Wednesday, February 26, 2014

The Environment -- Knowing the Cost but not the Value

The Economist has a tutorial on economic measurement of "ecosystem services". It identifies four approaches:

  • If the service has an output, then it is sometimes possible to value the environmental input. Thus an estimate of the value of bees has been made based on the value of the crops that they pollinate.
  • "(I)f market prices are affected by nature, a value can be derived from them. Thus an apartment in New York with a view of Central Park is worth considerably more than one without such a view."
  • "(P)eople’s behaviour—for instance the costs that they are prepared to bear to visit a national park—reveals the value that they place on unpriced goods."
  • "(P)eople can be asked whether and how much they prize aspects of nature." This method applies primarily to non-use value.
Perhaps there is another way. Think about the smog that now makes life miserable in Chinese cities. In some way, it may be compared to the air pollution that once afflicted London. London cleaned up its air, and then cleaned up the buildings that its air pollution had soiled. It was willing to pay the costs of substituting other fuels for coal and cleaning those buildings. That cost, updated to current conditions, might be an estimate of the value of clean air in a city (of a given population size). Other major efforts to clean up air and water (reduction of smog in Los Angeles, the U.S. Clean Air and Clean Water programs, etc.) might suggest values people attach to environmental quality.

The article goes on to state:
Some of the numbers derived from these methods are distinctly dodgy, but conservationists argue, fairly reasonably, that it is better to have mediocre estimates than none at all. They lend force to environmentalists’ arguments and can usefully be fed into cost-benefit analyses. Governments thinking of planting forests or creating nature reserves, for instance, can put sensible numbers on the value people attribute to them, and thus work out whether the land in question would be better used for agricultural or recreational purposes. 
I am not sure that mediocre estimates are always better than none, especially if they will be misused. A decision to forego an environmental service because a government is unwilling to pay the preservation cost might be taken to suggest -- inappropriately -- that the value of the service is less than the cost would have been to protect it. It may simply be that the government was short sighted, or that it failed to find means to mobilize financial mechanisms to capture the needed portion of the value.

I think of "natural resources". How much are oil and gas fields worth before they have been located? How much were the fields now being exploited by fracking worth before the fracking technology was developed to exploit them, and the costs of alternative sources became high enough to justify the development and application of the new technology? How much were the off shore or the deep water oil reserves worth before they were located, before the technology was developed for their exploitation, and before alternative, lower cost sources were running out? The point is that something becomes a resource only when the technology exists to find it and it is found, and when the technology exists to exploit it.

So how many "natural resources" are to be found in biodiversity and other aspects of nature about which we know little or nothing now. Assuming that there is no value because we have not yet developed the technology to create value seems a serious mistake.

How about other approaches.


What if we were to say that great apes and other primates have a right to exist as species? Rights "trump" cost-benefit analysis. We do now take a rights based position on the treatment of animals used in research. They have to be housed, fed and treated humanely, even if it costs a lot to do so. Indeed, it appears that chimpanzees are no longer to be used in medical research because they have suffered too much in the past from such use, and because the species is in some danger as a species.

Perhaps rhinos, elephants, whales, bison, wolves and other species have similar rights to exist. Indeed, perhaps they have rights to exist in nature, and not merely in zoos or gene banks.


The World Heritage Convention implies that countries have a duty to protect things because they are of such cultural or natural value that they must be preserved for future generations. It would I suppose be possible to value Yellowstone and Yosemite by what the government could get selling them off as real estate -- that would be at least a lower bound on the actual monetary value. But would it not be better to simply say that we have a duty to future generations to keep these wonders pristine?

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