Session 13

Valuing Biodiversity Use and Non-use Values and Their Economic Measurement
John A. Dixon johnkailua@aol.com The World Bank Institute Ashgabad, November 2005

GEF

Questions
What are the principle economic values/uses associated with biodiversity conservation? What economic valuation techniques can be used to estimate these monetary values? What values cannot be estimated in economic (monetary) terms?

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

The Total Economic Value approach

Total E conom ic V alue
U se valu es
Direct use values (structural values) usually measures output Indirect use values (functional values) usually measures benefits/services Option values

N o n-u se valu es
Bequest values Existence values

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

The Total Economic Value (TEV) Approach and Biodiversity

Includes both Use Values and Non-Use Values Use values include direct use (both consumptive and non-consumptive), indirect use, and option values Non-use values include bequest values and existence values The TEV is the sum of all of these values but in the case of biodiversity, much of the value may lie in the Indirect Use or Non-use portion
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

Identifying types of uses and values for biodiversity

Direct-use Values: hunting, directconsumption (e.g. collection of berries, mushrooms, herbs, plants) are all consumptive uses ; whereas observing, photography, or ecotourism are all nonconsumptive uses Indirect-use Values: ecosystem services such as pollination, habitat for other species, sustaining food chains, other uses are indirect-use values
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

Identifying different types of economic values for biodiversity (continued)

Non-use Values include Option values, Bequest values and Existence values (all usually measured using CVM) Unknown values include the value of genetic material (e.g. a new cure for cancer or AIDS) Valuation is easiest for Direct-use values, quite difficult for Indirect-use values, and very difficult for Non-use values
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

Economic Values are Peopledependent!

Remember, there are few or no economic values that are NOT directly linked to human uses or desires, and People often do not understand what the real question is. Therefore, market-values may be poor reflections of ecosystem values or pure biological uniqueness!
But

Markets and prices often drive government and private actions!

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

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

Direct uses hunting, fishing, hiking, photography, tourism/ecotourism, cultural/ historical, scuba diving and other uses are often the easiest to value and the largest single item in a TEV calculation.
Data can be presented at a financial level (e.g. how large is the economic sector dependent on ecotourism), or at a broader social welfare level usually by measuring the consumers surplus or economic rents generated. The former is easier to calculate, the latter is more difficult.
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

Valuing Indirect-Use Values Largely composed of ecosystem services such as

Ecosystems such as wetlands, lakes, deserts, forests Shoreline protection; water filtration Pollination Changes in hedonic prices Climatic effects (perhaps)
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

Valuing Non-Use values

Non-use values including Option, Bequest and Existence values, are usually always measured using some form of CVM. Cultural values may be very important in non-use values (e.g. Lake Sevan in Armenia) Values may be small per person (a few dollars), but large when aggregated (as in Armenia) Note:
Non-use values are usually harder to sell to decision makers, but For some types of biodiversity (e.g. the panda, the blue whale) non-use values account for almost ALL of the economic value measured in a TEV calculation.
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

Selecting the appropriate valuation technique (again)

Environmental Impact
Measurable change in production Change in environmental quality

Yes

No

Habitat

Air and water quality

Health effects

Recreation

Nondistorted market prices available?

Opportunitycost approach

Costeffectiveness of prevention

Sickness

Death

Travel cost

Aesthetic, Biodiversity, Cultural, Historical assets

Yes

No

Replacement cost approach

Loss of earnings Preventive expenditure Medical costs

CEA of prevention Human capital Hedonic wage approach Contingent Valuation

Contingent valuation

Contingen Valuation

Use changeinproductivity approach

Use surrogate market approaches, apply shadow prices to changes in production

Land value approaches

Replacement/ relocation costs

Contingent Valuation Contingent Valuation

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

valuing the non-measurable Some uses or values associated with biodiversity are impossible to measure. These may include the following:
Unknown genetic material Global life support services (an infinite value) Cultural or religious values (e.g. in Hawaii, the native Hawaiians value the sea and the aina , the land, very highly)
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

valuing the non-measurable Suggestions solutions:

cont d

Avoid Extinction!! Use of the concept of Safe Minimum Standards to preserve ecosystems and their biodiversity Creative use of financing to preserve/ protect scarce ecosystems and scarce biodiversity
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

What is the TEV of Biodiversity? really knows!

no one

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

The numbers and types of uses and users The values associated with each use National vs global values The scarcity and uniqueness of the resource

Final Caution: Be very careful in using the benefit transfer approach (for biodiversity or for hard to value resources)
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

A BAD example of benefit transfer due to the Big Lie problem: Estimates of Soil Erosion Rates
1. 2. A results reported for El Salvador 140 t/ha came from measurements on one plot, for one year (Flores Zelaya, 1982). A widely reported result for Europe - 17 t/ha/yr. for Europe (source: Pimental, 1995) is used over and over again in the literature. Where does this estimate for Europe come from ?? Rate Barrow (1991) Lal (1989) WRI (1986) Richter (1983) Bollinne (1982) 10-25 10-25 10-25 10-25 Not stated Area Covered Belgium Belgium Central Belgium Central Belgium 12 plots in Sauveniere Source Lal (1989) WRI (1986) Richter (1983) Bollinne (1982) Field experiments

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

Another BAD example of benefit transfer: value of the Whooping Crane in the US
The Whooping Crane, protected in a small nature refuge in Texas, was the subject of a CVM study of WTP by local residents; The results were modest -- $1 or $2 per person per year. This amount was then multiplied by the entire population of the US (over 250 million people) to get an aggregate value of $100s of millions per year! Pars pro Toto!
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

The problem of pars pro toto:

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

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

For example, WTP for preservation of

endangered species
(1990 $US per person per year)
USA Bald eagle Emerald shiner Grizzly bear Bighorn sheep Whooping crane Blue whale Dolphin Sea otter Humpback whale Norway Brown bear, wolf, wolverine Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF 15.0 12.4 4.5 18.5 8.6 1.2 9.3 7.0 8.1 40-48 (w/o info) 49-64 (w. info)

Pars pro Toto (cont d)

When asked their WTP to protect ALL endangered species in the world, the responses are about $10 to $15 per person per year! WHY? the embedding problem created by the interviewer asking the wrong question
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF

The Pars pro Toto Problem

Only partial information is provided The wrong question is asked
WTP for all endangered species

WTP for any single species

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

Practical Guide to Valuation of Biodiversity

Start with the most direct uses both consumptive and non-consumptive Carefully consider ecosystem services (especially when they relate to marketed goods and services such as pollination, water supply, land protection, ) Value non-use values with care and caution; avoid
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing Biodiversity GEF