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Introduction to Economic Valuation Methods

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 To be cited as:
ABDULLAH, S., MARKANDYA, A. and P.A.L.D. NUNES (2011) ‘Introduction To Economic
Valuation Methods’ in Amit Batabyal & Peter Nijkamp (Eds.) Research Tools in Natural
Resource and Environmental Economics, Chapter 5, pp. 143-187, World Scientific, US.

CHAPTER

INTRODUCTION TO ECONOMIC VALUATION METHODS

SABAH ABDULLAH
Department of Economics, University of Bath, UK
s.abdullah@bath.ac.uk

ANIL MARKANDYA
Department of Economics, University of Bath, UK
and Basque Centre for Climate Change, Spain
anil.markandya@bc3research.org
and

PAULO A.L.D. NUNES

Marine Economics Research Program
The Mediterranean Science Commission, Monaco
pnunes@ciesm.org
1. INTRODUCTION
Economic valuation has been widely used in different sectors, for example in: health,
transport and the environment. The use of valuation methods has increased, owing to
the number of interest groups, corporations, governments and researchers demanding
economic values for environmental goods. The World Bank over three fiscal years
(2000 to 2003) conducted an average number of 6 to 9 projects per year in
environmental valuation (Silva and Pagiola, 2003). Also, there have been various
incidents at the global level that have compelled and accelerated the valuation of
environmental goods and services. One example was the much publicized incident in
1989, involving the Exxon/Valdez oil tanker that struck a reef in Prince William
Sound, Alaska, spilling at least 11 million gallons of crude oil and killing many birds
and mammals. 1 Establishing the usefulness to the local area of cleaning up the spill
required a comprehensive process to examine the economic value of environmental
goods, such as birds or biodiversity, which was not available.

The economic valuation of environmental assets in general is among the most

pressing and challenging issues confronting environmental economics. One may
wonder for what reason such monetary assessments of environmental resources are
undertaken. Four main reasons can be identified: performing cost-benefit analysis,
environmental accounting, assessing natural resource damage, and carrying out proper
pricing.2

This chapter has three main objectives: 1) To present common economic valuation
techniques (2) To examine guidelines and recommended frameworks in carrying out
economic valuation approaches and 3) To provide practical applications and future
outlook of some valuation approaches. The next sub-sections discuss: the varied
economic valuation techniques (section 2), steps in carrying out a valuation study
(section 3), challenges in the application of economic valuation approaches in the case
of biodiversity and ecosystems as evidenced by the call from the European
Commission as the preparatory work for the global study The Economics of
Biodiversity and Ecosystems (TEEB) (section 4). Section 5 concludes.

2. ECONOMIC VALUATION APPROACHES

A market is defined as a place where goods and services are transacted using
monetary instruments and monetary information is available to users. However, there
are other goods and services, such those in the environmental sector, which lack a
market, hence these are known as non-market goods (or services). Such goods may
not be traded in a day-to-day market, because they do not have a price against them.
However, placing an economic price on these goods or services, which reflects a
value, is important. By valuing these goods and services, users can acknowledge their
presence and their influence on their livelihoods. In this section we introduce the
concept of use and non-use values which is relevant in welfare estimation for users of
environmental goods and services.

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2.1. Introduction
Valuation aims to confer accurate economic values on non-market goods and services,
but in order to place an economic value on a non-marketable, say an environmental
good or service, the various components that make up its total economic value (TEV)
need to be identified. The TEV of environmental goods consists of use value and non-
use value. The use value (UV) is a value related to the present or future use of a
particular habitat by individuals. It can be subdivided into direct use values and
indirect use values. Direct use values are derived from the actual use of a resource
either in a consumptive way or a non-consumptive way (e.g. timber in forests,
recreation, fishing); indirect use values refer to the benefits derived from ecosystem
functions (e.g. watershed protection or carbon sequestration by forests);

The non-use values (NUV) are associated with the benefits derived simply from
the knowledge that a natural resource - such as a species or habitat - is maintained. By
definition, such a value is not associated with the use of the resource or the tangible
benefits deriving from its use. It can be subdivided into two parts that overlap
according to its definition. First, there are existence values, which are not connected
to the real or potential use of the good, but reflect a value that is inherent in the fact
that it will continue to exist independently from any possible present or future use of
individuals. Secondly, bequest values are associated with the benefits of the
individuals derived from the awareness that future generations may benefit from the
use of the resource. These can be altruistic values, when the resource in question
should in principle be available to other individuals in the current generation.

A separate category is made up by option values, which are values attributed by

individuals given the knowledge that a resource will be available for future use. Thus
it can be considered like an assurance that a resource will be able to supply benefits in
the future. The quasi-option value, which is sometimes classified as a non-use value,
represents the value derived from the preservation of the future potential use of the
resource, given some expectation of an increase in knowledge. The quasi-option value
is important when the decisions on consumption are characterized by a high
reversibility. Other values worthy of mention, but not discussed further in this study
include: functional, anthropocentric, biocentric, assigned and held values (Lockwood,
1998) and psychological (Nunes et al., 2004).

An example of TEV can be exemplified by considering a forest which is part of an

ecosystem. A UV might be a planned recreational visit to the forest either now or
later. The NUV may consist of unplanned or non-usable sources of welfare related to
the forest, where one is willingness to pay (WTP)/willingness to accept (WTA) for the
existence of the forest or to leave it for others.3 On one hand, an individual might feel
empowered to protect this forest (stewardship) and on the other, may have the urge to
let the forest be available to the present generation (altruism) and/or allow it to be
available for future generations (bequest). The use of valuation methods varies
according to the different forms of value, that is, whether UV or NUV is estimated.

Valuation approaches estimate the nature of the goods and services according to
the benefits being considered. Therefore, we refer to market and non-market values

2
and against this background, where we divide the valuation approaches according to
market data and non-market methods of revealed and stated preference. For market
approach the production function and damage cost methods are used for welfare
estimation whereas the non-market includes: stated preference (SP) and revealed
preference (RP) methods. SP is direct and is hypothetical in nature whereas the RP is
an indirect approach that uses market data based on established and actual recorded
behaviour.

Taking the forest example mentioned earlier in this section, Table 1 illustrates the
classification of economic values derived from a forest and the various market and
non-market approaches used to value such an ecosystem. In section 2.2. and section
2.3., the market and non-market approaches are further addressed, respectively.

Table 1: Classification of economic values provided by forests

Value Examples of benefits Most suitable valuation
components technique
Direct use Recreational benefits and tourism Revealed preference
value e.g. hiking, hunting, camping and methods e.g. travel cost
(DUV) wildlife viewing methods

Forestry resources with commercial Aggregate price

Use value value e.g. timber harvesting, analysisa
(UV)
Indirect use Forestry ecosystem and ecological Production function,
value (IUV) functioning e.g. erosion control, damage cost methods
water purification, carbon
sequestration
Bequest
value (BV) Legacy benefits e.g. preservation of Stated preference
Non-use value forestry for future generation methods e.g. contingent
(NUV) valuation, choice
experiment

Existence Existence benefits e.g. knowledge Stated preference

value (EV) guarantees that some forests methods e.g. contingent
resources are not extinct valuation, choice
experiment
a
Note: market price valuation technique

2.2 Types of Market valuations

The market-based methods attract little attention from environmental economists,
perhaps because they are considered straightforward and do not pose interesting
methodological challenges. They are, however, of considerable importance and a
good part of the value of ecosystems is in fact represented by commercial and
financial gains and losses. Some of the market valuation approaches include: averting
behaviour, replacement/restoration, production factor method and dose-response.

Averting behaviour (AB) or preventive expenditure

The preventative expenditure technique measures the expenditure incurred in order to

3
avert damage to the natural environment, human infrastructure or to human health.
The technique can be used to measure the impacts of biodiversity loss on both
marketed and non-marketed goods and services, with the exception of non-use values.
In terms of costing biodiversity loss impacts, preventative expenditure should be seen
as a minimum estimate of impact costs since it does not measure the consumer surplus
(i.e. the additional amount above actual expenditure that consumers would be willing
to pay in order to protect a particular good or service from the impacts of biodiversity
loss). In the context of climate change, preventative expenditure, if undertaken, would
in reality be an adaptation cost, since it is an expenditure aimed at reducing the
impacts of climate change (which may also include the loss of biodiversity). As such,
great care needs to be taken if using the technique in the context of a cost-benefit
analysis of adaptation options.

Replacement/restoration
The replacement/restoration cost technique can be used to measure the costs incurred
in restoring or replacing productive assets or restoring the natural environment or
human health as a result of the impacts of environmental degradation. As with
preventative expenditure, restoration costs is a relatively simple technique to use and
has the added advantage over preventative expenditure of being an objective valuation
of an impact – i.e. the impact has occurred, or at least is known. Use of the
replacement costs method relies on replacement or restoration measures being
available and the costs of those measures being known. As such, the method is
unlikely to be appropriate for costing the impacts on irreplaceable assets such as
biodiversity loss. Another shortcoming with the technique is that actual replacement
or restoration costs do not necessarily bear any relationship to willingness of
individuals’ to pay to replace or restore something. For example, in the context of
climate change, the potential health impacts of an increase in the air temperature, and
the associated additional health service costs incurred to restore the health of someone
made ill by a tropical disease, may be less than that person’s WTP to avoid getting the
disease in the first place.

Production factor method

This estimates the economic value of an environmental commodity through an
‘impact-pathway’ approach, in which a change in the environmental attribute is linked
to impacts on ‘endpoints’ that are relevant for human wellbeing. For example the
benefits of tree planting via reduced erosion are measured first by the link between
soil cover and erosion rates and then by the link between erosion rates and agricultural
productivity. Such methods can be very useful to value many services provided by
ecosystems, including forestry (timber and non-timber), agriculture (value of diversity
in crops and use of genetic material) and marine systems (losses from overfishing,
species invasion).

Dose-response (DR)
This technique involves a change in environmental quality affecting the output of
goods (or services). The cause is the source (dose) impacting on the environment (the
response). For instance, significant amounts of sulphur dioxide (dose) in the air leads
to acid rain, which pours into streams and rivers (the response) causing acidification.
However, it is difficult to distinguish the various causes that affect the receptors,
hence there needs to be a strong association between the dose and its impact. The DR

4
 function can be used to estimate use values either directly or in association with SP
and RP approaches.

2.3. Types of nonmarket valuation methods

Market prices and costs can provide estimates of the increase in the value of
commercial activities, such as timber extraction, fishing etc., the value of revenues
from tourism activities related to visits to natural areas and the value of contracts
signed by firms and governmental agencies, also known as bioprospecting contracts.
However, some environmental goods and services do not affect markets and market
data are not available to value them. In such cases methods have been developed to
derive consumers' preferences namely: RP and SP methods.

A number of studies have used SP methods when market information has been
unavailable, in converse situations, where such data exists, RP is applied. Moreover,
the SP is frequently used to elicit the NUV, as these values do not have recorded
behaviour, unlike the UV that can be better measured by RP. Table 2, shows the
differences between RP and SP approaches.

Table 2: Differences between revealed preferences (RP) and stated preference (SP)
Revealed preference (RP)
1) Portrays the world as it is i.e. the current
market equilibrium
2) Consist of inherent relationship between
attributes (technological constraints are fixed)
3) Only existing alternatives as observables
4) Represent market & personal limitations on
decision maker
5) High reliability & face validity
6) Yield one observation per respondent
Source: adapted from Louviere et al. (2000)
Stated preference (SP)
1) Describe hypothetical or virtual decisions
context (flexibility)
2) Control relationships between attributes
(permits utility functions with technologies)
3) Include existing, and/or proposed and/or
generic choice alternatives
4) Does not represent changes in market and
personal limitations effectively
5) Appears reliable when respondents
understand, commit to and respond to tasks
6) Yield multiple observations per respondent

The SP approaches include:

a) Contingent valuation (CV)

CV is currently the most used technique for the valuation of environmental goods
where individuals state their WTP/WTA for a good or service. One important reason
for this is because only SP methods like CV can elicit the monetary valuation of the
non-use values, which typically leave no 'behavioural market trace'. Furthermore CV
allows environmental changes to be valued even if they have not yet occurred (i.e., ex
ante valuation). It allows the specification of hypothetical policy scenarios or states of
nature that lie outside the current or past institutional arrangements or levels of
provision. Finally CV allows one to enrich the information base by submitting the
process of value formation to public discussion. Against this is the criticism that the
values are hypothetical (payments are not actually made or cash paid out) and that the
method is subject to many biases.

b) Conjoint choice or Choice experiment (CE)

Conjoint choice is also a common used SP method, and the relative merits of this
against CV are much discussed in the literature. This method elicits information on

5
values by asking individuals to choose between alternatives; conjoint ranking, where
individuals rank alternatives in order of preference and conjoint rating, which
indicates their strength of preference on a cardinal scale.

A number of studies, ranging from environment to health and the transport sectors,
have used the SP approach and/or a combination of both CV and CE. The differences
and similarities between these two techniques should not dictate the superiority of one
technique over another or support one for another; rather these techniques
complement each other. Though, for some SP studies there are reasons for choosing,
say, CV over CE and are determined by a combination of factors, such as: the
researcher’s interest, funding (or sponsorship) issues, the sampling framework and
what part of the TEV of the good needs to be valued.

According to Bateman et al. (2002), choosing which of the two SP approaches to

use depends on: the kind of value needed (i.e. total or relative), information
availability (CV has greater literature), welfare and/or welfare-consistent estimates,
cognitive processing and sampling means (number of responses per individual).
Freeman (2003) was ‘cautiously optimistic’ about the SP method and reported that
others are attracted to SP because of the ‘relatively easy and inexpensive way to get
usable values for environmental resources’. In a similar vein, Whittington (2002)
concluded that SP is vital to a developing country’s policy application, but it is far
from being a high quality option at a low cost.

The RP methods include:

a) Hedonic pricing (HP)

This estimates the economic value of an environmental commodity, say, clean air or
an attractive view, by studying the relation between such attributes and house prices
(Palmquist, 1991). Hedonic price estimation has been applied to elicit
environmental/ecosystem values associated with recreation, landscape values and
genetic and species diversity. Hedonic techniques are particularly employed in
valuing visual amenity, quality of soil assets and exposure to air pollution.

b) Travel cost method (TCM)

This estimates the economic value of recreational sites by looking at the generalized
travel costs of visiting these sites (Bockstael et al., 1991). The valuation is then based
on deriving a demand curve for the site in question, through the use of various
economic and statistical models. Where the individual makes a choice involving
more than one site, the discrete choice models have used the random utility theory
framework to value not only visits to different sites but also the attributes of sites,
such as water quality. The travel cost technique has been widely applied, especially in
North America, where Parsons4 has assembled a list of over 120 such studies. There
are three dimensions in TCM: the quality of the good to be valued, the number of
visits and duration and the substitutes to other sites (Kolstad, 2000).

Finally, benefit transfer (BT) consists of exporting previous benefit estimates (either
from SP or RP) from one site to another, at one point in time, with regards to the
researcher’s area of interest. In BT estimates there are three possible forms of

6
transfers: transfer of an average of WTP estimates from one primary study, transfer of
the WTP function, and transfer of WTP estimates by aggregating other WTP
estimates employing meta-analyses (Bateman et al., 2002). According to
Rosenberger and Loomis (2001), BT involves the use of economic values from one
specific area, with a known resource and policy conditions, to another site in similar
circumstances. Generally, the first site is known as the ‘study site’ and the second as
the ‘policy site’. Sites differ in characteristics and one has to be cautious when
applying these from one site to another. On the one hand, this method reduces the
cost of starting a completely new valuation study, whereas on the other hand, the
compilation of a comprehensive database often proves costly.

In a paper to compare the stated and revealed preference estimates from 83 studies
conducted from 1966 to 1994, Carson et al. (1996) found that CVM estimates were
lower than RP estimates i.e. CVM estimates were around 30 percent lower than multi-
site travel cost estimates. All in all, valuation studies conducted in both developed and
developing countries have used a combination of RP and SP. Researchers have
combined both SP and RP, where the application of SP and RP approaches is that
some strength exists in each method and, when combined, they provide a useful
toolbox in valuing environmental goods and services.

Despite these differences, the use of both SP and RP methods in valuing

environmental goods has increased in recent years, for instance in fisheries
(Whitehead, 2006), water (Urama and Hodge, 2006; Hanley and Alvarez-Farizo,
2003), transportation (Espino et al., 2006; Memon et al., 2005; Dissanayake and
Morikawa, 2002; Polydoropoulou and Ben-Akiva, 2001), recreation (Earnhart, 2004;
Park et al., 2002), forestry (Adamowicz et al., 2004), animal husbandry (Scarpa et al.,
2001) and cultural artifacts (Boxall et al., 2003).

3. CONDUCTING NON-MARKET VALUATION STUDIES

This section discusses the recommended steps in conducting non-market valuation
studies, since for the market methods the existence of information and data is
available unlike the non-market approaches.

There are various methodologies that have been elaborated by non-market

valuation practitioners in particular for CV (see Bateman et al., 2002; Champ et al.,
2003, Markandya et al., 2002; Alberini and Kahn, 2006; Mitchell and Carson, 1989;
Whittington, 2002; Arrow et al., 1993). Of all, the most venerated are the guidelines
as recommended by the National Oceanic and Atmospheric Administration (NOAA)
panel (see Arrow et al., 1993). Most of these frameworks require one to follow
specific steps: define the study objectives, design the questionnaire and survey, create
a database and analyze data, estimate the WTP/WTA values and validate the results.

3.1. First step

The study needs to name the goods (or services or policies) to be valued, the
respondents to be interviewed and the unit of measurement. Mitchell and Carson
(1989) state that it was unclear from valuation literature whether interviewees should
answer for themselves (individually) or at household levels. According to Quiggin
(1998) WTP from households is less than aggregated WTP from individuals when it
involves altruism motives; nevertheless the household is viable as a measure of

7
analysis in three possible ways: aggregating individual values, treating household as a
unit and applying referendum method.

3.2. Second step

The questionnaire design is divided into several major parts, with the common format
being a three-part questionnaire. The procedure consists of a ‘warm up’ section,
followed by a WTP scenario and finally the socio-economic and demographic
questions. The WTP questions involve hypothetical scenarios, where respondents are
requested to value non-market goods by providing an amount against the good (or
service) being considered. For instance, the questionnaire design in the CV method
requires a careful and clear research methodology and design. The guidelines
provided in most of the literature on CV questionnaire design emphasise that
hypothetical scenarios need to be: realistic, feasible, understandable and simple for
respondents to relate to. In some cases, the use of visual aids – photographs, maps,
etc. – may provide more relevant information on the good in question, although the
use of photographs is known to influence the WTP amount (Arrow et al., 1993),
hence the importance of pre-testing such items.

Moreover, the SP study can be supplemented by employing additional tools, to

enhance the reliability of their research. For example, opinion surveys, an awareness
survey, a local impact study and an attitudinal questionnaire. Such attitudinal
questions help to construct CV validity. Most of the studies included some socio-
economic and demographic information, like: head of household, age, race, education
levels, employment, urbanization, marriage status, with/out children, home owner (or
renter) and membership of an environmental organization. The opt-out or status quo
choice, as suggested by the NOAA, can be implemented in SP studies. Moreover, a
follow up question can be used to obtain further information, with regard to ‘no’
responses to WTP questions, as recommended by the NOAA guidelines.

Additionally, debriefing respondents and reminding them of the budget constraints

is recommended by the NOAA panel (Arrow et al., 1993). The use of focus group
discussions (FGDs) is advocated during questionnaire design to help the researcher
understand respondents’ preferences and also questionnaire characteristics (Bateman
et al., 2002). The pre-testing of questionnaire is one of the effective ways of testing
reliability (Mitchell and Carson, 1989 and Arrow et al., 1993).

Another consideration of interest in valuation studies is that of whether to offer

incentives to the respondents. On one side, incentives, such as those in monetary
forms encourage respondents to answer the question but on the other side, these
incentives can bias estimates. The effects of these incentives depend on the type of
incentives; hence it is advisable to pre-test the questionnaire with the incentive on
offer beforehand.

An important feature in estimating WTP involves elicitation formats for SP

studies, such formats include: open-ended, closed-ended, dichotomous choice (double
bounded and multiple bounded questions), bidding game and take-it-or-leave-it
questions. The use of these formats is known to influence WTP values and some
questionnaire formats are ‘cognitive burden’ that is to say are a tiresome activity for
respondents. For example, respondents may find open-ended questions more
strenuous to answer than closed-ended questions.

8
 Another item of interest is the type of the payment vehicle, where this refers to the
form of payment for a good or service in a valuation exercise. Similar to the question
format type, the type of payment vehicle is reported to influence WTP values. There
are various types of payment vehicle such as tax, price increase in a bill and fee for
the good or service. To determine the right payment vehicle, it needs to be credible,
relevant, acceptable and coercive (Bateman et al., 2002).

3.3. Third step

This involves the survey design and conducting the interviews by various elicitation
modes such as: mail, personal interviews, telephone and most recently the internet.
There are varied costs and response rates involved in administering these methods and
the most popular methods of data collection are mail surveys and face-to-face
interviews (Carson et al.,2001). Generally, mail surveys are inexpensive to administer
compared to other forms of elicitation however the response rate is about 25-50%
(Bateman et al., 2002).

According to Mitchell and Carson (1989) one shortcoming of this data collection
method relates to non-response bias, where respondents are unwilling to answer
questions. Non-response bias can be for a variety of reasons, in particular, illiteracy
and self selection are evident in mail surveys, where in the latter case respondents
who are interested in the good (or service) respond more than others (Bateman et al.,
2002). SP practitioners may consider combining and conducting several different
modes (telephone, mail or personal interviews) to reduce the biases, namely, self-
selection bias and non-response bias. For instance, the telephone may be used
followed by a mail survey or alternatively mail and personal interview can be
employed.

3.4. Fourth step

This involves data collection, database creation and analysing information gathered
during the survey. The biases that occur in this stage are associated with selection
bias, sample non-response and item non-response prior to analyzing of the data
collected. According to Whitehead (2006) these biases can be resolved by
constructing weights to reflect the population weights for the sample non-response; a
follow up in case of selection bias; and data imputation for the item non-response.
After the biases are adjusted, the data is cleaned, coded, organized and entered in a
computer program ready for analysis.

3.5. Fifth step

This involves the estimation of the WTP or WTA values according to the specified
models which may vary on the elicitation format type such as open–ended question,
bidding and others. Additionally, in this phase the estimation of annual individual
and population WTP/WTA estimates is important in calculating the total benefits.
Finally, a good practice calls for validity and reliability in SP studies. Carson et al.
(2001) defined validity as conformity between what one hopes to measure and what is
measured in real life, and reliability is demonstrated when results are upheld in
repeated cases; in the case of CV using the same method. For validation, the
estimates can be tested both internally and externally. The difference between internal
and external validation is that the former is conducted within one valuation method,

9
unlike the latter, which compares one valuation method with another, i.e. SP against
RP.

There are three types of validation for valuation methods, namely: content,
convergent and criterion.5 Content validation evaluates whether the questions referred
to the appropriate good or service in a clear and understandable manner, whereas
convergent validity is a comparison process of cross-referencing whether the
estimates from one SP study reports similar results to another SP study or otherwise
reports dissimilar results, which vary in an expected form. The criterion validity
likens the CV studies with the HP method, using the actual market information or
predicted market information.

4. APPLICATION OF ECONOMIC VALUATION APPROACHES

In this section, we review and discuss the application of the wide range of economic
valuation methods addressing the assessment of biodiversity benefits and ecosystems
services based on the preparatory work for the global study, which is named 'The
Economics of Ecosystems & Biodiversity (TEEB), Phase I.. The remarks found in
this report were contributed by worldwide scientific and practitioners in valuation
studies (see Markandya et al., 2008 for more details).

Following the presented classification of the valuation methods described in

section 2.1, we shall classify the wide range of contributions that report the use of
market data and non-market methods of RP and SP.

4.1. Market biodiversity values and market valuation methods

The main market-based value studies submitted to the TEEB report are shown in
Table 3. A further set of recent European market-based studies of biodiversity value
and the value of ecological services relevant to the report is presented in Box I. A
number of points should be noted about these:

First, estimates of market values are partial and generally not comparable.
Sometimes the figures are given as net income, sometimes as gross income. Some
report gains in terms of employment or increased local economic activity, which are
not necessarily economic benefits or at least not in full (that depends on what
alternative employment opportunities exist and what alternative economic activities
are possible). With the current state of the art, however, it is possible to carry out
proper valuations based on economy-wide impacts of biodiversity loss or
conservation and some studies have done that.

Second, in some cases estimates are based on the costs of restoring lost services.
While useful, such estimates could be higher or lower than the market value that is
lost. Indeed one of the purposes of valuing loss of biodiversity is to see if
replacement or restoration is justified. Using the latter as a measure of value does not
allow answering that question.

10
 Box I: European studies of ecosystem service value based on market data

1. In the coastal waters of several European countries there is a notable loss of crayfish
populations (A Pallipes, A. Astacus, A. Torrentium) because of pollution, habitat loss,
overfishing and the introduction of alien species (mainly N. American). Services lost include
food (domestic varieties fetch twice the price of non-native varieties), regulating services
(trophic effects on prey and predators), recreation and cultural services. Although estimates
of the loss are not made, estimate of costs of restoration are. They indicate modest costs
(around €225,000 per stream over 5 years in France) that would be well below the value of
recovered crayfish populations.
2. In Germany and Romania the Danube has lost a number of ecosystem services due to dam
construction. These include wetlands that have been permanently flooded, a reduction in
biodiversity due to lost fauna (including populations of a number of fish species) and poorer
water quality.. Estimates of the annual values of these services in market terms are around
$16 million for the fisheries, $131 million for the increased cost of water treatment to obtain
drinking water, and $16 million from the tourism services the wetland could provide.
3. In Greece, Lake Karla, which was a wetland site, has gradually been transformed as a result of
human intervention that dates back to 1936 and is now drained agricultural land. Partial
restoration is now under way at a cost of around €152 million. Estimates of the benefits,
however, are not available, although the main services that will be restored have been
identified – commercial fisheries and farming. Farmers are finding that current land use is
unsustainable.
4. Overfishing in the North Sea is a major threat to its biodiversity and ecosystem health and
stocks of a number of fish are now under stress. Estimates of the benefits of recovery plans
that would increase populations are about €600 million a year. This excludes benefits from
fish processing and recreational fisheries.
5. Peat bogs in the UK are being lost as a result of intensive livestock farming. The result is a
loss of carbon sequestration services, potable water services and habitat for species. The
additional costs of water treatment as a result of the loss are estimated at €1.8 to €3.6 million
a year. Other benefits, including carbon sequestration or tourism have not been estimated.
6. Plantation of non-native monocultural forests (eucalyptus and pine) in Portugal has resulted in
a loss of biodiversity and an increased risk of fire as these species are more fire prone
compared to the oaks they substituted. Other services lost include soil protection, water
provisioning, game, non-timber forest products, all of which are less well provided in
monocultural forests of this type. The cost of fires alone in 2001 was €137 million, although
we do not know how much of this was due to the expansion of monocultural afforestation.
The annual value of forest ecosystem services is estimated at €1.33 billion.
7. Eutrophication of coastal marine ecosystems in Sweden is well known and studied. Services
lost as a result of eutrophication include provisioning for commercial fishery species and
reduced efficiency in regulating services such as cycling and depositing nutrients. In addition
there is a loss of cultural services, notably recreation. The value of the loss of regulating
services is estimated at €6-€52 million a year for the Stockholm archipelago (for a one meter
improvement in summer secci depth (depth to which water can be seen with the naked eye))
while the value of provisioning services is estimated at €6-€8 million a year for the Kattegat
and Skagerrak fishery areas. This is based on a reduction in the output of plaice juveniles as a
result of eutrophication. Finally the loss of cultural services is based on the costs of removing
algae, which is estimated at €7,000 for the Swedish West Coast.
8. The Osprey is a highly valued bird that experienced a sharp decline in the UK in the 19th
century. The restoration that has taken place since the 1950s has generated benefits of €4.8
million to the local economies in Scotland in the areas where the birds nest.
9. Clam fishing in the lagoon of Venice, Italy is a highly profitable activity but it is currently
carried out using a technology (vibrating rake) that damages the resilience of the ecosystem.
If the present system continues yields will decline rapidly. A shift to a manual collecting
system would result in a lower income for the fisherman immediately but would decline more
slowly over time. Depending on the discount rate a fisherman may adopt the manual system.
Alternatively the calculations show how much compensation we would have to give the
fisherman to adopt the less damaging system.

Source: Kettunen and ten Brink (2006)

11
 Third, underlying the market-based approach are scientific studies linking the
estimated impacts on biodiversity to certain causes (e.g. the effect of pests on forests,
of forests on air pollution etc.). We should recognize that there are still considerable
uncertainties regarding these links, which should be reflected in the reported benefits.

Fourth, the majority of studies refer to marginal changes in local areas. At the
same time there are a few that value the broad scale of services provided globally.
The numbers from these latter studies are extremely large.

Finally, the purpose of many of the studies was to show that the services provided
by nature are significant and either merit protection (where biodiversity is threatened)
or merit expansion (where there is potential for that). Estimates of the ‘opportunity
cost’ of land – i.e. what it would be worth if it were not conserved - are often much
lower than the value of the biodiversity services provided if it was conserved.

4.2. Revealed preference valuation methods and non-market

biodiversity values
There is a large body of empirical studies on the values attached to different
ecosystem services. Nijkamp et al., 2008 list some 75 biodiversity studies that had
been carried out in Europe from 1981 to 1997, and doubtless there have been many
more since. The EVRI 6 database of environmental valuation studies using non-
market methods had about 460 records for European studies in June 2008, with a
heavy dominance of UK research (37 percent of the total). Just under half of the total
methods were based on revealed preference (47%) and just over half were stated
preference. Topics covered included: biodiversity loss, wildlife, national parks and
nature reserves, water courses (non-fishing use), recreational fisheries, landscape,
endangered species, wetlands, and woodlands.

According to the TEEB report, a small number of contributions from the use of
RP methods were received. Hence, we can distinguish two types of biodiversity
values. The first type are values elicited using a travel cost model and are mainly
associated to the recreational values provided by the conservation of areas rich in
biodiversity, including natural parks, see Moons and others (2000) – see Table 4. The
second type are biodiversity values elicited by the use of hedonic price models, see
Garrod and Willis (1994) and Ruijgrok, (2004a) – see Table 4. In this context, the
biodiversity benefits are estimated by assessing the impact of neighbourhood
characteristics, including nature/biodiversity ones, on the housing price. For example,
Garrod and Willis (2001) studied the value of a waterside location using property sale
prices for Greater London and the Midlands over a five-year period (1985-1989). The
estimations rendered for properties located on the waterside a premium of £2,689 for
Greater London and £2,238 for the Midlands.

12
4.3. Stated preference valuation methods and non-market
biodiversity values
The most populated method in the report is the SP which is in accordance to the EVRI
database of environmental valuation studies – where more than half of the 2003
records refer to non-use or passive use values estimates. These values are only
possible to elicit using stated preference valuation studies – typically with the use of
contingent valuation and stated choice surveys. Christie and others (2006) note that
there have been a lot of studies (mostly in the US using stated preference techniques)
looking at valuing particular species – see Nunes and van den Bergh (2001).
Valuations per species range from $5 to $126 per household per year and for multiple
species from $18 to $194 per household per year. In the UK, Macmillan et al. (2002)
looked at wild goose conservation in Scotland and White and others (1997, 2001),
looked at four mammals – otters, water voles, red squirrels and brown hare.
Macmillan and others (2001) look at the reintroduction of species (beaver and wolf)
in the native forests of Scotland. They also note that there have been a range of
studies on habitats – using either recreation/tourist value approaches or valuation
using stated preference methods (e.g. CV). Work includes Garrod and Willis (1994),
and Hanley and Craig (1991) on upland heaths in Scotland, and Macmillan and Duff
on restoring pinewood forests in Scotland. Willis and others (2003) extend this work
to examine public values for biodiversity across a range of UK woodland types.
Other studies have assessed public WTP to prevent a decline in biodiversity. For
example, Macmillan and others (1996) measure public WTP to prevent biodiversity
loss associated with acid rain; while Pouta and others (2000) estimate the value of
increasing biodiversity protection in Finland through implementing the Natura 2000
programme. White and others (1997, 2001) examine the influence of species
characteristics on WTP. They conclude that charismatic and flagship species such as
the otter attract significantly higher WTP values than less charismatic species such as
the brown hare. For the remaining non-market biodiversity values that are estimated
with the use of stated preference valuation methods, a number of points should be
noted about these:
First, topics covered included: wildlife, national parks and nature reserves, water
courses (non-fishing use), recreational fisheries, landscape, endangered species,
wetlands, and woodlands. So the question is: are we valuing environmental resources
(including biological resources) in the name of biodiversity (the diversity of
biological resources)? Second, there is a heavy dominance of studies from the UK or
parts of the UK (England, Wales, Scotland), with particular emphasis on significant
countryside habitats, forested areas or charismatic and flagship species. Another
emerging question: how reliably can we use these estimates for policy, especially
when we use the value transfer methods to other sites and countries, which are not
characterized by the same flag species?

4.4. Gaps in knowledge, and suggestions for future research

The TEEB report highlighted the following points with respect to gaps in knowledge
found among various valuation studies:

The value of indigenous knowledge in the conservation of biodiversity and

biodiversity value of marine resources - especially deep sea resources - is an under-
researched topic. Primary valuation studies are still lacking for ecosystem services

13
provided by deserts, tundra, ice/rock and cropland. There are few studies on the value
of changes in the delivery of goods and services arising from conversion of natural
habitat. In particular few suitable studies were found for 10 of the natural biomes,
including rangelands, temperate forests, rivers and lakes and most marine systems.

Most valuation topics covered included: wildlife, national parks and nature
reserves, water courses (non-fishing use), recreational fisheries, landscape,
endangered species, wetlands, and woodlands. There is poor distinction between the
valuation of biological resources for their biodiversity and for their contributions as
biological resources in themselves. More work is needed to provide the keys for an
accurate interpretation of the difference between the two. Also, there is a heavy
dominance of UK studies as noted earlier, with particular emphasis on significant
countryside habitats, forested areas or charismatic and flagship species. It is unclear
how reliable these estimates may be for policy, especially when we transfer the value
to other sites and countries, which are not characterized by the same flagship species.

There are still major gaps in the science and economics of the valuation of
ecosystem services, including the definition of ecosystem boundaries, the need to
improve environmental understanding and the effective valuation of genetic material.
Others have noted the gap in studies that consider marginal effects in a proper way
(rather than assuming they are equal to the average impact). The need to properly
integrate our knowledge of ecosystem dynamics into an economic assessment of
land–use options. Moreover, most of the economic evidence available concentrates on
a single use of a single good of a given ecosystem, while most ecosystems provide
multiple services that are interrelated in complex ways. Also relevant to ecosystem
dynamics, any review of the costs of biodiversity must factor in climate change: both
the impacts of climate change on biodiversity and the feedback effects of biodiversity
loss on climate change. There are gaps in the public’s understanding and awareness of
biodiversity. By improving information and awareness we may achieve significant
gains in conservation at a modest cost.

There is a fundamental uncertainty regarding the minimum level of ecosystem

structure needed to provide a continual flow of services. Related to this is the
importance of recognizing the discontinuities in the biophysical relationships that
govern ecosystem service provision and that are critical to a valuation of their loss.
More accurate information is needed on the populations who stand to gain or lose
from changes in biodiversity and ecological services. An example is given about the
benefits of woodlands, where it is difficult to identify the populations for which the
different categories of social and environmental benefits are to be aggregated.

Present valuation systems based on individualistic and reductionist approaches are

inadequate and what is needed is a different paradigm. One suggestion is to focus on
valuing the limitations imposed on the development of human societies by ecological
constraints, such as the “Steady State Economy” model of Hermann Daly. Another is
to adapt a valuation system based on ‘fairness’ and collective values.

Methods are needed to identify priority areas for biodiversity conservation that
minimize conflict with agricultural productivity. In fact, a similar point has been
made in recently published TEEB report (TEEB 2008). In fact, it states that notes that
protecting the largest area within an ecosystem does not equate to the greatest

14
protection for its biodiversity. Related to the above, there is a need to know more
about how to identify the extent to which the goals of safeguarding biodiversity and
securing ecosystem services are consistent, and at what point there is a trade-off
between the two.

Most of the valuations address the issue of biological resources rather than
biodiversity per se. We are all diminished by a world that is increasingly
homogenized, but there is as yet no credible estimation of the cost of diversity loss.
This is arguably an important research question. Only a few agricultural studies
demonstrate true farm system costs for the loss of genetic diversity in land races and
domestic breeds. Costs associated with the loss of naturally occurring diversity are
uncertain.
With regard to suggestions for future research one can obviously note the need to
fill the gaps identified in the list. The following were pointed out by report
contributors as the future directions:

(1) Closing the gap between ecological economics and other areas of
economics using experimental approaches and models of behavioural
economics.
(2) The greater use of market based approaches including auctions as a means
of eliciting values and determining the demands for conservation. Such an
approach was applied in the Netherlands (e.g. Triple E) and is reported in
the market research.
(3) Researching the emerging issues of how the depletion of biological
resources may heighten global insecurity and conflict. Most of the times,
the distributional aspect regarding the allocation of costs and benefits
reveals to be crucial in accepting or rejecting a given conservation
practises. Hardly any research is available on this.
(4) Future research in relation to ecosystem services should consider a range
of interdependent ecological functions, uses and economic benefits at a
given site; or track changes in site values across different states of
ecological disturbance. Future research should investigate the necessary
conditions for incentive measures and their relative merits in relation to
different locations, ecosystems and types of ecosystem stress.
(5) The present analysis is static (concerning the global spatial distribution of
marketed and non-marketed economic value). It needs to be extended to a
dynamic analysis in order to provide more useful information on the trends
in the value of ecosystem services and sustainability.
(6) Most economic valuation exercises miss a common platform of
biodiversity analysis. According to the ecosystem approach, one needs to
provide a detailed catalogue of ecosystem services and address the value
of ecosystems and ecosystem services, as the basis for understanding the
value of the biodiversity that underpins those services.
(7) Ecosystem management options should be evaluated by coupling service
change assessments with valuations of these changes.

From the evidence of the gaps and future direction, a critical analysis of the
submitted evidence suggests that we are witnessing a progressive loss of biodiversity.
This is the cause of significant welfare damages. Secondly, one can also conclude that

15
the economic valuation of changes of biodiversity, and its impacts on the provision of
ecosystem goods and services, requires, inter alia, that a clear biodiversity change
scenario is formulated, that changes are within certain boundaries, and that the
perspective on biodiversity value is made explicit. So far, relatively few valuation
studies have met these requirements. In fact, most studies lack a uniform, clear
perspective on biodiversity as a distinct, unequivocal concept.

Against this background, the Millennium Ecosystem Assessment is now

recognized as a key reference for assessing the economics of biodiversity loss.
However, to the present date, we have insufficient knowledge about, for example,
how the functioning of ecosystems relates to the production of ecosystem goods and
services and what is the underlying role of biological diversity within this complex
relationship, so that for this reason alone it is very difficult, if not factually impossible,
to assess the total economic value of biodiversity.

Even if one admits that we could place a value on a set of goods and services
represented by all ecosystems, and remembering that at present scientists still do not
have sufficient knowledge to map and calculate the full range of ecosystem goods and
services (across all the different types of world ecosystems), we would still be unable
to answer the question “what is the value of biodiversity?” To answer this question,
one would also have to include: (a) the role of genetic variation within species across
populations and its impact on the provision of ecosystem goods and services, (b) the
role of the variety of interrelationships in which species exist in different ecosystems
on the provision of ecosystem goods and services, and (c) the role of functions among
ecosystems on the overall level of provision of ecosystem goods and services.

Therefore, and without any doubt, a full monetary assessment will be impossible
or subject to much debate. An important reason for the latter is that global level values
are difficult to compare due to an equal international income distribution. All in all,
the available economic valuation estimates should be considered at best as a lower
bound to an unknown value of biodiversity, and always contingent upon the available
scientific information as well as the global socio-economic context.

5. CHALLENGES FOR VALUATION STUDIES

There are challenges facing valuation studies both conceptually and practically. Based
on the TEEB submissions and this group’s work we would argue that the following
issues need to be addressed in valuation work: gaps in the studies, the application of
valuation studies using surveys, incremental value, addressing multiple services and
the adding up and benefit transfer.

First, after all the work on valuation, there still remain areas where credible and
reliable economic values are not available. As noted these include many species,
marine ecosystems, cultural and spiritual values and dynamic dimensions of all values.
They also include damages to ecosystems from air and water pollution (Ecolas, 2007).
In all cases further work on valuation is worthwhile, using innovative combinations of
market and non-market techniques. For damages from air and water pollution Ecolas
has already made a number of recommendations for such studies. In other cases a
similar list should be drawn up to fill the gaps that have been referred to in this paper.
But it is only realistic to assume that it will be some time before a comprehensive set

16
of estimates is available. In the interim we need to rely more on cost effectiveness
tools, and to focus the development of these tools around the indicators for the
Biodiversity Strategy for the EU, as reflected in the set of indicators drawn up by the
European Environmental Agency (EEA). Not all those indicators are amenable to
such an analysis but many are. It should be a matter of urgency to develop these tools
and make them available to decision-makers responsible for allocating funds and
introducing and implementing conservation policies.

Second, the other challenges facing application of valuation studies in particular to

SP surveys include: low response rates, biases and effects, restricted budget amounts,
weak questionnaire design and lack of validity and reliability. Of these challenges, the
biases and/or effects tend to influence the WTP/WTA values. Typically these biases
distort the WTP/WTA estimates. Some of these biases include: starting point bias,
strategic bias, hypothetical bias, as well as the question order and temporal embedding
effects. For CV studies, there are four main sources of biases: 1) use of a scenario that
has strong incentives for respondents to misrepresent their true WTP; 2) use of
scenarios that have strong incentives to prompt respondents to depend on the scenario
for WTP; 3) misidentification and wrongly describing parts of the scenario, and 4)
incorrect sampling design (or execution) and improper ways of aggregating benefits
(Mitchell and Carson 1989). The guidelines provided by the NOAA panel with
respect to CV were drawn up under consideration of situations found in the US and
developed countries. It is worth noting that developing countries differ from
developed countries in their social-economic and political structures, making the
NOAA recommendations relatively difficult and costly to implement in the former, as
against the latter. Despite these challenges facing valuation researchers, the future
application of these methods in both developed and developing countries seem
plausible as long as the gaps and challenges discussed earlier are acknowledged and
addressed appropriately.

Third, the valuation of goods or service to be useful there has to be an incremental

value. There is little advantage in knowing the total value of an ecosystem unless
there is a threat to eliminate it or a policy to reconstruct it in its entirety, which is
rarely the case. Yet many valuation studies provide estimates of the total costs of
whole systems and there is even one of the value of the whole world’s ecosystems
(Costanza et al., 1997). Carrying out an incremental analysis (which may entail
estimating significant non-marginal changes in ecosystems), however, is not as easy
as it might sound. If one is using revealed preference methods, a link has to be
established between a change in the environmental attribute and the demand for a visit
to a site or the value of a property. If one is carrying out a SP analysis, the respondent
has to understand the nature of the incremental change, which is more difficult than
asking for the value of access to a site or use of a particular recreational facility.
Incremental analysis under SP is perhaps a little easier with CE rather than CV.

Fourth, valuation studies need to address multiple services and the ‘adding up’
problem. Many ecosystem services that individuals receive are multidimensional and
there is an adding up problem. The value attached to one forest area for recreational
or other use is not independent of whether another forest nearby is conserved or not.
The implication is that studies need to be undertaken allowing for substitution effects,
which makes them more specific to a particular application and less capable of being
transferred to other applications.

17
 Finally, the issue of benefit transfer leaves a debating question: to what extent can
these values be transferred from one site to another and from one type of service to
another? Economists have devoted a great deal of effort to see how far such transfers
are possible, given that full valuation studies are expensive to conduct. The most
comprehensive way to carry out transfers is to use a ‘meta analysis’, which takes all
existing studies and estimates a relationship which gives changes in the benefit values
as a function of site characteristics, attributes and size of the population affected, type
of statistical method used etc. in the sample of existing studies. This is then
transferred to the policy site in a procedure referred to as value transfer, which can
provide a single value for the policy site or a ‘value function’, which gives a range of
values depending on the characteristics of the object of valuation. Meta analyses are
available for urban pollution, recreational benefits, recreational fishing, water quality,
wetlands, visibility improvement, price elasticity of demand and travel cost, valuation
of life and valuation of morbidity (Nijkamp et al., 2008)7. These provide the best
method of transfer, although one should note that many values are very location
specific and the transfer can never be perfect.

Although use is made of meta analyses and value transfers in estimating costs we
do not have an idea of the extent of such use. Transfers of estimates are unlikely to
enter databases such as EVRI, because they do not involve original estimation. It
would be helpful to know how many policy-related studies have indeed used proper
meta analyses to derive environmental values in a policy-making context. Recent
discussions on the subject seem to suggest that while value transfer is easier for some
ecosystem services it is less easy for others. It should be possible, for example, to
derive estimates of some categories of recreational benefits (including recreational
fishing), improvements in water quality, carbon sequestration and perhaps visibility.
It is more difficult to carry out credible benefit transfer, except in a very localised way
(e.g. estimates for one landscape or land use pattern to another that is close by) for
other categories of value. As noted under the ‘adding up problem’ different
combinations of benefits cannot be valued by adding up the individual benefits of
ecosystem services.

Notwithstanding such difficulties the international community urgently seeks

estimates of the foregone benefits from biodiversity at the EU and global level. The
current initiative on the Economics of Biodiversity Loss explicitly states that it will
seek to estimate the ‘economic significance of the global loss of biodiversity’ 8. Given
that there are thousands of ecosystems and sites of importance within the EU, let
alone the whole world it is impossible to conduct individual studies to obtain the
relevant information in a timely way9. Hence some kind of benefit transfer will be
essential if the goal of obtaining national, regional and global estimates of the
damages from biodiversity loss in the absence of any action is to be obtained. The
same applies, a fortiori, to estimating the reductions in such damages when some
actions to protect the ecosystems are implemented.

The answer to this problem consists of working in parallel at two levels. The first
is to develop rules of thumb for acceptable estimates of the overall costs of

18
biodiversity loss and the second is to improve the application of benefit transfer for
specific evaluations of ecosystems service benefits.

To tackle the first rules of thumb will be needed, based on rough values, for all the
ecosystems under threat. The cost of policy inaction (COPI) project that is just being
delivered to the European Commission has this as its objective (COPI, 2008). It
cannot be expected that this project will arrive at a real scientific assessment of the
costs of inaction but it may be able to provide credible orders of magnitude, based
significantly on the market-based losses of services from the expected degradation of
ecosystems. Coverage of non-market costs will be much less complete. Whatever
estimates are obtained should be subjected to as much scrutiny from the scientific
community as possible and revised in the light of responses to provide some headline
figures that are broadly correct. The exercise will necessarily ignore many of the
guidelines for benefit transfer. In the light of that it will need some way of deriving
approximations in the right ballpark and further work in this area will almost certainly
be required.
To tackle the second approach we need to establish a clear set of guidelines
about which kinds of benefit transfer are possible. Such guidelines need to stipulate
not only the kind of ecosystem services but the areas and countries where the transfer
can be carried out given the available set of valuation studies. Secondly, further
research should be carried out on how ‘packages’ of ecosystem services may be
valued without undertaking whole new studies. It may be possible to develop
approximations for adding up benefits that can be individually transferred but where
there is an adding up problem. Third, where transfer is not possible toolkits should be
developed that can be used to carry out location specific studies. Given the large
database of existing studies, these can help simplify and demystify the process of
valuation so it can be conducted more routinely and more cheaply. Finally, an
inventory of all major ecosystems should be drawn up and the loss of services
expected under different scenarios should be prepared. Some of this is underway for
some ecosystems but not for all the important ones.

6. CONCLUSION
This chapter introduced the various valuation approaches for both market and non-
market values and recommended important steps in conducting valuation exercises
using the SP methods. Also, from the evidence submitted to TEEB, we can conclude
that while methods have been developed and used widely for some environmental
values (especially market values as well as recreation and amenity), there are still
several gaps to cover. Notable gaps in biodiversity and ecosystem application are
among valuation of loss of species other than headline species; marine ecosystems;
cultural and spiritual values; and the dynamic aspect of all ecosystems and values –
changes over time are at the core of all ecosystems. Also, the future outlook seems
promising particularly for SP studies in developing countries, where with the lower
costs in administering these studies using face-to-face interviews. In summary, it is
likely that governments or multi-lateral organizations will continue to carry out more
market and non-market approaches, to evaluate welfare impacts related to the
conservation of biodiversity and the provision of ecosystem goods and services. This
signals, in turn, a cultural change in the field since we are no longer working within
the academic and research grounds, we are now providing crucial information to

19
support the definition of policy programmes in the environmental sector, and
therefore play a significant role along with all the policy practitioners.

NOTES
1
This incident was followed up by the media as well as US Federal government and researchers. The
information was found at the US Environmental Protection Agency (EPA) website.
2
For further reading of these objectives see Nunes et al. 2004
3
Carson et al. (2001) attributed the differences between WTP and WTA to property rights, whereas
Hanemann (1991) argued that the gap between WTP and WTA estimates for public goods is
determined by income and substitution effects.
4
http://www.aere.org/resources/parsons.pdf, accessed November 22, 2007.
5
See Mitchell and Carson 1989 for more discussion
6
www.evri.ec.gc.ca/EVRI, accessed November 23 2007.
7
Nijkamp et al. (2008) also refer to other methods of making a transfer such as rough set analysis,
fuzzy set analysis and content analysis. Since there is no assessment of their application to biodiversity
and ecosystems one cannot comment on how useful they might be.
8
Background Paper for the Working Group, 1st Meeting on the Review of the Economics of
Biodiversity Loss, European Commission, Brussels, 21st November 2007.
9
Taking the Nature 2000 sites in Europe and dividing them into the 27 habitats we have over 75,000
ecosystems whose services need to be valued.

20
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Table 3: Submissions on the market value of biodiversity and biological services
Submission By Service Region Focus

S.M. Gautier Forest ecosystems Canada Mountain Beetle

Commercial harvest losses US/Canada Pest/Invasive species
Sanderson & Commercial use of wild plants England Valuation in terms of
Prendergast livelihoods supported.
Kälberer Beech Trees (*) Germany Measures replacement cost
Worm et al. Marine ecosystem (*) Global Measures restoration value
Conservation Int. Bird Keeping Indonesia Biodiversity losses traded
William Marthy against economic benefits.
RSPB UK Employment, tourism, health, UK Quantifies socio-economic
economy-wide benefits
Lilian Spijkerman Forest land services Brazil Opportunity cost of
agricultural development
Williams et al. All ecosystem services Scotland Based on Costanza’s et al.
BirdLife/RSPB Values of ‘natural services’ Global Methodology.
Willis et al Forest services GB Carbon and health benefits
LIFE Priolo Value of the Priolo (Azorean Azores Values in terms of tourism
Project Bullfinch) and associated benefits.
CLIBIO Climate related losses in forest Europe Ecosystem function loss
services valued using market data
Maryanne Grieg- Hydrological functions of Various Losses due to soil erosion
Gran (IIED) ecosystems
Hoppichler et al. Alpine ecosystem services (**) Austria Tourism, replacement costs
Kälberer Value of nature overall Netherlands Tourism, water
management, nature itself
Bernstein Forest values as a carbon store Tropical Relative to opportunity cost
Brotherton Blanket peat as a carbon store England Other services also noted
English Nature Salt marshes England Flood protection
Hedgerows Fruits harvested
Reed beds for thatch reed
Brotherton Nutrient sinks in the Danube Various Based on benefit transfer
floodplains
Forest services UK Health benefits of air
Graham
pollution absorbed
Woodward & Wetlands UK Flood defence functions
Wui
Willis Forest services UK Replacement and mitigation
costs of water supply
Farber Coastal wetlands US Values loss in terms of
damages from storms
Ten Kate and Pharmaceutical services Global Net value of genetic
Laird material
Webber et al Geodiversity UK Tourism value
Van den Hove and Deep-sea life Global Total benefits of food
Moreau production, oil and gas and
nutrient recycling
Costanza et al. 17 ecosystem services across 16 Global Total values assuming all is
Biomes lost.
Daan Wensing Values of landscapes through Netherlands Ooijpolder nature area
auctions landscapes were ‘sold’
(*) Indicates valuations are in terms of physical replacement units or changes in productivity.
(**) Also includes some non-market valuations

25
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

M. Grieg-Gran Various aspects of biodiversity Worldwide Case1: carbon storage benefits

values at local and global scales of conserving forests in the
Cardamom Mountains in
Cambodia.
Case 2: costs of hydropower
developments due to increases
in sedimentation in Costa
Rica. Valuation methods are
not specified
Total economic value of Italy Valuation of biodiversity in
biodiversity Cansiglio forest and St.
Erasmo area in terms of
A.L. Notte
biodiversity zoning and
spatial stratification.
SP Method
T. Cerulus Forest valuation Belgium Three categories of values
(study author: considered: the recreational
Moons and value, the non-use value and
others) the indirect use value.
RP, SP and Value Transfer
methods are used.
T. Cerulus Valuation of the recreational, Belgium The study includes a cost-
(Bogaert et al) hatching and regulating services benefit analysis, a cost-
of nature and landscape as a effectiveness analysis and a
result of a nature restoration financial analysis. Valuation
project methods like contingent
hierarchy and benefit transfer
are used.
T. Cerulus Valuation of Flemish public Belgium Recreational and aesthetic
(Liekens et al.) parks value of the parks
RP and SP
D. Azqueta Ecosystem services such as: Spain VANE project designs ad hoc
biomass production, water methodologies and guidelines
provision, recreational services, for the spatial representation
residential amenity, prevention of of economic values. Analysis
soil erosion, waste treatment, regarding aggregation and
carbon fixation, biological commensurability of results,
control of production, natural treatment of inter-temporal
risk regulation, conservation of valuations and loss of
biodiversity ecosystem services as a result
of land-use changes
F. Watzold Species protection Germany Cost-effective and
ecologically effective
compensation payments for
species protection.
L. Spijkerman Ecosystem services of protected Worldwide Valuing ecosystem goods and
natural areas services provided by protected
areas at various scales.
L. Spijkerman Atlantic forest land, biodiversity Brazil Analysis of the opportunity
(Study author: ‘hotspot areas’ costs for maintaining forest
Chomitz et al.) cover against pressure of
agriculture conversion.
L. Spijkerman Ecosystem functions and Indonesia Focus on the link between the
(Study author: services conservation of biodiversity
Pattanayak and and the livelihoods of rural
Wenland) people living close-by the
protected areas.

26
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

Christie et al Changes in biodiversity in the UK UK Recommending the use of

countryside contingent valuation method
for the valuation of
biodiversity programmes
and the choice experiment
method for biodiversity
attributes. Benefit transfer
method is not advocated.
RSPB Ecosystem services provided by UK Reversing wildlife declines
natural environment, including: and restoring degraded
life-support services, economic landscapes/ ecosystems will
activity support, health and quality deliver significant benefits
of human life, etc. for society and the economy.
Defra Ecosystem services UK Development of an
introductory guide to
valuing ecosystem services
with an emphasis on the
value of changes in the
services provided by the
natural environment.
Eftec Ecosystem services England and Development of guidance to
Wales value habitats within the
context of flood and coastal
erosion risk management
projects and strategies,
involving a full scale
benefits transfer process.
Ecosystem Goods and Services Worldwide A literature review of the
economic, social and
ecological value of
ecosystem services in the
context of global change and
ecosystem degradation. Two
case studies in Indonesia and
Uganda.
Williams et al. Scotland’s ecosystem services and Scotland Costanza methodology
natural capital
Murray and Commercialized wild living UK The wild living resources
Simcox resources in the UK include: the commercial fish
species, the game animals,
the marine mammals and
birds, and hardwoods.
Baumgärtner Biodiversity Worldwide Insurance value of
biodiversity again the
uncertain provision of
ecosystem services.
Natural resource modelling.
Quaas and Biodiversity Worldwide Conceptual ecological-
Baumgärtner economic model on
biodiversity and insurance.
Examples of coffee
plantation and rainforest.

27
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

Baumgärtner and Agro-biodiversity Worldwide External benefits of agro-

Quaas ecosystem and agro-
biodiversity by employing a
conceptual ecological-
economic model.

RSPB Welfare benefits enhancement due Worldwide Nature conservation can help
to nature conservation to enhance human health,
contribute to economic
development, etc.
RSPB Wildlife protection related various Worldwide Nature conservation
welfare benefits improves the quality of
people’s life in terms of
sustaining and enhancing
human health, offering
education opportunities and
contributing to sustainable
communities and economic
activities.
RSPB Biodiversity UK Review the social benefits
provided by biodiversity.
BirdLife Biodiversity EU Presenting 26 case studies of
International the contribution of wildlife to
wellbeing in EU, covering
the following countries:
Spain, UK, England, Wales,
Poland, Romania, Austria,
Portugal, Scotland, France,
Germany, Mediterranean,
Turkey, Denmark, Belgium,
Slovakia and Czech Rep.
BirdLife Biodiversity conservation Worldwide 9 case studies regarding the
International role of nature conservation in
improving livelihoods and
fighting poverty in South
Africa, Kenya, Uganda,
Brazil, Burkina Faso,
Ecuador and Peru, Jordan,
Indonesia, and Cambodia.
National Trust Economic impact of the natural Wales Contribution of the Welsh
environment in Wales environment to the economic
growth and quality of life in
Wales.
GHK and GFA Economic impacts of England’s England The study identifies the
RACE natural environment activities responsible for
building and maintaining the
stock of natural capital and
activities that benefit from
the quality of the natural
environment.

28
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

GHK and S. Marine environment in the UK UK Investigating the potential

Wilson benefits for economic
activities in the UK of a
system of marine spatial
planning.
Rayment & Dickie Impacts of nature conservation on UK 12 case studies regarding
and RSPB local economies in the UK Nature conservation benefits
to the rural economies.
Shiel, Rayment Impact of RSPB nature reserves on UK Covering tourism and direct
and Burton local economies in the UK employment.
Dickie Economic impact of spectacular UK Economic sector: wildlife
bird species in the UK tourism. Involves the
following bird species: white-
tailed eagles, ospreys, red
kites, bee-eaters, choughs,
peregrines, capercaillies,
Montagu’s harriers, hen
harriers and seabirds.
Sanderson and The commercial uses of wild England Concerning two most
Prendergast plants in England and Scotland and important habitats for
Scotland supporting livelihoods and
activities in the area:
woodlands and hedgerows,
and wetlands.
Hanley et al. Value of biodiversity in UK forests UK A review of studies on
valuing biodiversity across
all types of woodland in the
UK. SP methods are used to
estimate the WTP for
various aspects of
biodiversity value.
Willis et al. The social and environmental GB Empirical estimates of
benefits of forestry in Great marginal benefits of various
Britain. social and environmental
benefits and total value
across forests and
woodlands in Great Britain.
Beaumont Services provided by marine UK The report provides
biodiversity estimates of the annual
economic value of a range
of goods and services in the
UK, including provision of
food and raw materials,
recreation, nutrient cycling,
gas and climate regulation,
disturbance prevention,
cognitive values and non-
use values. It includes two
case studies: the North Sea
and Skomer Island.

29
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

Van Beukering et Valuing the environment in small UK overseas The study provides
al. islands territories in guidance on how the value
the of the environment on small
Caribbean islands can be estimated
and incorporated into
planning and development
decisions (EEWOC
project). Economic
valuation studies and
monetary damage estimates
are included.
Waliczky Ecosystem functions Turkey Total economic value
derived from the ecosystem
functions in Tuz Gölü
specially protected area in
Turkey.
LIFE Priolo Economic benefits and impact of a Priolo, Italy RP method is performed,
project conservation project considering a range of
ecosystem services like water
quality, protection against
landslides and floods, carbon
sequestration, leisure and
tourism, educational and
scientific services, in
addition to ecotourism.
Dickie Economic benefits and impact of Priolo, Italy Ecosystem services are
the LIFE Priolo project particularly important in
helping to offset market
costs. Significant services
from the SPA relating to
water resources,
flood/landslide protection,
carbon storage,
conservation, educational,
resilience and scientific
services.
Asociación Guyra Conservation value of forests Paraguay Definition of the High
Paraguay and Conservation Value forests
WWF (HCVs) method in
Paraguay.
MacMillan et al. Wild geese in Scotland Scotland Economic costs and
benefits of wild geese in
Scotland. RP methods is
use to estimate total annual
WTP for alternative goose
management policies.
Carraro et al. Economic benefits of biodiversity EU CLIBIO project aiming at
assessing the economic
impacts of climate change
on biodiversity and human
wellbeing. Its first year’s
report presents data for the
total economic value of
ecosystem goods and
services produced by
European forests.

30
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service
Ruijgrok et al Socio-economic valuation of
nature, water, soil and landscape
Ruijgrok et al Socio-economic valuation of
nature, water, soil and landscape
Witteveen and Various aspects of the natural
Bos environment in the Netherlands
Martin-Lopez et al Specific ecosystem services
provided by biodiversity
Martin-Lopez et al Species conservation
Christie et al Diversity of biodiversity
31
Region Focus
The Providing an overview of
Netherlands physical interventions,
ecosystem functions,
changes in physical
conditions and their socio-
economic effects, as well as
a valuation methodology to
include economic
ecosystem valuation in
SCBA.
The Providing more than 400
Netherlands values designed to calculate
the welfare effects of
changes in biodiversity and
ecosystem functions.
The Studies cover the value of
Netherlands cultural heritage (RP and
SP), the existence value of
natural river and canal
banks (SP), the value of the
effects of acidification
measures on nature (SP),
the benefits of water quality
improvement (SCBA),
various, economic
evaluation of dike
management, and the
application of the Dutch
national guideline for
monetarising ecosystem
values.
Spain Estimating the influence of
individuals’ environmental
behaviour and knowledge
on their WTP for sustaining
specific ecosystem services
provided by biodiversity,
with a case study in the
Donana National and
Natural Park, Spain. (RP)
Spain Estimating the WTP for
biodiversity conservation of
15 selected species in the
Donana National Park (RP).
UK Focusing on biodiversity
conservation and
enhancement on farmland
in English with two case
studies: Cambridgeshire
and Northumberland.
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

Christie et al Valuing particular species Worldwide List of literatures

containing values of
various species in UK,
Scotland, EU, and Finland,
looking at different aspects
of the species, including
their own estimations. (SP)
Hoppichler et al Austrian Alps Austria Valuation studies cover
main issues, including
tourism, the regulating
functions of forest, a
number of national parks,
and the exploration of
Alpine water resources (RP
and SP)
Pearce The economic value of biodiversity Worldwide Demonstrating the
fundamental role of
measuring biodiversity
value in introducing
incentives for resource
conservation.
Kälberer Economic benefits derived from The Concerning a number of
nature Netherlands ecosystem services,
including tourism and
recreation, water
management, real estate
auctions, production and
products, regulating
services and other intrinsic
values of nature.
Bernstein Biological goods and services Worldwide Regulating services
provided by tropical
forests; economic
contribution by world’s
ecosystems; and
agriculture-related services
providing sustainable
livelihoods for people.
English Nature Provisioning services and UK Including the value of salt
regulating services provided by marshes in flood defence,
various English ecosystems tourism benefits from visits
to the country, and
commercial harvesting of
fruits and reedbeds.
Brotherton Blanket peat in the English uplands GB Estimating the important
(Study author: role of blanket peat in
Crowle) agricultural, grouse
management, recreation,
culture, water catchments
and carbon storage.
Brotherton Insurance value of biodiversity Jamaica Increasing biodiversity is
(Study author: important to insure a supply
Fisher et al.) of ecosystem services.

32
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

Brotherton Value of biodiversity enhancement UK (1) Estimating the WTP for

(Study author: in Cambridgeshire and a number of policies that
Christie et al.) Northumberland would avoid or reduce
biodiversity decline.
(SP) (2) Assessing the
value of four attributes of
biodiversity: familiar
species of wildlife, rare
unfamiliar species of
wildlife, species
interactions within a habitat
and ecosystem services.
(SP)
Brotherton Biodiversity benefits of woodlands UK The results provide WTP
(Study author: for four different forest
Grarrod and management standards for
Wills) achieving different levels of
biodiversity. (SP)
Brotherton Mortality and morbidity benefits of GB Valuing in terms of forgone
(Study author: air pollution absorption by net pollution costs or net
Powe and Willis) woodland benefits of having trees.
Brotherton Value of the Danube floodplains as UK Benefits transfer
(Study author: a nutrient sink
Gren)
Brotherton Cost of soil erosion in the UK UK Soil erosion caused by
(Study author: dredging of stream
Clarkson and channels, sediments
Deyes) washing onto roads, etc.
(NS)
Brotherton Cost of flooding UK Estimates the mean WTP to
(Study author: avoid the final losses of
RPA) flooding. (SP)
Brotherton The value of individual wetland UK Concerning wetland
(Study author: services services: flood defence,
Woodward and storm defence and
Wui) recreational functions.
(meta-analysis)
Brotherton Wetland service UK WTP for wetland flood
(Study author: control function (meta-
Brouwer et al.) analysis)
Brotherton Total Benefits of avoiding flood UK Case study of the Cley
(Study author: damage in intertidal habitats and Marshes in Norfolk (SP)
Klein and wetlands
Bateman.)
Brotherton Benefits of avoiding further UK Case study of the Norfolk
(Study author: damage to habitats from coastal Broads (SP)
Bateman et al.) flooding
Brotherton Wind storm protection of costal US Estimating the incremental
(Study author: wetlands effect of wetlands using the
Farber) impact-pathway approach.

33
Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

Brotherton Recreational function of UK The study is based on data

(Study author: woodlands in the UK from the most extensive
Scarpa) valuation study of
woodland recreation,
including 6 woodland sites
across England. (RP +
Market Price)
Brotherton Recreational value of RSPB UK RP
(Study author: reserves
Rayment and
Dickie)
Brotherton Value of the wooded landscape England Different geographical
(Study author: settings are considered (SP)
Garrod)
Brotherton Value of a waterside location on UK Two locations are studied:
(Study author: housing prices Greater London and the
Garrod and Willis) Midlands (RP).
Webber et al. Value of knowledge about UK Four geological locations
geodiversity are studied: the whole site
at Wren’s Nest NNR, the
Seven Sisters cavern within
the NNR, the Jurassic Coast
WHS, and the Isle of Wight
(NS, but likely RP).
Danby Recreational values from hunting UK Shooting benefits and cost
of biodiversity management
and conservation.
Van den Hove and Deep-sea habitats and ecosystems Worldwide Concerning 13 deep-sea
Moreau habitats and ecosystems
and 9 related goods and
services, e.g. food
production, deep-sea oil
and gas wells, nutrient
cycling from the oceans,
etc.
Costanza et al. 17 ecosystem services across 16 worldwide Provide an estimate of the
biomes current global economic
value of ecosystem
services.
Biodiversity related primary North Estimating the impact of
production America increase in biodiversity on
the value of ecosystem
services in warmer climates
Sutton and Ecosystem services Worldwide Concerning global spatial
Costanza distribution of marketed
and non-marketed
economic value.
Balmford et al. Valuing the conservation of Worldwide Estimation of the rates of
ecosystems and natural capital change in the extent of six
biomes to estimate the net
loss in value from
ecosystem conversion.

34
 Table 4: Submissions on the non-market value of biodiversity and biological services
Submission By Service Region Focus

Boumand et al. Dynamics and values of ecosystem Worldwide GUMBO model

services
Brotherton Landscape, wildlife, and England Two woodland sites are
(Study author: recreational amenities of studied: Derwent Walk and
Bishop) woodlands Whippendell Wood in
England (SP).

Source: Markandya et al. (2008)

(RP) Revealed preferences methods; (SP) Stated preferences methods

(NS) Valuation method has not been specified

35

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