Ecosystem Valuation under Uncertainty and Irreversibility

Abstract

The valuation of ecosystems has attracted much interest from economists (for example, Freeman 1993; Bingham and others 1995; Norton 1995; Suter 1995; Faber and others 1996; Acutt and Mason 1998). Clearly, ecosystems are valuable: they directly or indirectly support human life. Yet, while human activities historically have led to economic development, they also have created environmental problems and threatened the health of ecosystems. These negative impacts include species extinction, exhaustible resource depletion, global warming, ozone layer destruction, acid rain, water and air pollution, soil erosion, and deforestation. Ecosystem functions are quite complex and often poorly understood. Although progress has been made in understanding ecosystem dynamics, great uncertainties concerning their long-term evolution remain. This uncertainty makes it difficult to decide the best way to manage ecosystems. Lack of consensus on environmental decisions among citizens (for example, conservationists vs business firms) and scientific disciplines (for example, ecologists vs economists), as well as experts, is common. Imprecise knowledge about ecosystems contributes to this situation because different individuals often have different information about the state of the environment. Without common information, it is difficult for different parties to agree on particular environmental decisions. This disagreement creates significant challenges for environmental management. In this article, I focus on the effects of uncertainty and irreversibility, and their role in natural resource valuation. I examine the interactions between uncertainty and ecosystem dynamics and discuss their implications for environmental management.