Scale, Distribution and Valuation:
Serious problems and potential solutions
Joshua Farley and Eneida Maria Goddi Campos
Community Development and Applied Economics
Gund Institute for Ecological Economics
University of Vermont
The Macro-Allocation Problem
Characteristics of Ecosystem
Services

Primarily non-excludable (i.e. no private
property rights)
With exception of waste absorption capacity
and some others
Scarcity  price increase  innovation


Critical Natural Capital (CNC)

Components of natural capital that are
essential to human survival and for which
there are no adequate substitutes
Characteristics of CNC

Uncertainty



Thresholds


E.g. passenger pigeons,
sardines
Sample size of one
E.g. Amazon,
passenger pigeons
Time lags

Cassowaries,
passenger pigeons
Valuing Ecosystem Services for
Efficient Allocation

Calculate all non-market values, feed
signal back into market, theoretical
outcome is efficient market allocation
Problems with Monetary Valuation





Every economic activity has impact on
ecosystem services, internalizing externalities
requires centralized economy
Economic values no more accurate than
ecological knowledge
Methodologies inadequate
Incommensurability
Ignoring these and other problems, would
valuation lead to just and sustainable outcomes?
Valuation and Distribution




Valuation methods attempt to estimate
demand curve
Demand = preferences weighted by
income
Outcome: one dollar, one vote=plutocracy
Should values created by nature be
allocated via plutocracy or democracy?
Potential solutions

Willingness to work voluntarily




Can numbers be translated into monetary units?
Example from Atlantic Forest
WTA better than WTP
Democratic allocation: one person, one vote


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Macro-allocation (scale) must be democratic decision
informed by science and ethics
ESA, clean water act, clean air act, etc.
Valuation can serve as one source of information
Valuation and Sustainability

Inelastic demand



Resources that are essential and have no
substitutes, e.g. critical natural capital
Small changes in quantity lead to large
changes in marginal value
E.g. California’s energy crisis, rising food
prices
value
Marginal
Marginal Value
The Demand Curve for Natural
Capital
Critical:
Perfectly
inelastic demand
Important:
inelastic
demand
Valuable:
elastic demand
Demand curve
for natural capital
Natural
Capital Stocks
Natural
Capital
stocks
Perverse Nature of Monetary
Measurements
value
Marginal
Marginal Value
Critical:
P2 Perfectly
inelastic demand
Important:
inelastic
demand
Valuable:
elastic demand
Demand curve
for natural capital
P1
The loss of agriculture does matter even
if it’s only 3% of GNP
Q2 Q1
Natural
Capital Stocks
Natural
Capital
stocks
Costs of Monetary Measures




Measurements must be repeated constantly as
we near thresholds
Lags or underestimates can lead to
catastrophe: ecosystems cannot adapt to
prices
Perverse measure—value increases as quantity
declines
Army of economic technocrats required


Would the money be well spent?
Is it a market solution, or centralized economy?
Potential Solutions

Internalizing externalities through valuation only
potentially appropriate when resource demand is
elastic



Questionable whether markets are appropriate at all
for resources with inelastic demand
To extent valuation works, it might be one signal
of impending thresholds
When demand is inelastic, scale should
determine price, not vice versa
Measuring for Sustainability

Identifying critical natural capital


Uncertainty, ignorance and ethics




Multiple criteria required, valuation might be
one type of useful information
Ecological thresholds: sample size of one
Technological change
Evolutionary change
Metric: Science weighted by ethics
Examples from Brazil’s Atlantic Forest
Highest Biodiversity Terrestrial
Ecosystem Known
•93% deforested
•Island biogeography rule of thumb: 90%
decrease in ecosystem size = 50%
decline in biodiversity
Greatest number of endangered species in the Americas
Ecological thresholds: Shifting to fire prone
ecosystem?
•Critical Natural Capital: Restoration is
essential
•Survey of residents of Sao Joao
del Rei
•136 respondents
•24 had zero willingness to pay, but positive
willingness to work voluntarily to preserve Sao
Jose Mountain environmental protected area
(Atlantic Forest)
•Survey of visitors showed inelastic
demand for ecotourism
value
Marginal
Marginal Value
Summary
Critical:
Perfectly
inelastic demand
Important:
inelastic
demand
Valuable:
elastic demand
Demand curve
for natural capital
Restoration
essential
Scale determines
price
Price determines scale ?
but we must also address
distribution
Natural
Capital Stocks
Natural
Capital
stocks