Valuing Biodiversity – Use and Non-use Values and Their Economic Measurement

GEF

Session 13

Valuing Biodiversity – Use and Non-use Values and Their Economic Measurement

John A. [email protected]

The World Bank InstituteAshgabad, November 2005

Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity

GEF

Questions

• What are the principle economic values/uses associated with biodiversity conservation?

• What economic valuation techniques can be used to estimate these monetary values?

• What values cannot be estimated in economic (monetary) terms?


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The Total Economic Value approach

u su a lly m e asu reso u tp ut

D ire c t u se va lu es(s tru c tu ra l v a lu e s)

u su a lly m e asu resb e n e fits /se rv ices

In d irec t us e va lu es(fu n ctio n a l va lu e s)

O p tion v a lu es

U se va lu es

B e qu e st v a lu es E x iste n ce v a lu es

N o n-u se valu es

Total Econom ic Value


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The Total Economic Value (TEV) Approach and Biodiversity

Includes both Use Values and Non-Use Values• Use values include direct use (both

consumptive and non-consumptive), indirect use, and option values

• Non-use values include bequest values and existence values

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


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Identifying types of uses and values for biodiversity

• 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 are indirect-use values


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Identifying different types of economic values for biodiversity

(continued)• Non-use Values include Option values,

Bequest values and Existence values (all usually measured using CVM)

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

• Valuation is easiest for Direct-use values, quite difficult for Indirect-use values, and very difficult for Non-use values


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Economic Values are People-dependent!

• Remember, there are few or no economic values that are NOT directly linked to human uses or desires, and

• People often do not understand what the real question is.

• Therefore, market-values may be poor reflections of ecosystem values or pure biological uniqueness!– But…

• Markets and prices often drive government and private actions!


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Valuing Direct-Use Values (both consumptive 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 on ecotourism), or at a broader social welfare level – usually by measuring the consumers’ surplus or economic rents generated. The former is easier to calculate, the latter is more difficult.


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Valuing Indirect-Use Values

• Largely composed of ecosystem services 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 and

Existence values, are usually always measured using some form of CVM. Cultural values may be very important 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 blue

whale) non-use values account for almost ALL of the economic value measured in a TEV calculation.


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Selecting the appropriate valuation technique (again)

Environmental Impact

Measurable change in production

Change in environmental quality

Yes

Nondistorted market prices available?

Use change-in-productivity approach

Use surrogate market approaches, apply shadow prices to changes 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


Hedonic wage approach



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“valuing” the non-measurable• Some uses or values associated with

biodiversity 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 and the “aina”, the land, very highly)


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“valuing” the non-measurable – cont’d

• Suggestions solutions:– Avoid Extinction!!– Use of the concept of Safe Minimum

Standards to preserve ecosystems and their biodiversity

– Creative use of financing to preserve/ protect scarce ecosystems and scarce biodiversity


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What is the TEV of Biodiversity? – no one really 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 the benefit transfer approach (for biodiversity or for “hard to value” resources)


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A BAD example of benefit transfer due to the “Big Lie” problem: Estimates of Soil Erosion

Rates1. A results reported for El Salvador – 140 t/ha – came from measurements on one 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 Central

BelgiumRichter (1983)

Richter (1983)

10-25 Central Belgium

Bollinne (1982)

Bollinne (1982)

Not stated 12 plots in Sauveniere

Field experiments


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Another BAD example of benefit transfer:

value of the Whooping Crane in the US

• The Whooping Crane, protected in a small nature refuge in Texas, was the subject of a CVM study of WTP by local residents;

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

• This amount was then multiplied by the entire population of the US (over 250 million people) 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 any single endangered species (e.g. the whale, 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)

USABald eagle 12.4Emerald shiner 4.5Grizzly bear 18.5Bighorn sheep 8.6Whooping crane 1.2Blue whale 9.3Dolphin 7.0Sea otter 8.1Humpback whale 40-48 (w/o info)

49-64 (w. info)NorwayBrown bear, wolf, wolverine 15.0


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“Pars pro Toto” (cont’d)• When asked their WTP to protect

ALL endangered species in the world, the responses are about $10 to $15 per person per year!

• WHY? – the “embedding” problem created by the interviewer asking the wrong question


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The “Pars pro Toto” Problem

• Only partial information is provided• The wrong question is asked

WTP for all endangered species

WTP for any single species


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Practical Guide to Valuation of Biodiversity

• Start with the most direct uses – both consumptive and non-consumptive

• Carefully consider ecosystem services (especially when they relate to marketed goods and services such as pollination, water supply, land protection,…)

• Value non-use values with care and caution; avoid

Documents

Valuing Biodiversity – Use and Non-use Values and Their Economic Measurement