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concepts that are important to economic value. The
first is the difference between total value and marginal value, and the second is the difference between benefits, costs, and the notion that value is
related to net benefits.
16.3 Concept of Economic Value
Fisheries, forests, water, clean air, soil, and other
environmental resources provide significant stocks
and flows of goods and services that are valuable
to society. Activities of individuals, firms, and governments affect the conditions of these stocks and
flows. In many cases, it is possible to quantify in
physical units the resource stocks and flows and the
impacts of human activities on them. The loss of
50 hectares of wetlands in conversion to agricultural cultivation is an example of a physical measure of an ecosystem impact from human activity.
Economic value refers to the ability of any good
or service to satisfy needs and desires of people.
To say that an object has value is to suggest that it
contributes to the well-being of some person. Not
every person is in a position to receive equal levels of well-being from the same good or service.
We can start with a simple example to illustrate
that economic value arises from the satisfaction of
human needs and preferences. The example illustrates that the concept of economic value is relevant whether or not money is used to facilitate exchange. Imagine two regions; one is water abundant
and the other is water poor. The arid region has a
number of other goods that are of value to the
water-rich region, such as minerals. Each person in
the water-abundant region has more water than they
can use.
It can easily be seen that, in a world in which
people are able to trade among themselves, water
has value even for the person who has no need for
it, since it can be exchanged for something else that
this person does value. The resource has value in
use and, because of trade, in exchange. It is important to note that the potential for exchange generates, for a person who controls access to a resource, an incentive to conserve the resource, even
if they have no need of it themselves. As long as
another person is willing to trade for it, then there
is a powerful incentive to steward and protect the
value of the resource for current or future exchange
value. In this way, overall patterns of scarcity, both
over space and time, play a role in the economic
value of a given resource.
There would be no exchange between the regions
if the cost to transport a unit of water were higher
Measuring Ecosystem Values
than the maximum value anyone person has for
that unit. The cost of transport is more complex
than the simple notion of the engineering costs of
building a pipeline. It may be, for instance, less
costly to conserve what water is accessible in the
arid region and to purify nonpotable water than to
bear the costs in terms of time, effort, and resources
necessary to access the water of the other region.
In this case, purification of nonpotable water is an
imperfect substitute for access to the clean water
of another region. Conservation of existing reserves
is also a substitute for access to the other region's
water. The availability and cost of substitutes affect the willingness of residents to bear the cost of
transporting water. This in tum affects the exchange value of a unit of water for the people of
the water-rich region. In this way, the availability
and cost of substitutes influence the value of a unit
of ecosystem goods and services. 1
If the cost of transporting water is less than the
maximum amount someone is willing to give to
gain access to the water, then the water would likely
be transferred from one region to another. Any
technological innovation that reduces costs of
transporting water would affect the value of a unit
of water. As costs of transport are reduced, the costs
of water purification and conservation become
higher relative to the costs of accessing the water
of the other region.
Both regions would trade water for other items
that the people in the water-abundant region value
until the point at which trade would not increase
any further. This point would be reached because,
as water becomes relatively more abundant in the
arid region and less abundant in the water-rich region due to exchange, the use and exchange values
IHow much water overall would be used if some benevolent donor gave the arid region a lump sum to pay for
a pipeline? If the cost of accessing additional water is
subsidized, then the full cost of supplying water to the
region is not taken into account in any subsequent
arrangements for trade. It is likely that the incentive to
conserve the existing water resources of the arid region
will be reduced and the local supply used at a faster rate,
because the residents can anticipate less expensive access to the water-rich region's supplies. In a sense, the
donation to cover the cost of supplying the water appears
to lessen the water-scarcity problem, and the value to local residents of a unit of water appears to be reduced.
This "subsidy" has effectively appeared to reduce the
scarcity problem. Subsidies in the real world represent
the expenditure of funds that have been transferred from
one area of the economy to another. So, while the
water-scarcity problem may appear to be temporarily
mitigated, in the longer run the water will be used at a
faster rate, and the other use of the funds that made up
the subsidy are ruled out. The subsidy has bought time,
but actually worsened a scarcity problem.
concepts that are important to economic value. The
first is the difference between total value and marginal value, and the second is the difference between benefits, costs, and the notion that value is
related to net benefits.
16.3 Concept of Economic Value
Fisheries, forests, water, clean air, soil, and other
environmental resources provide significant stocks
and flows of goods and services that are valuable
to society. Activities of individuals, firms, and governments affect the conditions of these stocks and
flows. In many cases, it is possible to quantify in
physical units the resource stocks and flows and the
impacts of human activities on them. The loss of
50 hectares of wetlands in conversion to agricultural cultivation is an example of a physical measure of an ecosystem impact from human activity.
Economic value refers to the ability of any good
or service to satisfy needs and desires of people.
To say that an object has value is to suggest that it
contributes to the well-being of some person. Not
every person is in a position to receive equal levels of well-being from the same good or service.
We can start with a simple example to illustrate
that economic value arises from the satisfaction of
human needs and preferences. The example illustrates that the concept of economic value is relevant whether or not money is used to facilitate exchange. Imagine two regions; one is water abundant
and the other is water poor. The arid region has a
number of other goods that are of value to the
water-rich region, such as minerals. Each person in
the water-abundant region has more water than they
can use.
It can easily be seen that, in a world in which
people are able to trade among themselves, water
has value even for the person who has no need for
it, since it can be exchanged for something else that
this person does value. The resource has value in
use and, because of trade, in exchange. It is important to note that the potential for exchange generates, for a person who controls access to a resource, an incentive to conserve the resource, even
if they have no need of it themselves. As long as
another person is willing to trade for it, then there
is a powerful incentive to steward and protect the
value of the resource for current or future exchange
value. In this way, overall patterns of scarcity, both
over space and time, play a role in the economic
value of a given resource.
There would be no exchange between the regions
if the cost to transport a unit of water were higher
Measuring Ecosystem Values
than the maximum value anyone person has for
that unit. The cost of transport is more complex
than the simple notion of the engineering costs of
building a pipeline. It may be, for instance, less
costly to conserve what water is accessible in the
arid region and to purify nonpotable water than to
bear the costs in terms of time, effort, and resources
necessary to access the water of the other region.
In this case, purification of nonpotable water is an
imperfect substitute for access to the clean water
of another region. Conservation of existing reserves
is also a substitute for access to the other region's
water. The availability and cost of substitutes affect the willingness of residents to bear the cost of
transporting water. This in tum affects the exchange value of a unit of water for the people of
the water-rich region. In this way, the availability
and cost of substitutes influence the value of a unit
of ecosystem goods and services. 1
If the cost of transporting water is less than the
maximum amount someone is willing to give to
gain access to the water, then the water would likely
be transferred from one region to another. Any
technological innovation that reduces costs of
transporting water would affect the value of a unit
of water. As costs of transport are reduced, the costs
of water purification and conservation become
higher relative to the costs of accessing the water
of the other region.
Both regions would trade water for other items
that the people in the water-abundant region value
until the point at which trade would not increase
any further. This point would be reached because,
as water becomes relatively more abundant in the
arid region and less abundant in the water-rich region due to exchange, the use and exchange values
IHow much water overall would be used if some benevolent donor gave the arid region a lump sum to pay for
a pipeline? If the cost of accessing additional water is
subsidized, then the full cost of supplying water to the
region is not taken into account in any subsequent
arrangements for trade. It is likely that the incentive to
conserve the existing water resources of the arid region
will be reduced and the local supply used at a faster rate,
because the residents can anticipate less expensive access to the water-rich region's supplies. In a sense, the
donation to cover the cost of supplying the water appears
to lessen the water-scarcity problem, and the value to local residents of a unit of water appears to be reduced.
This "subsidy" has effectively appeared to reduce the
scarcity problem. Subsidies in the real world represent
the expenditure of funds that have been transferred from
one area of the economy to another. So, while the
water-scarcity problem may appear to be temporarily
mitigated, in the longer run the water will be used at a
faster rate, and the other use of the funds that made up
the subsidy are ruled out. The subsidy has bought time,
but actually worsened a scarcity problem.