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![Page 1: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/1.jpg)
Wild Values: Putting a Price on Nature
Steve Colt, Institute of Social and Economic Research
Science and Society Lecture SeriesUniversity of Alaska Anchorage
16 October 2000
![Page 2: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/2.jpg)
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Economic Valuation of Nature
• Context• What is it?
•How do we do it?• Should we do it?• Must we do it?
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Economic Valuation of Nature:
Context
• Like other goods, environmental goods and services are scarce
• Society must (and does!) make tradeoffs
• Trade-offs are best made by comparing benefits to costs
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Economic Valuation of Nature:
Context• Many environmental goods and
services are “public goods”– They are available to all– My consumption does not affect your
consumption– Clean air, Clean water, Climate
• Others are provided by government– Hunting and fishing opportunities– Recreation
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Economic Valuation of Nature: Context
– Hence,
• Environmental goods and services are often not bought and sold in markets
• Environmental goods and services must often be provided through collective social processes (politics!)
• Politics translates individual preferences into collective action
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Economic Valuation of Nature: Context
– Hence,
• “The issue of valuation is inseparable from the choices and decisions we have to make about ecological systems”– (Costanza et al 1997)
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Economic Valuation of Nature: What is it?
• An attempt to measure people’s preferences for human actions likely to affect natural systems.
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Economic Valuation of Nature:What is it?
• An attempt
– Imperfect– New and evolving techniques
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Economic Valuation of Nature:What is it?
• An attempt to measure
– Quantitative– Uses money as the measuring
rod, for comparability with other values
– Willingness to pay (WTP) or to accept payment (WTA)
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Economic Valuation of Nature:What is it?
• An attempt to measure people’s preferences
– People make decisions and take action
– Social scientists measure what people already feel
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Economic Valuation of Nature:What is it?
• An attempt to measure people’s preferences for human actions likely to affect natural systems – Development, management,
preservation and protection are all actions
– Natural systems often require collective management
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What are we Valuing?
• Use Values– Fishing, hunting, recreation– subsistence– ecosystem services (life support)
• Non-use Values– Called existence, passive use,
intrinsic– Includes aesthetics, cultural heritage
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How do we do it?
• Actual market prices• Market prices of related
goods– Hedonic methods
• Observation of behavior– Travel Cost
• Ask people– Contingent Valuation
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Using Market Prices: ExampleReplacement Cost of
Subsistence
• 53.5 million lbs harvested• 100+ % of protein needs in rural
Alaska• Replacement cost = ?? $4 per lb• Replacement value = 53.5 x 4 =
$214 million
– Source: ADFG 1998 “Subsistence Update”
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Using Market Prices: ExampleReplacement Cost of
Subsistence
• Reality check against expenditures on inputs:– $3.18 million spent in 3 wildlife refuges– 1.76 million lbs harvested– $3.18/1.76 = $1.81 per lb actually
spent on commercial inputs– Excludes labor by harvesters
– Source: Goldsmith 2000, Colt 2000
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Using Market Prices: ExampleReplacement Cost of Worldwide
Ecosystem Services
• Divide entire world into 16 ecosystem types
• Look at 17 ecosystem functions• What does it cost to replicate
these functions?
– Source: Costanza et al 1997
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Example: Using Market PricesValue of Worldwide Ecosystem
Services
• Nutrient Cycling $17 trillion / yr• Waste treatment $2.3 trillion / yr• Water regulation & supply $2.9 trillion / yr• Gas regulation $1.3 trillion / yr• Recreation $0.8 trillion /yr• Cultural benefits $3.0 trillion / yr
• TOTAL = $33 trillion /yr• Compare to gross world product of $18
trillion / yr
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Example: Hedonics
• Idea: property values reflect a “bundle of attributes” – safe streets, good schools, nice neighbors, environmental quality,– Hence,
• Variations in property values can be tied to variations in environmental quality
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Example: Hedonics
• Land Values in Mat Su Valley• Berman (1987) regression
equation• Value of parcels declines with
distance from Anchorage• Value of parcels declines with
number of close neighbors• Value of parcels increases with
proximity to public open space
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Example: Observed BehaviorValue of Alaska Fish
(Based on ISER sport fishing study, 1993 data)
• Travel Cost Method (TC)– People incur a travel cost to fish– Those facing higher travel cost make
fewer trips to a given site– Use this relationship between number
of trips and (travel) cost per trip to estimate net economic value of activity
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Example: Observed BehaviorValue of Alaska Fish
• Example of TC Data:– I live at the fishing site, TC=0, make 6
trips– Brother lives ten miles away, TC = 10,
make 3 trips– Cousin lives 20 miles away, TC = 20,
makes zero trips
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Example: Observed BehaviorValue of Alaska Fish
• Draw a graph:
- 5
0
5
10
15
20
25
0 2 4 6 8
trips per person
cost
per
tri
p
![Page 23: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/23.jpg)
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Example: Observed BehaviorValue of Alaska Fish
• Assume all three people have similar preferences
• Compute net economic value– Me: between 30 and 60– Brother: between 0 and 15– Cousin: zero
– TOTAL: between 30 and 75
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Example: Observed BehaviorValue of Alaska Fish
• ISER Methodology:– Telephone and mail surveys of more
than 5,000 residents and nonresidents
– Construction of travel costs to multiple sites
– Nested multinomial logit models relate fishing behavior to many variables including travel cost
– Net economic value computed from models
![Page 25: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/25.jpg)
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Example: Observed BehaviorValue of Alaska Fish
• ISER Results (1993):– People Actually paid: $550 million– People were willing to pay an
additional $186 million to fish– $186 million is the net economic
value of the sport fishery
![Page 26: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/26.jpg)
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Example: Observed BehaviorValue of Alaska Big Game
• ADF&G used survey data to estimate TC models for hunting trips
• Net values estimated by species and by resident / nonresident status
• Total net value of hunted species in year 2000 = $23.5 million
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Net Economic Value of Alaska Big Game(McCollum & Miller 1994, Colt 2000)
Species ResidentNon-
resident ResidentNon-
resident ResidentNon-
resident Total
Black Bear $181 $434 2,807 1,187 0.5 0.5 1.0Brown Bear $246 $718 1,238 1,679 0.3 1.2 1.5Caribou $200 $512 15,685 4,045 3.1 2.1 5.2Moose $214 $465 44,579 3,079 9.6 1.4 11.0Wolf NA $416 248 486 0.2 0.2Sheep $316 $583 - 1,419 0.0 0.8 0.8Goat $149 $497 1,073 179 0.2 0.1 0.2Deer $169 $263 13,456 377 2.3 0.1 2.4Elk $117 $104 908 141 0.1 0.0 0.1Waterfowl $118 $560 7,430 192 0.9 0.1 1.0
All Species $194 $513 87,424 12,782 16.9 6.6 23.5
Net Economic Value ($ million)Net Economic Value per Trip
Number of Trips
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Example: Ask PeopleExistence Value of Prince
William Sound
• State of Alaska, for EVOS trial• 1,043 completed in-person interviews
using nationwide sample• Asked people how much they would pay
to avoid another spill• Used the median value of $31 per
household• $31 x 90.3 million households = $2.8
billion
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Example: Ask PeopleExistence Value of Prince
William Sound
• Construct Scenario – There will be another spill in 10 years…
• Include possible action– Unless we implement the following
plan…
• Ask “Take-it-or-leave-it” questions– Would you pay $15 in higher taxes to
implement the plan
![Page 30: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/30.jpg)
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Example: Ask PeopleExistence Value of Prince
William Sound
• Use different amounts ($5-$250) to elicit range of willingness to pay
• Importance of the proposed payment vehicle– EVOS study used general tax after
considering gasoline tax, higher gasoline prices
– Used lump sum one-time payment
![Page 31: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/31.jpg)
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Problems with Contingent Valuation
• Hypothetical market, not actual transaction– CV estimates understate TC for same
goods• Information effects• Scope effects – Does WTP increase
“correctly” with scope of proposed action?– Recent research suggests scope does
matter as it should
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Contingent Valuation in Practice
• Tentatively endorsed by NOAA Panel
• Quality depends on execution– In-person interviews– Discrete choice question– Clear description of scenario
• Used by “most federal” and “many state” agencies (Carson 1999)
• Dominant methodology today
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Economic Valuation: Should we Do it?
• Problems:– Whose values count? (WTP always
depends on income)– Reducing complex choices to one
dimension ($)• A Trojan Horse? (Weeden 1987)
• Cash as the “great homogenizer”
![Page 34: Wild Values: Putting a Price on Nature Steve Colt, Institute of Social and Economic Research Science and Society Lecture Series University of Alaska Anchorage.](https://reader036.fdocuments.us/reader036/viewer/2022062314/56649ec95503460f94bd6f95/html5/thumbnails/34.jpg)
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Economic Valuation: Must we Do it?
• Yes – we do it everyday, implicitly• Yes – we know how to do it• Yes – The alternative to conscious
valuation is a zero valuation• Yes – valuation is one, useful, tool
– “We can find ways to use the sharp-edged techniques of economic valuation without cutting our jugulars” (Weeden 1987)