Valuation of natural resources: a critical examination of economic valuation approaches used in estimating the value of biodiversity.
Abstract
Biological diversity' (biodiversity) is an umbrella term used to describe the number,
variety and variability of living organisms in a given assemblage. Biodiversity may be
described in terms of genes, species and ecosystems, relating to the three fundamental
and hierarchically related levels of biological organisation. It therefore embraces the
whole of 'Life on Earth'. Declines in biodiversity include all those changes, which will
reduce or simplify biological heterogeneity, from individuals or regions.
It is hard to use the term biodiversity for valuation. Diversity valuation requires some
idea of willingness- to-pay (WTP) for the range of species and habitats. In reality, what
economic studies are normally measuring is the economic value of biological resources
rather than biodiversity.
Biological resources are a more anthropocentric term for biota such as forest, wetlands
and marine habitats. They are simply those components of biodiversity which maintain
current or potential human uses. This anthropocentric view of biological resources is
much more convenient for economic analysis compared to alternative value paradigms
such as intrinsic values (values in themselves and, nominally unrelated to human use).
Intrinsic values. are relevant to conservation decisions, but they generally cannot be
measured.
Studies of biological resources may capture diversity values; for example, studies valuing
habitat may capture perceptions of biodiversity (i.e., valuations may be high simply
because the area is known to be rich in diversity) but such effects are difficult to assess.
There are other reasons why it is difficult to put a monetary estimate on biodiversity. The
lack of consensus on the rate of biodiversity loss and biodiversity indicators, and of any
baseline measurements of biodiversity also has important implications for economic
valuation. Fundamental to any monetary measure of value is some index or set of indices
of biodiversity change.
Biodiversity conservation and sustainable development issues are major international
concerns. Recently, conservation of biodiversity has been recognized in the international
community, including policy makers and scientists, as essential for the very survival of
human beings in the planet.
The central problem addressed in this research effort is to refine the valuation
methodologies applicable to biodiversity, and derive recommendations for more accurate
estimates of the biodiversity. This study therefore attempts to critically examine 'at
a range of methodological issues that pertain to economic valuation of biodiversity. At
the moment there is .only anecdotal evidence that biodiversity is valuable on a global
basis. It is by no means clear how much particular countries or communities benefit or
lose under the current regime. Neither is it clear which countries stand to gain or lose if
the current situation is changed.
This study reviews the literature on the economic valuation approaches used in estimating
the value of biodiversity. Methodological issues are noted, as well as difficulties
highlighted by many authors in theory and practice in employing these methods. This
study also looks at issues associated with multiple valuations of biodiversity.
The case studies selected present a summary of practical economic valuation studies
conducted from a range of geographical regions. Efforts more closely resembling Total
Economic Valuation, in which an attempt is made to value all functions of biodiversity,
are also represented.
Most methodology classifications focus on how benefits are measured, and thus
distinguish between' direct' vs. 'indirect' methods. These categories are not related to
direct or indirect use benefits, but relates instead to the way information is collected.
Results of the analysis of the selected case studies have shown that a very wide range of
value estimates can be derived, depending on the technique used and what is being
investigated.
In general, three quite different' classes' of biodiversity value are usually estimated. The
study adopted the following classes of values:
A) Biodiversity production values
B) Biodiversity utility values
C) Biodiversity rent capture values.
A number of lessons can be drawn from the experience derived from valuing and trying
to capture biodiversity. First, the actual value associated with biodiversity may be closely
tied to the type of information that it provides, as opposed to any particular material
good. In some cases this information provides a stock of ideas that can be used to
synthesize key compounds; this occurs largely in the pharmaceutical industry. In other
cases the information itself provides direct genetic information that can be introduced
into other economic species; this occurs largely in the field of plant genetic resources.
The second lesson is that a large array of values can be estimated, depending upon the
type of technique used; it is therefore important to understand the limitations and
applications of any given technique.
Finally, and perhaps most important, proper interpretation of the different values can
provide important policy implications. For example, the simple comparisons listed above
generally demonstrated that techniques based on 'human life' generated the highest
valuations whereas those relying on Biological diversity' (biodiversity) is an umbrella term used to describe the number,
variety and variability ofliving organisms in a given assemblage. Biodiversity may be
described in terms of genes, species and ecosystems, relating to the three fundamental
and hierarchically related levels of biological organisation. It therefore embraces the
whole of 'Life on Earth'. Declines in biodiversity include all those changes, which will
reduce or simplify biological heterogeneity, from individuals or regions.
It is hard to use the term biodiversity for valuation. Diversity valuation requires some
idea of willingness- to-pay (WTP) for the range of species and habitats. In reality, what
economic studies are normally measuring is the economic value of biological resources
rather than biodiversity.
Biological resources are a more anthropocentric term for biota such as forest, wetlands
and marine habitats. They are simply those components of biodiversity which maintain
current or potential human uses. This anthropocentric view of biological resources is
~ .-
much more con~Qi.~nt for economic analysis compared to alternative value paradigms
such as intrinsic values (values in themselves and, nominally unrelated to human use).
Intrinsic values. are relevant to conservation decisions, but they generally cannot be
measured.
Studies of biological resources may capture diversity values; for example, studies valuing
habitat may capture perceptions of biodiversity (i.e., valuations may be high simply
because the area is known to be rich in diversity) but such effects are difficult to assess.
There are other reasons why it is difficult to put a monetary estimate on biodiversity. The
lack of consensus on the rate of biodiversity loss and biodiversity indicators, and of any
baseline measurements of biodiversity also has important implications for economic
valuation. Fundamental to any monetary measure of value is some index or set of indices
of biodiversity change.
Biodiversity conservation and sustainable development issues are major international
concerns. Recently, conservation of biodiversity has been recognised in the international
community, including policy makers and scientists, as essential for the very survival of
human beings in the planet.
The central problem addressed in this research effort is to refine the valuation
methodologies applicable to biodiversity, and derive recommendations for more accurate
estimates of the valuWblo.diversity. This study therefore attempts to critically examine '5..", ,.-
a range of methodological issues that pertain to economic valuation of biodiversity. At
..
the moment there is .only anecdotal evidence that biodiversity is valuable on a global
basis. It is by no means clear how much particular countries or communities benefit or
lose under the current regime. Neither is it clear which countries stand to gain or lose if
the current situation is changed.
ii
This study reviews the literature on the economic valuation approaches used in estimating
the value of biodiversity. Methodological issues are noted, as well as difficulties
highlighted by many authors in theory and practice in employing these methods. This
study also looks at issues associated with multiple valuations of biodiversity.
The case studies selected present a summary of practical economic valuation studies
conducted from a range of geographical regions. Efforts more closely resembling Total
Economic Valuation, in which an attempt is made to value all functions of biodiversity,
are also represented.
Most methodology classifications focus on how benefits are measured, and thus
distinguish between' direct' vs. 'indirect' methods. These categories are not related to
direct or indirect use benefits, but relates instead to the way information is collected.
Results of the analysis of the selected case studies have shown that a very wide range of
value estimates can be derived, depending on the technique used and what is being
investigated.
~ .-
o!. -.- - ~'"'!-:--
"" .,
In general, three quite different' classes' of biodiversity value are usually estimated. The
study adopted the following classes of values:
A) Biodiversity production values
B) Biodiversity utility values
II
C) Biodiversity rent capture values.
A number of lessons can be drawn from the experience derived from valuing and trying
to capture biodiversity. First, the actual value associated with biodiversity may be closely
tied to the type of information that it provides, as opposed to any particular material
good. In some cases this information provides a stock of ideas that can be used to
synthesize key compounds; this occurs largely in the pharmaceutical industry. In other
cases the information itself provides direct genetic information that can be introduced
into other economic species; this occurs largely in the field of plant genetic resources.
The second~ lesson is that a large array of values can be estimated, depending upon the
type of technique used; it is therefore important to understand the limitations and
applications of any given technique.
Finally, and perhaps most important, proper interpretation of the different values can
provide important policy implications. For example, the simple comparisons listed above
generally demonstrated that techniques based on 'human life' generated the highest
valuations whereas: l-u.,se- · relying on 'capturable benefits through royalties or patents'
generated the lowest values. The low value of transfers is a chronic problem with ..
inventions and information. benefits through royalties or patents'
generated the lowest values. The low value of transfers is a chronic problem with those
inventions and information.
Citation
Master of Arts in Valuation and Property ManagementPublisher
University of Nairobi Department of Land Development