The nature of natural capital and ecosystem income

Abstract

Abstract The natural capital concept is generating broad interest that extends well beyond economists. Economics has a long history of applying capital theory to natural resources. However, measurement of the value of ecosystems has mostly focused on income flows rather than valuing stocks of natural assets. While, the two concepts are interconnected, measuring the value of natural capital is important for improving social benefit-cost analysis and to allow nature to be more fully included in sustainability-focused wealth accounts. Typical bookend assumptions of the social planner optimally managing natural capital versus open access driving its marginal value to zero are insufficient to capture the actual spectrum of imperfect institutions. This chapter develops theory and techniques for measuring natural capital shadow prices or asset values in real world situations.