Commensuration and theories of value in ecological economics

Abstract

Without a theory of value (price) in ecological economics, the valuation of ecosystem and economic resources cannot be rigorously defended. At the crux of the matter is the `valuation' or `mixed units' problem of commensurating biophysical inputs/outputs which are different. This paper critically reviews candidate theories of value which have emerged in the ecological economics literature for dealing with this problem. First of all, the Neo-Ricardian approach, using Sraffa-type systems is discussed. In particular, Judson's assertion that the Sraffa system is suitable for ecological economics is questioned, as it is based on `circular flow', generation of a `surplus' and `exchange values'. None of these ideas are consistent with a biophysical characterisation of an economic system, which is paramount in ecological economics. A more fruitful avenue for establishing a biophysical theory of value based on ecological and thermodynamic principles, is to extend Patterson's quality equivalent methodology (QEM) to explicitly include mass flows in addition to energy. At this point a model close to Costanza and Hannon's biosphere model of price determination emerges. The extended QEM model however, has a number of important advantages over the Costanza–Hannon model because it has a more generalised formulation and is not reliant on necessarily using solar energy as the numeraire. The paper concludes with a discussion of some outstanding issues that need to be resolved before a biophysical theory of value can be properly established in ecological economics.