A Few Basic Principles of Economic Valuation of Ecosystem Services John Loomis Dept. of Ag & Resource Economics Colorado State University’ Fort Collins, CO

Valuation of Final Ecosystem Goods & Services ES are produced via from:  Natural Capital (input)  Ecosystem Production func (processes, etc)

Valuation of Final Ecosystem Goods & Services ES are produced via from:  Natural Capital (input)  Ecosystem Production func (processes, etc) Outputs or Ecological End Pts are Ecosystem Services used by people either directly or indirectly  These are what economists value

Valuation of Final Ecosystem Goods & Services ES are produced via from:  Natural Capital (input)  Ecosystem Production func (processes, etc) Outputs or Ecological End Pts are Ecosystem Services used by people either directly or indirectly  These are what economists value  To also value Natural Capital & ecosystem functions & ecosystems processes would be triple counting the same benefit

Boyd & Krupnick End Pts are what are Final ES that get valued

Components of Total Economic Value Total Economic Value=TEV  Use Values Market: drinking water supply in cities, food, wood Non Market: recreation, air quality related to health

Components of Total Economic Value Total Economic Value=TEV  Use Values Market: drinking water supply in cities, food, wood Non Market: recreation, air quality related to health  Non Use or Passive Use Values Sometimes option value for future use Existence Value  To know it exists for oneself or others of current generation Bequest Values to future generations

Defining Economic Valuation Anthropocentric Economic Value broader than Financial Value WTP=max amount a person would pay (willingness & ability to pay) for gains  Sacrifice or trade-off people will make  Market prices are WTP for one more unit

Defining Economic Valuation Anthropocentric WTP=max amount a person would pay (willingness & ability to pay) for gains  Sacrifice or trade-off people will make  Market prices are WTP for one more unit WTA=min amount a person would accept to forego a particular ecosystem service in a particular place- hard to measure Need monetary units to compare to costs

Valuation requires a clear “with vs without” Economic valuation most useful for determining:  WTP for an incremental gain from some mgmt action  WTA for a decrement from some impact Valuation is rarely “all or nothing”

Non-market Valuation Techniques that measure WTP Behavioral Linkages Revealed Preference Averting Behavior Travel Cost Method Hedonic Property Analysis Hedonic Wage-risk Analysis Benefit Transfer

Non-market Valuation Techniques that measure WTP or WTA Behavioral Linkages Revealed Preference Averting Behavior Travel Cost Method Hedonic Property Analysis Hedonic Wage-risk Analysis Contingent Valuation Method (Bundle valuation) Contingent Valuation Method (Bundle valuation) Stated Preference Benefit Transfer Conjoint Analysis (attribute valuation) Conjoint Analysis (attribute valuation) Choice Experiments (attribute valuation) Choice Experiments (attribute valuation)

Approaches to Benefit Transfer Point Estimate (per acre, per visitor day)  Most similar Ecosystem Service in terms of location and population served (e.g., rural/urban)  Average of similar study values

Approaches to Benefit Transfer Point Estimate (per acre, per visitor day)  Most similar Ecosystem Service in terms of location and population served (e.g., rural/urban)  Average of similar study values Meta Analysis: Benefit Function Transfer  Tailor the calculated WTP values per unit by setting the Independent Variables to match the policy site where values are needed.

Approaches to Benefit Transfer Point Estimate (per acre, per visitor day)  Most similar Ecosystem Service in terms of location and population served (e.g., rural/urban)  Average of similar study values Meta Analysis: Benefit Function Transfer  Tailor the calculated WTP values per unit by setting the Independent Variables to match the policy site where values are needed  Many available for wetlands, T&E species, recreation, fishing, aquatic species, etc. Benefit Transfer Toolkit at CSU & DOW

Conclusions Economists have a specific definition of “Economic Value” as WTP or WTA Market Prices reflect Use Values for private Ecosystem Services

Conclusions Economists have a specific definition of “Economic Value” as WTP or WTA Market Prices reflect Use Values for private Ecosystem Services WTP for Non market Use values can be calculated using Revealed or Stated Preferences WTP for PUV or NUV require Stated Preference methods ES valuation requires ecologists & economists