The Economic Valuation of Biological Diversity
Transcript of The Economic Valuation of Biological Diversity
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Tropical Ecology SupportProgram (TB)
The Economic Valuationof Biological Diversity
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Tropical Ecology SupportProgram (TB)
The Economic Valuationof Biological Diversity
Dr. Thomas Pln
Eschborn, 1999
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TB Publication No.: TB P-3e
Published by: Deutsche Gesellschaft frTechnische Zusammenarbeit (GTZ) GmbHPostfach 5180D-65726 Eschborn
Responsible: Tropenkologisches Begleitprogramm (TB)Dr. Claus Btke
Author: Dr. Thomas Pln, inf Informationsmanagement,Biotechnologie / Biodiversittsnutzung,
Lessingstr. 3a, D-93049 Regensburg, GermanyTel.: +49-941-299054, Fax: +49-941-25627,email: [email protected]
Edited by: Michaela Hammer
Nominal fee: DM 5,-
ISBN:
Produced by: TZ-Verlagsgesellschaft mbH, D-64380 Rodorf
1999 All rights reserved
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Foreword
For the majority of the world's population, tropical ecosystems are a vital life-sustaining force. However, the progressive destruction and depletion of naturalresources in developing countries are jeopardising efforts aimed at achieving
sustainable development and effective poverty reduction.The Flanking Program for Tropical Ecology is a supraregional service projectbeing run by the Deutsche Gesellschaft fr Technische Zusammenarbeit (GTZ)GmbH on behalf of the Federal German Ministry for Economic Cooperationand Development (BMZ), its mandate being to help collect and processexperience in this sector, thus improving the information status.
On request, the program flanks specific projects with studies focusing onissues relevant to tropical ecology. By so doing, it is aiming to further develop
concepts and approaches geared to protecting, conserving and ensuring thesustainable use of tropical ecosystems. At the same time, this research workprovides the basis for designing innovative instruments that will facilitate moreecologically-sound development cooperation in future.
By applying scientific results at grass-roots extension level, the program assistsother projects in the implementation of international agreements, in particularAgenda 21 and the Biodiversity Convention, to which the BMZ attaches greatimportance.
A key element of the program concept centres on a joint approach whichprovides German and local scientists with a forum for discussion. TheFlanking Program for Tropical Ecology is thus making a valuable contributionto the practice-oriented upgrading of counterpart experts and the consolidationof tropical-ecology expertise in partner countries.
This series of publications has been produced in a generally comprehensibleform with the specific aim of presenting its results and recommendations to allorganisations and institutions active in development cooperation, and also to allthose members of the general public who are interested in environmental anddevelopment-policy issues.
Dr. H. P. Schipulle
Head of the Environmental Policy,Protection of Natural Resources and
Forestry Division
Dr. C. van Tuyll
Head of the Rural Development Division
Federal German Ministry for EconomicCooperation and Development (BMZ)
Deutsche Gesellschaft fr TechnischeZusammenarbeit (GTZ) mbH
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Contents
I
Table of Contents
TABLE OF CONTENTS .....................................................................I
LIST OF FIGURES..........................................................................IV
LIST OF TABLES ...........................................................................IV
GLOSSARY ...................................................................................V
SUMMARY...................................................................................IX
1 INTRODUCTION ......................................................................1
1.1 Description of the development cooperation project and
purpose of the project ................................................................. 1
1.2 Analysis of problems.................................................................. 2
1.3 Objectives................................................................................... 3
2 RESULTS AND ANALYSIS........................................................7
2.1 Decrease in biodiversity as a consequence of the lack of
markets and of market failure ..................................................... 7
2.2 Classification of the types of values of biological diversity ...... 11
2.3 Examples of evaluating biological diversity ............................. 22
2.3.1 Use value of genes and biochemicals ............................ 22
2.3.2 Use value of species...................................................... 28
2.3.3 Use value of ecosystems and landscapes....................... 30
3 RECOMMENDATIONS............................................................35
3.1 Valuation methods and techniques............................................ 35
3.1.1 Determining direct and passive use values on
simulated markets......................................................... 38
3.1.2 Indirectly determining direct use values........................ 43
3.1.3 Determining indirect use values.................................... 45
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3.2 The cost aspect of the conservation and destruction of
biological diversity and the cost-benefit analysis procedure ..... 48
3.2.1 Opportunity costs: restoration costs, sustainability
costs, lost use values..................................................... 483.2.2 Cost-benefit analysis..................................................... 52
3.3 Organisation of markets with appropriate prices....................... 53
3.3.1 Monetisation and cost-benefit analyses......................... 54
3.3.2 Dismantling failed interventions................................... 55
3.3.3 Creation of private property rights and integrated
biodiversity management .............................................. 563.3.4 Creation of market-based regulatory instruments.......... 58
3.3.5 Creation of global markets............................................ 61
3.4 Recommendations for development cooperation ...................... 65
3.4.1 Project-oriented cost-benefit analyses using the
available valuation instruments..................................... 66
3.4.2 Training and capacity-building to inventor andmonitor biodiversity ..................................................... 66
3.4.3 Creation and/or strengthening of institutional
prerequisites for the development and
implementation of national biodiversity strategies ........ 67
3.4.4 Training and capacity-building to conduct cost-
benefit analyses and valuation techniques..................... 67
3.4.5 Supporting research capacities in developing
countries at the frontier between ecology and
economics 68
3.4.6 Identification of interventions failures .......................... 70
3.4.7 Creation of incentive instruments ................................. 71
3.4.8 Participation of local communities in biodiversity
yields............................................................................ 71
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Contents
III
3.4.9 Assistance in the creation of property rights ................. 72
3.4.10 Cooperation in establishing global environmental
markets through bilateral and multilateral
agreements.................................................................... 73
4 BIBLIOGRAPHY ....................................................................75
4.1 Cited references........................................................................ 75
4.2 Other references ....................................................................... 83
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List of figures
Fig. 1: Total economic value of a biological asset 13
Fig. 2: Classification of resources 17
Fig. 3: Classification of economic values and attributable valuation
methods (methods in angled brackets are less suitable ones) 37
Fig. 4: Comparison of the resulting costs and use of protected areas 52
List of tables
Table 1: Use values of genes and biochemicals 28
Table 2: Use values of species 30
Table 3: Use values of ecosystems 33
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Glossary
V
Glossary
Allocation
mechanism
Mechanism for the allocation of productive factors or
resources to certain goals
Assimilation Admission and processing of a substrate
Bequest value Value of keeping a resource intact for future
generations
Biodiversity orbiological diversity
General term for the number, variety and diversity ofliving organisms in a certain environment or unit of
space, divisible into the order and integration levels
genes, species and ecosystems
Biological resource General term for genetic resources, organisms or
parts of organisms, populations or any other
biological component of ecosystems of actual orpotential use or value for mankind
Bioprospecting Exploration of biodiversity in search of commercially
exploitable genetic and biochemical resources
Biotic Of or relating to organisms or life processes
Cost-benefit analysis
(CBA)
Collection and evaluation of relevant actions or
measures and their alternatives in monetary terms
Direct use value Value of biological resources or resource systems by
consumption or production or by their direct
interaction with market subjects
Discounting Preference of a currently available private use, which
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involves social destruction, over a private use in the
future, which also involves social preservation
Ecosystem Fundamental functional ecological unit which
includes organisms and environment, divisible into
energy flows, food chains, diversity samples,
biogeochemical food cycles, development and
evolution, cybernetics
Emission rights Pollution licence entitling the holder to a certain level
of emissions
Existence value Intrinsic value of a resource
Global environmental
markets (GEMs)
Global markets which have either been enforced by
international sets of rules or have resulted from
voluntary agreements
Gross national
product (GNP)
Total value of the goods and services produced by
firms owned by a country
Gross primary
production
Entire photosynthesis, including organic material
used during respiration
Habitat Place in which an organism lives
Indirect use value Value of biological resources or achievement for
directly used resources or ecosystems
Market analysis Analysis of the procurements and sales prospects of
an enterprise or an industry and the market influences
affecting it at a certain time
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Glossary
VII
Natural capital The natural wealth of biological resources
Net primary
production
Quantity of organic material stored in green plants
minus that used in respiration
Opportunity costs Costs of alternatives that are not used
Option value Use reserved for a later time
Passive use value Measurement of the significance of resources or
similar factors for us, our descendants or other
species
Population Total individuals belonging to a certain species in a
certain area
Preference Ranking of demand for certain goods by individuals
Productivity Accumulation of one organic substance per unit of
time
Quasi-option value Value of delaying an irreversible decision to wait for
additional information to help in the decision-making
process
Surrogate market
concept
Evaluation of markets for private goods and services
related to the relevant resources and products
Screening Purposeful search for certain substances or effects
Travel cost approach Market approach based on the expenditure required
for a particular journey corresponding to or
characteristic of products or resources, etc.
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Total economic value
(TEV)
Sum or aggregation of direct value, indirect value,
option/quasi-option value and passive use value of a
resource or a resource system
Transferable
development rights
(TDRs)
International trade development rights to enable
adequate protection of global biodiversity values, in
particular in tropical countries
Willingness to pay Survey to obtain a value, e.g. for biological diversity
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Summary
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Summary
Biological diversity is decreasing at all levels of integration at an alarming
rate. The market prices of biological resources do not reflect their true
values because of a lack of internalisation of external costs and benefits.
This omission is an indication of market failure, based in particular on the
difference between private and social/ecological benefits, on the lack of
markets and on failed interventions.
This paper is based on the hypothesis that the failure to allocate economic
values to the respective components of biological diversity is one of the
causes of this decrease in diversity. Conversely, the allocation of the
appropriate economic values to these components should be able to halt
this trend and to reverse it.
After an introductory chapter, the chapter on "Results and Analysis"
highlights the loss of biodiversity under the aspect of the lack of marketsand of market failure. It is postulated that a market-oriented strategy to
valuate the components of biological diversity would help to stop this
decline. Types of values of biological diversity are therefore subdivided
into different use-dependent and use-independent categories. The
social/ecological value of biological resources or services is made up of
four categories of use values: the direct use value, indirect use value,
option/quasi-option use value and passive use value. These are added
together to give the so-called total economic value (TEV). However, there
is a certain amount of overlap between these types of values, which means
that there is a danger of values attributes being counted more than once in
different value categories. The more aspects of use value that can be
determined and compiled to form the TEV, the closer the TEV will come to
the "real" value of a biological asset. However, if this TEV fails to be
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reflected by market prices, it remains a theoretical concept. Because of the
benefits of biological diversity and the lack of information available about
these benefits as a result of market failure, there is an urgent need for
economic valuation studies to be carried out.
The results of several studies carried out to assess genes and biochemicals,
species, ecosystems and landscapes in terms of the use values of the
respective components of biological diversity are highlighted.
The third chapter discusses application relevance and recommendations for
action and presents the relevant assessment methods. These methodsprimarily suggest how markets would need to be reformed in order to
correct the present imbalance between prices and values and/or, where this
is not possible, provide decision-making aids indicating the political
measures that need to be taken to correct market signals.
The contingent valuation method (CVM) and related methods of analysis
are of particular importance in this context, because they allow combined
valuations of the direct use value, the option/quasi-option use value and the
passive use value of the components of biological diversity. Moreover,
these methods are the only useful ones to determine passive or non-use
values. Alternative indirect techniques by which to determine direct use
values are also presented.
Methods to determine preferences such as the CVM are not suitable to
determine the indirect use values (e.g. ecological regulatory functions) of
nature as a production factor, since these values support economic activities
or even enable such activities to be carried out regardless of preferences. In
order to determine indirect use values, methods such as productivity
change, maintenance or optimisation work effort, the restoration cost
approach and the production-function approach are currently being applied.
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Summary
XI
The latter approach is designed to determine the physical effects that
changes of ecological functions have on economic activities.
In order to be able to be compared with use values and benefits, the costs
associated with the conservation, sustainable use and restoration of
biological diversity need to be determined. On the basis of the results of
this analysis, the alternative that is not chosen generates opportunity costs.
Finally, cost-benefit analyses (CBAs) allow relevant activities and their
alternatives to be identified and valuated in monetary terms. The relevant
cost and benefit variables have to established to allow an accurate directcomparison of the possible alternatives to be made.
By applying valuation methods, it was able to be shown that the economic
benefits of conserving biological diversity are limited at a local level, are
somewhat higher at a regional and national level and become substantial at
a global level. In contrast, the costs frequently show the opposite trend:
They are significant at a local level and low at a regional and national level.
In order to allow effective conservation of biodiversity, the imbalance on
each of these levels needs to be corrected.
In this context, four measures are discussed which should lead to an
effective translation of the evaluation approaches into the creation of
markets. They concern the following:
The removal of damaging distortions of market mechanisms (deregulation)
by dismantling failed interventions. In order to establish prices that reflect
social costs, it is important to abolish all supportive measures that
artificially reduce the private costs of activities detrimental to biodiversity.
The creation of markets by privatisation and integrated biodiversity
management based on the efficiency criterion, i.e. those who control assets
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should also be those who profit from the benefits of these assets. This could
be attained by establishing property rights to those biological resources to
which vested titles do not yet exist and/or by transferring vested titles from
the State to landowners (including those not yet entitled to land tenure dueto pending reforms).
The introduction of control instruments, in particular market-induced
instruments, in addition to regulatory ones. While the latter imply direct
control (reduction/limitation) of unwanted actions in conjunction with
legislative or politically agreed standards, market economy-based
intervention instruments (MEIs) create economic incentives. Strictly
speaking, MEIs include all political measures explicitly related to private
benefits and costs by which the comparative social benefits and costs can
be incorporated into market prices. These instruments can be subdivided
into five categories: duties/taxes/fees, subsidies, pledge systems, tradable
rights and compensatory incentives.
The creation of global environmental markets (GEMs). These markets can
be enforced by international law or can be created on the basis of voluntary
agreements. A common feature of both approaches are bilateral or
multilateral transfer payments. The particular practical relevance of
approaches used to valuate conservation, sustainable use and restoration
costs for transfer payments (e.g. transferable development rights, TDRs)
lies in the fact that these payments can be related to the amount of money
required in national and international budgets to be spent inter alia on
conservation. In this respect, it is not sufficient to provide donor countries
with financial compensation. The transfer payments must also reach those
individuals and communities immediately involved in using and preserving
the components of biological diversity in question.
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Summary
XIII
After describing application-relevant methods and mechanisms, ten
specific recommendations are made for development cooperation (DC):
the establishment of project-oriented cost-benefit analyses applying the
available valuation methodology for the DC projects themselves,
training and capacity-building to inventory and monitor biodiversity in
the partner countries,
the creation and enforcement of institutional frameworks for the
development and implementation of national biodiversity strategies,
training and capacity-building within the partner countries to carry out
cost-benefit analyses and valuation techniques,
the support of research capacities in developing countries at the frontier
between ecology and economics,
the identification of failed interventions and consultation concerningtheir dismantling,
consultation on the establishment of economic incentives, especially
market-based ones,
the development of strategies for the participation of local communities
in biodiversity yields,
assistance in the creation of vested titles/property rights and
cooperation in creating GEMs on the basis of bilateral and multilateral
agreements.
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Introduction
1
1 Introduction
1.1 Description of the development cooperation projectand purpose of the project
In December 1994, with the financial support of the German Forum on
Environment and Development, the present author submitted a carefully
considered preliminary study on "Economic concepts in the valuation of
biological diversity". This study contained a short presentation and
evaluation of economic valuation concepts of biological diversity.
After discussions had been held with those involved in the Deutsche
Gesellschaft fr technische Zusammenarbeit (GTZ) GmbH's Tropical
Ecology Support Programme (TB), this preliminary study was developed
into a final study to be translated into English and laid out in accordance
with the guidelines for TB research projects. Above all, it was to be
revised to enable it to be used for practical purposes: How are valuation
studies on biological diversity carried out and what methods are available
to obtain adequate payment for the determined values?
First of all, the German version of the study was therefore revised to meet
comprehensibility criteria. In order to enable it to be put to practical use, it
was also supplemented by a description of the methods used to valuatebiological diversity, procedures used for cost-benefit analyses (CBAs),
recommendations regarding the organisation of markets with appropriate
prices and supplementary recommendations for development cooperation
(DC). Finally, the revised text was translated into English.
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1.2 Analysis of problems
Biological diversity or biodiversity is the umbrella term for the number,
variety and diversity of living organisms in a certain environment and unit
of space. It is subdivided into the following order and integration levels:
genes (and their derivatives),
species and
ecosystems.
On all three of these levels of integration and on a global scale, biological
diversity is decreasing at an alarming rate. This paper is based on the
hypothesis that the failure to allocate economic values to the respective
components of biological diversity is one of the causes of this decrease in
diversity. Conversely, the allocation of the appropriate economic values to
the components in question should be able to halt and even reverse this
trend.
If market prices reflected the actual value of biological resources (including
resource systems) and of their services (especially ecological ones), i.e. if
external costs were internalised and the costs of the respective resources
thus corresponded to all the values attributable to them, and if not only
their private value but also their social (and ecological) value became
apparent on the market to a sufficient degree, this notion should support
conservation and the sustainable use of biological diversity. In addition, the
socio-economic benefits of biological resources need to be determined as
comprehensively as possible and translated into marks or dollars. Even if
complete monetisation of the components of biological diversity cannot be
achieved (e.g. because access to certain goods and resources is impossible
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Introduction
3
to monitor and control), it might nevertheless be possible to arrive at an
approximate value for these components.
1.3 Objectives
This study is concerned with existing valuations of the components of
biological diversity, i.e. those to which market prices have been assigned,
either as raw materials or as refined products. In addition, the various
methods of direct and indirect valuation that are used to try to capture the
"real" value of biological resources over and above their actual market
prices are listed and classified.
Which methods are available to determine the direct and indirect use values
of biological resources? To what extent do biological resources contribute
directly or indirectly to the economic prosperity and the socio-economic
development of political economies? Or, put differently, what is the "real"
value that authors attach to commercially used and usable biological
resources? And how do they estimate the indirect value of biological
resources, most obvious in functions such as flood protection,
photosynthesis, climate stabilisation and soil protection?
Many different approaches exist. One common procedure is the calculation
of those costs that are incurred by restoration ecology. Another procedure
is based on the market prices of biological resources using the theoreticalconcept of maximum sustainable harvests. A further approach addresses
ecological and economic productivity. In this study, an attempt is made to
categorise the various approaches and to evaluate their respective deficits,
without overlooking the pitfalls of an exclusively economically oriented
valuation approach.
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On the basis of the deficits that are identified, hypotheses of quality goals,
values and costs of biological diversity are derived. Scientific, political and
economic aspects are considered in order to establish which economic
and/or monetary preconditions need to be fulfilled in order to enablebiodiversity to be conserved and restored.
Using cost-benefit analyses, the social conservation, sustainable use and
restoration of biological diversity in monetary terms and their related costs
and benefits can be compared with the private and social values of
competitive benefits and costs. The following three steps are presented:
the consequences of these competitive scenarios are identified,
these scenarios are quantified in terms of their respective economic
benefits and costs and
cost-benefit analyses are summarised and compared.
However, even if this comparison favours the conservation alternative, this
does not yet result in a conservation effect. This can only happen if the
actual use value and its cost advantages become visible on the market in
market prices. This can be accomplished as follows:
by creating markets for the components of biological diversity,
by using free market instruments to correct the existing price
imbalances,
by using regulatory interventions to impose balancing effects that even a
functioning market could not achieve.
This also raises the question of financing instruments that could generate
the crucial incentive for the conservation, sustainable use or restoration of
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Introduction
5
biological diversity at a national and international level. The concluding
discussion concerns how financial instruments that already exist or that are
in preparation should be considered and how they should be developed or
modified.
This paper is organised as follows:
Following this introductory chapter, the second chapter on "Results and
Analysis" highlights the loss of biodiversity under the aspect of the lack of
markets and of market failure. It is postulated that a market-oriented
valuation of the components of biological diversity would help to counterthis loss. To this end, types of values of the components of biological
diversity are then subdivided into different use-dependent and use-
independent categories. Finally, actual and target values of genes, species
and ecosystems are presented and illustrated using examples.
In the third chapter on "Recommendations", methods are presented to
valuate biological diversity for the different use values. The second section
of this chapter deals with the cost aspect of conservation and presents the
instrument of cost-benefit analysis. In the third section, measures are
discussed which should lead to an effective translation of the evaluation
approaches into the creation of markets. These measures are developed into
recommendations for DC.
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Results and Analysis
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2 Results and Analysis
2.1 Decrease in biodiversity as a consequence of the lack
of markets and of market failure
The notion that economic well-being may not be impaired and that it may
even be enhanced if the profits obtained by depleting natural capital are
reinvested in reproducible capital is not particularly new in the literature on
theoretical economics. It has been suggested that reinvestment of the profits
derived from the intertemporal efficient use of exhaustible natural
resources in reproducible and hence non-exhaustible capital will ensure a
constant stream of consumption over time (e.g. Hartwick 1977; Solow
1974, 1986).
In the context of ecological crisis, however, the increasing rate of loss of
biological resources has led to a fundamental reappraisal of the role of the
living environment in the economy in recent years. Biodiversity is nowincreasingly regarded as a form of natural capital that supports economic
activities. In Art. 2 of the Convention on Biological Diversity (CBD),
biological diversity is therefore defined as "variability among living
organisms from all sources including, inter alia, terrestrial, marine and
other aquatic ecosystems and the ecological complexes of which they are
part". This definition "includes variety within species, between species andof ecosystems". In the same passage, biological resources are characterised
as including "genetic resources, organisms or parts thereof, populations or
any other biotic component of ecosystems with actual or potential use or
value for humanity".
In order for biological diversity and resources to be able to contribute to
general prosperity, their economic yields have to become comparable to
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and higher than competitive sources. In other words, if the yields from
investments that reduce the natural capital are higher than those that sustain
it, the consumption of natural capital is economically justified (Barbier et
al. 1994, pp. 53f.).
This economic justification, however, is currently disappearing. Market
prices of biological resources do not reflect the true value of these
resources because they do not include external costs and benefits. The
failure to include such external effects in the price is an indication of
market failure.
This market failure can have different causes:
Difference between private and social benefits: Where components of
biological diversity are traded on markets, their market prices usually
reflect only the private benefits and not the social (and ecological)
benefits that are attributable to them in different degrees from the local
to the global level. The assignment of market prices to marketed
components of biological diversity thus does not mean that these prices
reflect their actual economic values. Partially reliable methods to
establish the social value of the components of biological diversity are
lacking. Above all, there are no mechanisms that permit the integration
of such valuation results into market prices.
Lack of property rights to components of biological diversity or the
discounting problem, i.e. preference of a currently available private use,
which involves social destruction, over a private use in the future, which
also involves social preservation, makes it more difficult to find a
solution to this problem.
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Lack of markets: The problem is not only that only certain attributes of
the biological components that are traded on markets are included in
market prices, but that most biological resources and ecological services
are not traded on markets at all, while there are markets for alternative
uses. The market does not take into account anthropogenic influences on
biological diversity or the effects of biological diversity on humans.
Local and/or global markets for the relevant components of biological
diversity in which the market subjects could convert their value
conceptions of biological/ecological goods and services into purchases
and sales by aid of the price mechanism are lacking.
Interventions failures: Additional market failures as a consequence of
politic failure, e.g. by disincentives (e.g. subsidies, direct income
transfers, tax exemptions), making existing markets inefficient and
favouring the depreciation or destruction of biological resources (clear-
cutting, cultivation of certain species, nutrient supplies detrimental to
the ecosystem).
Despite these limitations, the ability of the market to bring private and
social benefits closer together and to contribute to a reduction of the threat
to biological diversity should not be underestimated. "Finally, the quality of
an allocation mechanism (= mechanism for the allocation of productive
factors or resources to certain goals) may not exclusively be judged on thebasis of a comparison of its results with ideal results, which are ultimately
not attainable by any allocation mechanism (the so-called Nirvana
approach). (...) Since in reality only incompletely functioning allocation
mechanisms are available, it is worth asking what the market may
contribute in pragmatic terms to taking care of natural resources" (Endres
and Querner 1993, p. 139). By setting prices that reflect the real economic
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value, the social interest in the conservation of biological resources
becomes translatable into an individual interest.
Overcoming this market failure therefore implies the following:
the inclusion of the social values and costs of biological diversity in
market prices,
the creation of markets for the value-oriented mobilisation of demand
for and supply of biological resources and
the abolition of price-distorting political and economic interventions.
The benefit that a certain component of biological diversity gives its
consumers governs the purchase decision (e.g. pharmacologically
exploitable resource, resource that can be exploited in tourism) and thus
also the price. This benefit corresponds to the value that a potential
consumer attaches to the respective component. One of the most important
tasks of the monetisation of biological diversity is therefore to reflect this
benefit and/or value in the market price. The appropriate methodology will
be dealt with in a later section.
According to Hampicke (1991, pp. 104f.), regarding biological diversity in
economic and monetary terms obviously does not mean dealing with the
monetary value of a species or nature on its own ("this kind of monetisationapproach would not be allowed"). The question is actually how much it
would cost to stop destruction of these resources and/or to re-establish their
maximum possible functional capacity. "It cannot be agreed that this goes
beyond the borders of what is admissible in monetary analyses. The
criticism not infrequently expressed by the public that this kind of
monetisation can only be based on misunderstandings could be avoided if
people listened more carefully to what most economists really said." "If a
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Results and Analysis
11
level of nature conservation is postulated that makes nature almost
inviolable, then in economic terms this means that it is not possible to fall
below this minimum level of species conservation even against paying
demand - in purely mathematical terms, the price of this is infinitely high.It would only be at our disposal if the costs of nature conservation were
unreasonably high, which might be interpreted as meaning that they are so
high they cannot be expressed in monetary terms e.g. if human lives have
to be sacrificed. Then a decision must be made between two non-
monetisable alternatives, a decision nobody would be envied for having to
make."
2.2 Classification of the types of values of biological
diversity
The demand for biological goods results from the different value
preferences of market subjects. Use values are relative and linked to market
subjects and their preferences, i.e. all decisions on political allocation result
in opportunity costs (i.e. the costs of alternatives that are not used). In cost-
benefit analyses (see Sect. 3.2.2), the alternatives can then be weighed up
against each other. The social value of biological resources or services is
thus composed of four categories of use value:
Use-dependent values
1. The direct value of biological resources or resource systems is derived
from their direct use (by consumption or production) or from their direct
interaction with market subjects. Some biological resources are traded on
markets, and their direct use values (e.g. agriculturally useful plants and
animals, wood, medicinal plants, wildlife watching) are included in their
market prices. Expenditure on the use of ecosystems for tourism, hunting
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or fishing also reflects their direct market values. As already mentioned,
these market prices are incomplete, because they do not take account of
certain social value attributes.
2. The indirect value of biological resources or services results from the
value that these have for directly used resources or ecosystems. Many
biological resources derive their value from their indirect economic
importance for directly used resources. Indirect values result from (a)
their benefit for other directly used species and/or their genes (indirect
biocoenotic value), (b) their importance for ecological services, e.g.
protection from erosion, assimilation of biological waste materials,
microclimatic stabilisation, water retention, carbon storage (indirect
ecosystem value), and (c) their importance for future evolution (indirect
evolutionary value).
3. The option use value describes a use reserved for a later time. The option
to use biological resources at a later date is kept open by valueassignment. The quasi-option value refers to the delay of an irreversible
decision to wait for additional information to help in the decision-
making process. Because future information connected with the resource
in question may be valuable, this resource remains untouched for the
time being. Due to gaps in our knowledge, it can be difficult to assess
risks and uncertainties when carrying out an evaluation; together with
the partially irreversible consequences of the alternative use of the
components of biological diversity, this means that the concept of the
quasi-option value is becoming increasingly important.
Use-independent values
4. The passive use value of biological diversity results from the importance
attributed to it for us, our descendants or other species. It can be
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subdivided into its bequest value (the value of keeping a resource intact
for future generations) and its existence value (the value conferred by
ensuring the survival of a resource). The non-use or passive use value of
biological resources is nearly completely determined by ethicalconsiderations and is of importance where individuals who do not intend
to use components of biological diversity would nevertheless feel a loss
if these disappeared (Brown 1990; Randall 1991).
The direct value, indirect value, option/quasi-option value and passive use
value of resources or resource systems add up to give their total economic
value (TEV, Fig. 1).
TEV = F (DUV, IUV, OV, QOV, BV, EV)
TEV = UV + NUV = (DUV + IUV + OV + QOV) + (BV + EV)
TEV: Total economic value
UV: Use value
NUV: Non-use value
DUV: Direct use value
IUV: Indirect use value
OP: Option value
QOV: Quasi-option value
BV: Bequest value
EV: Existence value
There is some overlap between the different types of values, which means
that there is a risk of the same value attributes being counted more than
Fig. 1: Total economic value of a biological asset
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necessary in order to give them a fair chance on the market. (On the
creation of markets by monetisation, see Sect. 3.3).
ad 2.The indirect use value of a particular component of biological
diversity is not usually taken into account by market prices. Its
expression in monetary terms becomes more realistic the more
indirect the particular use is. While an indirect biocoenotic use of soil
micro-organisms (e.g.Leguminosae are associated with nitrogen-
fixing bacteria) for the direct use of legumes is relatively easy to
derive, the central ecological role that elephants play in the
diversification of African savannas and forests, the spreading of seeds,
the prevention of scrubland, the expansion of grassland and the
reduction in numbers of the tsetse fly is considerably more difficult to
quantify, and indirect ecological use values, in particular, do not
readily lend themselves to direct economic assessment. Determining
these use values by value preferences becomes increasingly difficult
and ultimately impossible due to the complexity of the object and of
system properties that are emerging in the light of present ecological
knowledge.
ad 3.Difficult theoretical calculations in decision-making suggest that
decisions with irreversible results should be examined particularly
carefully in terms of possible consequences; moreover, in situations in
which there is both an irreversible and a reversible alternative, the
reversible one should be chosen. While the basic idea of the option
value is to maintain access options on components of biological
diversity that are not used at present, the idea of the quasi-option value
is to use expenditure on biodiversity conservation to diminish
uncertainty and/or to avoid irreversible decisions (Hampicke 1991,
pp. 87f.). The difficult methodical question here is how much society
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However, market prices are not only based on demand and the value
preferences of market subjects it indicates. The market prices of biological
resources are also determined by
d) supply and by exclusivity of their usability, i.e. by (actual and
intellectual) property rights and their effectiveness. Purely public goods
(e.g. air, water) or a jointly usable resources pool (e.g. the welfare effects
of the forest) can in fact be attributed with values, but because they are
not scarce, they remain outside the market.
Figure 2 shows the relation between the sustainability criterion (c) and thesupply aspect (d).
Others cannot be excluded
from the use of resources
Others can be excluded
from the use of resources
Use of resources by A does not
influence consumption by
others
Purely public goods
Resources under
Jointly usable resource pool
(e.g. national) sovereignty
Use of resources by A does
influence consumption by
others
Private goods
ad a-c)The values of competitively usable resources have to be determined
in separate valuation steps and be evaluated comparatively in cost-
benefit analyses (see Sect. 3.2.2). Their results differ particularly due
to the conflict between interests of private and social use. It is thedominance of private use interests in the market that frequently
Fig. 2: Classification of resources
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make value preferences much more visible in markets by means of
property interests.
Regardless of whether a local, national or global perspective is taken,
normative valuation approaches have to be integrated into the TEV of
biological resources in order to take proper account of rights of access and
property, unless the goods concerned are public ones.
At the beginning of this paper, the hierarchical division of biological
resources into the levels of genes, species and ecosystems was presented.
TEVs can be determined on each of these three levels (and on furtherintermediate levels). However, the TEV of a gene or a biochemical will
obviously not be suitable to show the TEV of its host species, and the TEV
of a species (or a biocoenosis) is not sufficient to illustrate the value of the
respective ecosystem. To use an analogy, the total value of a screw cannot
be used deduce the value of an engine, the value of an engine cannot be
used to determine the value of an aeroplane and the value of an aeroplanedoes not indicate the value of an airport. The significance of economic
valuation depends on the integration level on which it was carried out.
In this respect, it is not surprising that particular attention is paid to the
application of economic valuation approaches at the level of the ecosystem
(Barbier et al. 1994). If cost-benefit analyses (see Sect. 3.2.2) of an
ecosystem's TEV result in the conservation option, this also includes a
number of components of biological diversity on the lower integration
levels for which individual TEVs do not need to be determined (and which
would presumably not be technically feasible). If cost-benefit analyses of
an ecosystem result in the options sustainable use, restoration or alternative
use, then supplementing the TEV on lower hierarchical levels may become
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nature that cannot be understood, but of an economics that does not want to
know anything about it".
One method of approximation is the production-function approach. The
transformation of ecological value units into economic ones could be
successful on the basis of productivity, both an ecological and an economic
concept. Ecological productivity (net and gross primary production) has a
theoretically assignable (potential) maximum, which could be defined as
the productivity of the primary ecosystems ("world-wide wilderness
productivity") and/or by the theoretical productivity of ecosystems after the
sudden end of human influences ("potential natural productivity").
Cultivated ecological systems may obviously show the same net
productivity (agricultural areas including external fertiliser supply) but a
smaller gross productivity than autochthonous ecosystems. (Due to the
ecological degradation phenomena such as nutrient washing and soil
erosion that accompany the creation of cultivated ecological systems,
however, their net primary production also diminishes over time; 20% of
cultivable soil has been lost over the past 30 years world-wide). Even back
in 1986, humans consumed 40% of the global terrestrial net primary
production (Vitousek et al. 1986).
However, even if ecosystems were ranked by determining their TEVs, this
would not correspond to ecologically specified rankings (e.g. on the basis
of productivity criteria). This is partially because of the inclusion of non-
use values (whereby a mountainous region that is not particularly
productive, but attractive might gain a higher monetary value than a highly
productive grassland, for example). However, it is primarily due to the fact
that there are at present still no methods or scientific information to
approximate the actual indirect use value. For instance, we need to
understand the role of species in mediating the key structuring processes in
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ecosystems over a range of environmental conditions. This requires
ecological and economic production functions to be specified (Perrings
1995, p. 889).
It also requires not just snapshots of the value of ecosystem function, but
also time series that show how the value of such functions is changing. Not
only the ecological aspect, but also the evolutionary component is not taken
into consideration sufficiently in economic valuation approaches of
biological diversity, although awareness of the value of the genetic
resources of plants and their relatives in the wild has risen in economic
terms as well, implicitly acknowledging its importance (see e.g. Mooney
and Fowler 1991). However, it is only by regarding natural ecosystems in
economic terms as durable in situ production, experimentation and storage
sites of biodiversity evolution that conservationists' expectations linked to
bioprospecting strategies can have a chance of being realised.
2.3 Examples of evaluating biological diversity
This section deals with estimates of the value of genes, species and
ecosystems arrived at using the valuation methods described previously and
methodologically illustrated in Sect. 3.1 (see Perrings 1995, pp. 844 ff.).
2.3.1 Use value of genes and biochemicals
Whereas the utilisation of genes (animal and plant breeding) or natural
products used to be linked to the cultivation of the respective species, new
biotechnologies now permit genes and biochemicals to be utilised
independently of their parent species, e.g. in cell cultures or transgenic
organisms. This makes the examples discussed in this section different
from product examples such as ivory or timber, whose use remains bound
to the species producing them. However, the borders between the two types
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are transient, and it may be more profitable not to make use of these
biotechnological options and to obtain certain natural products from
complete (cultivated or wild living) individuals of the species of origin.
The direct use value of genetic diversity results from delivering the raw
material with desirable properties for the pharmaceutical, agricultural and
food production industry. Modern biotechnology and genetic engineering
(with the potential for intra- and inter-species gene transfer they offer)
allow the use potential of genetic resources to be extended and therefore
lead economically to an increase and/or a supplementary effect to the direct
use value of genetic resources and their derivatives (natural products).
The size of the market for biotechnologically manufactured products
world-wide is now more than US $250 billion per year, and private
biotechnological research and development (R&D) investments in the
countries of the Organisation for Economic Cooperation and Development
(OECD) amount to approximately US $9 billion per year. The annualgrowth rates vary between 8% (biotechnological processes) and 20%-35%
(gene technology processes). For example, the United States' proceeds of
sale in 1992 amounted to approximately US $5 billion, i.e. a 35% increase
compared to the previous year (Burrill and Lee 1992; cited in Downes
1993). For the year 2000, a tenfold increase is expected (Industrial
Biotechnology Association 1992; cited in Downes 1993).
Like the existing and potential market prices specified in the following
examples, these are usually distorted by transfer components, and
corrections therefore have to be made for economic cost calculations (cf.
Hampicke 1991, pp. 180f.). Above all, however, the obtained or attainable
price for the respective biological resources is not determined ecologically,
but solely on the basis of market criteria.
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under optimal conditions, a maximum economic yield of US $10,000 per
species might result. With respect to endangered habitats in which the
relevant species exist, a maximum of $20 per hectare might be paid.
On the basis of respective contracts, prospecting companies have so far
been willing to pay approximately $50-200 per unprocessed in situ sample
(Laird 1993). However, it would be too simplistic to infer the market value
of the genetic material from these amounts, because it is primarily the
labour-intensive collection that is paid for and not the material itself.
Pharmacologically useful biomolecules
According to a study by the OECD (1987), about 25% of all medicaments
in the OECD countries are of plant origin; if we include those countries that
are not industrially developed, the overall world-wide proportion increases
to 75%. In the OECD member countries, plant-based medicaments
amounting to more than DM 100 billion were sold in 1985. Two fifths of
all modern U.S. pharmaceutical products contain one or more ingredients
of natural origin (Oldfield 1984).
The commercial value of medicines derived from species living in the wild
is estimated at more than US $40 billion p.a. world-wide, and the figure for
the United States in 1980 was US $8112 billion. The present share of the
genetic material used for pharmaceutical products originating from the
South amounts to about US $4.7 billion. The present hectare yields of
medicinal plants from the tropical rain forest are estimated to range from
$262 to $1000 (Pearce and Moran 1994).
Assuming a rate of extinction of 10%, an estimated 2067 plant species will
have become extinct by the year 2000, 16 of them of special
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pharmaceutical interest; Farnsworth and Soejarto (1985) have estimated
this to entail an economic loss of US $3.25 billion ($16203 million).
By means of bioprospecting, i.e. screening biological diversity in search of
commercially exploitable genetic and biochemical resources, the value of
the germ plasm for medicinal purposes from the South, which currently
amounts to approximately US $4.7 billion, might rise over the next
10 years to US $47 billion. For Costa Rica, Aylward (1993) estimated the
value of "pharmaceutical prospecting" at $4.81 million per successfully
prospected product. However, these figures have to be related to capital
outlays of over US $200 million for the development of a single successful
pharmaceutical ready for the market (Krattiger and Lesser 1994).
Mendelsohn and Balick (1995) are sceptical regarding the future economic
importance of bioprospecting. They estimate the entire social value of non-
discovered tropical pharmaceuticals at only approximately US $150 billion
or US $48 per hectare, and the market value for private enterprises at US$3 billion or US $1 per hectare.
A rough estimation of the pharmaceutical value of extinct plant species on
behalf of UNEP came to the conclusion that the average "pharmaceutical"
loss for each of these species amounts to approximately $80,000 (UNEP
1993). This figure is problematic, however, because some "best-sellers"
that have earned the companies that sell them millions (e.g. aspirin, taxol)
are included in this estimate.
Genetic resources of plants
The complexity of modern and traditional breeding practices means that
only a very general approximation of the actual monetary value is possible,
and even then only for the most common grain varieties. This uncertainty
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in putting a number on the existing market value is reflected in estimations
concerning the contribution of the genetic resources of the South to the
valuation of food production in the North. For wheat and corn, the figures
are estimated at US $75 million p.a. for Australia, US $500 million p.a. forthe United States and US $2.7 billion p.a. for all the OECD countries
together (Mooney and Fowler 1991). According to Woodruff and Gall
(1992), about half of the increase in agricultural productivity in this century
can be directly attributed to artificial selection, recombination and intra-
species gene transfer.
Calculations by the U.S. seed industry show that a genetic trait of a plant in
the Third World that can be used for breeding purposes may contribute
over $2 billion annually to the yields of U.S. wheat, rice and corn
producers. The U.S. Department of Agriculture estimates that genetic plant
material has led to an average increase in productivity of about 1% a year,
with an initial monetary value far exceeding US $1.billion.
Bioprospecting as a source of new cultivated plants and of raw materials to
breed improved plant varieties and as a supplier of natural pesticides and
renewable resources such as fibres and botanical chemicals has great
potential (Plotkin 1992).
At the beginning of the next millennium, the world-wide biotechnology
food sector will increase to US $20 billion (a sixfold increase).
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Components used Evaluation method
applied
Estimated
value (US $)
Source
Plants Market analysis:estimations of
proceeds of sale
2,580,000 Farnsworth andSoejarto 1985
Plants Market analysis 474,000 Principe 1989
Trees Market analysis 7,500 McAllister 1991
Plants Evaluation of thenumber of lives saved
23,700,000 Principe 1989
Species from Cameroon Costs of renewingpatents
15-150 Ruitenbeek1989
Species from Costa Rica Market analysis,estimated licence fees
253 HarvardBusiness School
Plants of the rain forest Market analysis andevaluation of human
lives saved
585-1,050,000 Pearce andPuroshothaman
1992
Pharmaceutical bioprospecting for acommercially successful plant
product
Market analysis: netreturns on
bioprospecting
4.81 million Aylward 1993
Living organisms Market analysis:returns on purchase +
licence fees
52-46,000 Reid et al. 1993
2.3.2 Use value of species
In contrast to Sect. 2.3.1., the components of biological diversity dealt within this section are used as total organisms.
Use of plants
Of the approximately 250,000 higher plant species that have been described
world-wide, about one third probably has edible components, i.e. around
80,000 species. About 15,000 species (including spice plants, herbs, etc.)
Table 1: Use values of genes and biochemicals
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are actually used for human nutrition (Heywood 1994, personal
communication). Supraregionally or world-wide, about 150 species are
cultivated for human nutrition. However, only five varieties of grain
(wheat, corn, rice, barley and millet) account for 50% of vegetable nutritionin humans, and 20 species supply 90% of the world-wide demand (Myers
1989).
The quantity of renewable resources currently used and processed world-
wide amounts to approximately 2 billion tons of timber, 2 billion tons of
grain (including the food supply) and 2 billion tons of other products such
as sugar-cane, carrots, oil and leguminous plants. The global timber trade is
worth approximately $80 billion annually.
According to Peters et al. (1989), the present net value of sustainably used
biological raw materials (rubber, fruits, wood) from the rain forest in Peru
amounts to $6330 per hectare, i.e. more than sixfold the value of utilisable
wood ($490/ha). In the German chemical industry, about 2 million tons ofrenewable resources are utilised at present (i.e. 10% of the entire
consumption of raw materials).
Use of game animals
Prescott-Allen and Prescott-Allen (1986) estimate the monetary
contributions of wild and semi-wild animals and plants as accounting for
approximately 4% of the gross national product (GNP) in the United States
and Canada. Barnes and Pearce (1991) have shown that the direct use value
of certain forms of wildlife management is financially more productive
than the transformation of game reserves into pasture areas (cf. Table 2).
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Components of biodiversity
used
Evaluation
method applied
Estimated
value (US $)
Source
Wildlife watching value of elephants,Kenya
CVM; travel costmethod
25million/year
Brown and Henry 1989
Ivory exports before the export ban,Africa
35-35million/year
Barbier et al. 1990
Use of wild buffaloes, Zimbabwe 3.5-4.5/ha Child 1990
Export of non-coniferous woodproducts, entire tropics
11 billion/year Barbier et al. 1994
Harvest of wood fruits and latex,Peru
6330/ha Peters et al. 1989
Fish and firewood from wetlands,Nigeria
38-59/ha Barbier et al. 1991
Improvement of the survivalprobability of the Northern spottedowl
CRM 21/person andyear
Brown et al. 1994
CVM, contingent valuation method; CRM, contingent ranking method.
2.3.3 Use value of ecosystems and landscapes
Ecological resources and services that can be derived from the production,
carrier and information functions of ecosystems produce economic yields
in the form of direct use values. Direct use values include timber and non-
wood products, medicinal plants, plant genes, hunting and fishery,recreation and tourism, education and human living areas, since all these
products and services are the result of a direct use of forests. Direct use
presupposes access to forest resources, among other things.
In contrast, indirect use does not require access to forest resources. The
most important indirect use values of biological diversity include the
regulatory functions of ecosystems. Each ecosystem is composed of a
Table 2: Use values of species
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whole range of physical, biological and chemical components. Interaction
between these components results in specific types of ecosystem functions
or characteristics such as the nutrient cycle, biological productivity, water
regime and sedimentation. These regulatory ecological functions arefundamental to numerous secondary ecological functions and services,
which again are of fundamental importance in human life and societies
(e.g. erosion protection, water retention, detoxification, assimilation of
biological waste, climatic stabilisation, carbon storage).
As far as the role of individual species in the mediation of such regulatory
functions is understood, it is principally possible to establish the indirect
use value of such species. Indeed, the relationship between individual
organisms and ecosystem functioning is of central importance in the
concept of indirect use valuation.
Immler (1989) assumes that roughly a third of GNP (based on the German
GNP) would be necessary to re-establish the disturbed non-human naturalservices and processes.
Most studies assessing the economic value of forests only take account of
partial values and not the TEV (for a relevant review, see Perrings 1995,
pp. 886f.). Indirect and non-use values are usually completely neglected,
and direct use values are also frequently only incompletely considered.
The first attempt to estimate the TEV of tropical forest habitats was
undertaken by Castro (1994). Castro calculated an average net actual value
of $1278-$2871 per hectare for Costa Rica's game wilderness. Multiplied
by the total area of 1.3 million hectares, this gave a present total value of
$1.7-$3.7 billion, of which, according to this study, 34% benefits Costa
Rica and 66% the world community.
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Kaosard et al. (1994) evaluated not the total, but almost the total economic
value of the Khao Yai Park in Thailand (not including non-use values for
people who do not live in Thailand and estimations of carbon storage). The
comparative evaluation with agriculturally managed areas arrived at afigure of $250 per hectare (see Table 3).
Barbier et al. (1991) showed that the direct use of the Hadejia Jama'are
floodplain in Nigeria for fishery, the production of firewood and migration
agriculture results in economic yields that are higher than alternative
irrigation projects upstream.
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Components used Evaluation method
applied
Estimated value
(US $)
Source
Nature tourism, Cameroon: 19/ha Ruitenbeek 1989Sustaining soil fertility byforests and inundationcontrol, Cameroon
Productivity change 8/ha and 23/ha Ruitenbeek 1989
Khao Yai Park, Thailand CVM, travel costmethod
80 million/year,400/ha/year
Kaosard et al.1994
Ecotourism, Costa Rica Travel cost method 1250/ha Tobias andMendelsohn 1991
Importance of wetlands forcrab production, ArabianSea
Production-functionapproach
Ellis and Fisher1987
Valuation of reserves,Madagascar
Production-functionapproach, CVM, travel
cost method
566,070-2,160,000 Munasinghe 1993;Kramer et al. 1993
Carbon storage by forests,Brazil
1300/ha/year Pearce 1990
Importance of mangroves
for agriculture, fishery,Indonesia
536 million Ruitenbeek 1992
Water retention by forests,USA
232-388/acre Bowes andKrutilla 1989
Forest in Peru, Rio Nanay Productivity method(comparisons of
income)
6300/ha for non-timber products
vs. 1000 for clear-cutting
Peters et al. 1989
Primeval forest, Costa Rica TEV 102-214/ha/year,
1278-2871/ha,133-278
million/year, 1.7-3.7 billion
Castro 1994
Table 3: Use values of ecosystems
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3 Recommendations
3.1 Valuation methods and techniquesBecause of the benefits of biological diversity and the lack of information
about these benefits due to market failure, there is an urgent need for
economic valuation studies to be carried out. In the following, relevant
valuation methods are thus presented. Arguments in favour of their
application include the following:
they give valuable information on how markets need to be reformed in
order to correct the present bias and/or, where this is not possible,
they provide decision-making aids indicating political measures that
should be taken to correct market signals.
When applying these valuation methods, however, it is important to
remember what is actually being measured by the valuation technique, e.g.
direct use benefits, net benefits including use and non-use benefits, etc.,
and the reliability of the different data and methodologies in assessing these
different benefits yields (Perrings 1995, p. 878).
As Fig. 3 shows, the use value categories "direct use values", "indirect use
values", "option/quasi-option values" and "non-use values", which together
give the TEV, allow the application of various valuation methods. In the
following, these methods are presented and the range of effects to be
valued is considered.
Not all of these methods are able to completely determine biodiversity-
related costs and benefits. Each of them, however, is useful in the correct
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context. Roughly speaking, we can differentiate between monetisation
methods as follows (see OECD 1996, p. 74):
on the basis of actual market prices (market analyses),
on the basis of simulated market prices (contingent valuation and
ranking; individual choice model),
on the basis of surrogate market prices (e.g. the travel cost approach and
hedonic price approach) and
on the basis of the production-function approach (e.g. value of changesof productivity, avoided damage costs).
Since, in the context of this study, we are interested in the external use
values of biological diversity that are not reflected by actual market prices,
the subsequent discussion is limited to valuation approaches for simulated
markets (Sect. 3.1), surrogate markets (Sect. 3.2) and the production-
function approach (Sect. 3.3). The common instrument of market analysis
is therefore not discussed here.
The presently available set of valuation methods show very large
differences not only in valuation methodology, but also in their
conceptional treatment of the problem. For instance, there is still no
consensus on how to determine the existence value (Perrings 1995, p. 891).
These methods presuppose acceptance by those with political
responsibility. They have to guarantee that the monetisation requirements
that are identified become economically effective by income transmissions,
taxes, etc.
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3.1.1 Determining direct and passive use values on simulated markets
Sociological interviewing methods are the most practicable approaches to
determine the economic value of the components of biological diversity. In
principle, these methods can be differentiated according to two interview
objectives:
to attribute a value to the components of biological diversity concerned
(contingent valuation method, CVM) on the basis of analyses of
willingness to pay (WTP) and willingness to accept (WTA) or
to rank values (contingent ranking method, CRM).The best way to apply the direct valuation method is to determine the
WTP/WTA of one environment-related use for the person being
interviewed or the one that corresponds to his or her personal opinion and
knowledge, e.g. recreation options. WTP analyses on the basis of losses of
environmental/biological diversity are more problematic. Moreover, we
still have some way to go before the psychological and cognitive processesthat influence the formulation of answers can be definitively assessed.
Even if the direct valuation method is not exact enough for carrying out
cost-benefit analyses or for legislative purposes, provided that specific
questions are asked, its results may nevertheless be used as a
supplementary public opinion poll to establish earmarking priorities
concerning the use and conservation of biodiversity, particularly because it
is the only method that is able to translate non-use values into market prices
(Blamey and Common 1993).
The main problem of this method is undoubtedly related to the possible
disparity between the data obtained from interviewees concerning their
WTP and the amounts that they are actually willing to pay if the need arises
(Ruck 1990, p. 330). In Australia, for instance, CVMs and related methods
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are not generally recognised as accepted methods, since the values that are
determined are seen as improbably high (Blamey 1996).
Contingent valuation method (CVM)
In a direct analysis of WTP or willingness to renounce, value preferences
are determined on the basis of interviews. This method is referred to as the
CVM, not least because of the hypothetical nature of the situation
("simulated market situation"). It is applied to determine direct use, non-use
or passive use (existence and bequest values) and option/quasi-option use
values, but not indirect use values. Thus CVM (and the analogous CRM)differ from all other important economic valuation methods, which can
only be used to determine one type of use value.
According to Pearce and Moran (1994), the CVM is the most important
method for the economic valuation of biodiversity, largely because it is the
only one that directly reflects the non-use-orientated (bequest and
existence) values of biodiversity. In addition to information retrieval and
information exchange during the interview process, verbatim minutes and
tape recordings allow the interviewer to analyse the biodiversity-related
knowledge and understanding of the interviewee ("think-aloud analysis").
Interest in this method has greatly increased over the last 10 years:
because it is the only procedure that can be used to evaluate non-use-
values,
because well-conceived and correctly conducted interviews might be as
valid as valuations of direct use values obtained by other methods and
because the conception, analysis and interpretation of stated preferences
have also improved, e.g. the "scientific sampling" and "benefit
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estimation" theories have improved the computerised data
administration and analysis of public opinion polls and their validity.
The first stage of a CVM involves providing interviewees with background
information about the relevant biological resources. They are given further
information about the quality, quantity and the time-scale of changes.
In the second stage, a payment instrument is selected. This involves asking
interviewees whether they would be willing to pay into a hypothetical fund
or whether they would prefer a tax or a price increase. At this stage, it is
very important for the interviewer to propose a reliable payment instrumentand to be able to depict a plausible and acceptable scenario for the
interviewee.
In the third stage, a method has to be selected that allows the WTP or
willingness to renounce to be determined as accurately as possible. In an
open-ended approach, interviewees have to state the maximum amount that
they would be ready to pay or renounce. If a "dichotomous choice"approach is used, the interviewee is confronted with a concrete amount that
is varied within a group of interviewees to come as close as possible to the
"real" value (see Perrings 1995, pp. 845f.; Hampicke 1991, pp. 118ff.;
Pearce and Moran 1994, pp. 58ff.).
Valuation of the direct value assigned to a product or service on the basis
of the interview requires verification of the reliability and validity, and
answers need to be examined to identify any possible falsifications.
In order to obtain exact and reliable answers regarding the WTP,
standardised guidelines can be used, such as those developed by the U.S.
National Oceanic and Atmospheric Administration Committee (NOAA;
Arrow 1993):
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1. Sample type and size - probability sampling is essential. The choice of samplespecific designs and size is a difficult technical question that requires the guidance
of a professional sampling statistician.
2. Minimize non-responses - high non-response rates would make CV (contingentvaluation) survey results unreliable.
3. Personal interview - it is improbable that reliable value estimates can be elicitedwith mail surveys. Face-to-face interviews are usually preferable, although
telephone interviews have some advantages in terms of costs and centralized
supervision.
4. Pretesting for interviewer effects - an important respect in which CV surveys differfrom actual referendum is the presence of an interviewer (except in the case of mail
survey). It is possible that interviewers contribute to 'social desirability' bias, since
preserving the environment is widely viewed as something positive. In order to test
this possibility, major CV studies should incorporate experiments that assess
interviewer effects.
5. Reporting - every report of a CV study should make clear the definition of thepopulation sampled, the sampling frame used, the sample size, the overall sample
non-response rate and its components (e.g., refusals), and item non-responses on all
important questions. The report should also reproduce the exact wording and
sequence of the questionnaire and of other communications to respondents (e.g.,
advance letters). All data from the study should be archived and made available to
interested parties.
6. Careful pretesting of a CV questionnaire - respondents in a CV survey areordinarily presented with a good deal of new and often technical information, well
beyond what is typical in most surveys. This requires very careful pilot work and
pre-testing, plus evidence from the final survey that respondents understood and
accepted the description of the good or service offered and the questioning
reasonably well.
7. Conservative design - when aspects of the survey design and the analysis of theresponses are ambiguous, the option that tends to underestimate the willingness-to-
pay is generally preferred. A conservative design increases the reliability of the
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Contingent ranking method (CRM)
The CRM is the stepsister of the CVM. The different feature in this
interview situation is that respondents are confronted with a set of options
that they are asked to rank according to their valuation scale. For each of
the options, the interviewer designates a set of characteristics and describes
how the options differ. The resulting costs should be delineated for each
option.
Asking questions about relative valuations and specifically costed
alternatives facilitates the choice for the interviewee; conversely, however,it becomes more difficult to determine the actual monetary limit.
Further methodological progress
The "stated preference" method (SPM; Adamowicz 1994; Louviere 1994)
promises further improvements in the direct valuation process. Application
of the SPM (which was originally developed for the marketing andtransportation business) allows consumer responses to be made to a larger
range of subject characteristics than is normally possible using direct
valuation analysis.
3.1.2 Indirectly determining direct use values
The indirect or surrogate market valuation methods are all based on the factthat the commodities "nature" or "biological resources" are consumed
together with complementary private goods with well-known or easily
determinable prices. These indirect approaches are techniques that derive
preferences from actual market-based observations. Preferences for a
biodiversity commodity can be assumed if an individual buys a product that
is somehow related to the biodiversity commodity in question. The relevanttechniques are as follows:
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the travel cost method,
the "hedonic price" approach,
the avertive behaviour approach and
the dose-response method.
Surrogate market techniques focus on markets for private commodities and
services that are related to biological (or environmental) resources or
products. The products or services sold on these surrogate markets
correspond to the products/resources in question, because individualsreveal their preferences for a biodiversity commodity by purchasing a
related object or service. "Strongly simplified: If a bird watcher spends DM
1000 on a telescope, then he is obviously willing to pay at least DM 1000
to watch birds" (Hampicke 1991, p. 115).
However, the potential of surrogate market approaches is limited for
several reasons:
No hypothetical conclusions can be drawn. If the natural commodity is
no longer available, there will be no expenditure on the surrogate object
(in the case described above, the telescope) either.
The method only measures the intensity of a personal interest ("user
value"), and not the interest in conserving biological diversity
("existence value").
The relationship between private expenditure and the conservation goal
is frequently weak (e.g. telescopes may also serve other purposes).
Experiencing nature is often non-specific; many people experience