Total Economic Value

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GEF

Session 13

Valuing Biodiversity ± Use and Non-use

Values and Their Economic Measurement

John A. Dixon

[email protected]

The World Bank Institute

Ashgabad, November 2005



GEF

Caspian EVE 2005/UNDP and WBI

John A. Dixon, Valuing Biodiversity

Questions

What are the principle economic values/usesassociated with biodiversity conservation?

What economic valuation techniques can beused to estimate these monetary values?

What values cannot be estimated in economic

(monetary) terms?



GEF



The Total Economic Value approach

usually measures

output

Direct use values(structural values)

usually measures

benefits/services

Indirect use values(functional values)

Option values

Use values

Bequest values Existence values

Non-use values

Total Econ om ic Value



GEF



The Total Economic Value (TEV) Approach and Biodiversity

Includes both Use Values and Non-Use Values

Use values include direct use (bothconsumptive and non-consumptive), indirect use, and option values

Non-use values include bequest values andexistence values

The TEV is the sum of all of these values but inthe case of biodiversity, much of the valuemay lie in the Indirect Use or Non-use portion



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Identifying types of uses and values forbiodiversity

Direct-use Values: hunting, direct-consumption (e.g. collection of berries,mushrooms, herbs, plants) are all

consumptive uses; whereas observing,photography, or ecotourism are all non-consumptive uses

Indirect-use Values: ecosystem services such

as pollination, habitat for other species,sustaining food chains, other uses areindirect-use values



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Identifying different types of economicvalues for biodiversity (continued)

Non-use Values include Option values,Bequest values and Existence values (allusually measured using CVM)

Unknown values include the value of geneticmaterial (e.g. a new cure for cancer or AIDS)

Valuation is easiest for Direct-use values,

quite difficult for Indirect-use values, andvery difficult for Non-use values



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Valuing Direct-Use Values (bothconsumptive and non-consumptive)

Direct uses hunting, fishing, hiking,photography, tourism/ecotourism, cultural/historical, scuba diving and other uses are

often the easiest to value and the largest single item in a TEV calculation.

Data can be presented at a financial level (e.g.how large is the economic sector dependent onecotourism), or at a broader social welfare level usually by measuring the consumers surplus oreconomic rents generated. The former is easier tocalculate, the latter is more difficult.



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Valuing Indirect-Use Values

Largely composed of ecosystemservices such as

Ecosystems such as wetlands, lakes,deserts, forests

Shoreline protection; water filtration

Pollination

Changes in hedonic prices

Climatic effects (perhaps)



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Valuing Non-Use values

Non-use values including Option, Bequest andExistence values, are usually always measured usingsome form of CVM. Cultural values may be veryimportant in non-use values (e.g. Lake Sevan in Armenia)

Values may be small per person (a few dollars), but large when aggregated (as in Armenia)

Note: Non-use values are usually harder to sell to decision

makers, but

For some types of biodiversity (e.g. the panda, the bluewhale) non-use values account for almost ALL of theeconomic value measured in a TEV calculation.



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Selecting the appropriate valuationtechnique (again)

Environmental Impact

Measurable change

in production

Change in environmental

quality

Yes

Nondistorted market

prices available?

Use change-

in-

productivityapproach

Use surrogate

market

approaches,apply shadow

prices tochanges in

production

Yes No

Habitat

Opportunity-

cost approach

Replacement

cost approach

Land value

approaches

Contingent

Valuation

Air and water

quality

No

Cost-effectiveness

of prevention

Preventive

expenditure

Replacement/relocation

costs

Health effects

Sickness Death

Medical

costs

Loss of

earnings

Human

capital

CEA of

prevention

Recreation

Contingent

valuation

Travel cost

Aesthetic,

Biodiversity,Cultural,

Historical

assets

Contingen

Valuation

Contingent

Valuation

Hedonicwage

approach

Contingent

Valuation



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valuing the non-measurable

Some uses or values associated withbiodiversity are impossible to measure.These may include the following:

Unknown genetic material Global life support services (an infinite

value)

Cultural or religious values (e.g. in Hawaii,

the native Hawaiians value the sea andthe aina, the land, very highly)



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valuing the non-measurable contd

Suggestions solutions:

Avoid Extinction!!

Use of the concept of Safe MinimumStandards to preserve ecosystems andtheir biodiversity

Creative use of financing to preserve/

protect scarce ecosystems and scarcebiodiversity



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What is the TEV of Biodiversity? no onereally knows!

As economists always say It Depends!!!! It depends on

The numbers and types of uses and users

The values associated with each use

National vs global values

The scarcity and uniqueness of the resource

Final Caution: Be very careful in using thebenefit transfer approach (for biodiversity orfor hard to value resources)



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A BAD example of benefit transfer due to the Big Lieproblem: Estimates of Soil Erosion Rates

1. A results reported for El Salvador 140 t/ha came from measurements onone plot, for one year (Flores Zelaya, 1982).

2. A widely reported result for Europe - 17 t/ha/yr. for Europe (source:Pimental, 1995) is used over and over again in the literature.

Where does this estimate for Europe come from ??

Rate Area

Covered

Source

Barrow(1991)

10-25 Belgium Lal (1989)

Lal (1989) 10-25 Belgium WRI (1986)

WRI (1986) 10-25 CentralBelgium

Richter(1983)

Richter(1983)

10-25 CentralBelgium

Bollinne(1982)

Bollinne(1982)

Not stated 12 plots inSauveniere

Fieldexperiments



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Another BAD example of benefit transfer:value of the Whooping Crane in the US

The Whooping Crane, protected in a smallnature refuge in Texas, was the subject of aCVM study of WTP by local residents;

The results were modest -- $1 or $2 perperson per year.

This amount was then multiplied by the entire

population of the US (over 250 millionpeople) to get an aggregate value of $100s of millions per year! Pars pro Toto!



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The problem of pars pro toto:

When asked their WTP to protect anysingle endangered species (e.g. thewhale, the panda, a big-horned sheep,the sturgeon, the whooping crane)common responses in the US are about $5-$10 per person per year.



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For example, WTP for preservation of

endangered species

(1990 $US per person per year)USA

Bald eagle 12.4

Emerald shiner 4.5

Grizzly bear 18.5

Bighorn sheep 8.6

Whooping crane 1.2

Blue whale 9.3

Dolphin 7.0

Sea otter 8.1

Humpback whale 40-48 (w/o info)49-64 (w. info)

Norway

Brown bear, wolf, wolverine 15.0



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Pars pro Toto (contd)

When asked their WTP to protect ALLendangered species in the world, theresponses are about $10 to $15 perperson per year!

WHY? the embedding problemcreated by the interviewer asking the

wrong question



GEF



The Pars pro Toto Problem

Only partial information is provided

The wrong question is asked

WTP for all endangeredspecies

WTP for any single species



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Practical Guide to Valuation of Biodiversity

Start with the most direct uses bothconsumptive and non-consumptive

Carefully consider ecosystem services(especially when they relate tomarketed goods and services such aspollination, water supply, land

protection,) Value non-use values with care andcaution; avoid

Total Economic Value

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