minimum) value as an environmental feature. A variant of the replacement cost method is the substitute cost method which estimates the costs of providing substitute services.  An example would be valuing the loss of habitat from tourism development by the costs of establishing similar habitat elsewhere.

Damage Cost Avoided measures the cost of defensive spending to prevent the environmental amenity from declining in value. It is based on the prevention expenditure incurred by households, companies or governments to mitigate or avoid particular environmental risks or effects. Willingness to incur this expenditure is an indication of the minimum cost of the effect or of the minimum benefit of mitigation of the effect.  Examples of avoidance costs are the costs of constructing paths so rainforest impacts are minimised  or the costs of eliminating pollution in a recreation site by installing and operating filters  Or the use of wooden walkways to control tourists movements through parts of the temples in the Angkor Wat

Production Factor Method The method values negative impacts on the environment as the value of resources needed to treat the effects ofsome impact  An example is the reduction in fish catch as a result of deterioration in water quality caused by a factory not cleaning its wastewater sufficiently before discharging it into the river  a reduction in tourism related expenditure attributed to declining environmental quality in a destination

Conclusions  Economic Techniques can be used to value natural environments  They are not without their limitations of course  BUT - - they have been instrumental in helping to preserve natural environments  Don’t be too hasty to criticise economists and their techniques unless you have the full picture of their techniques and good intentions  Economists are your friends

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