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