Valuing the Environment

Abstract

According to environmental economics, the economic value of natural resources is determined by what people are willing to pay for them. This differs from an ecocentric worldview in which the environment has value derived from inherent rights. Still, total economic value comprises both use values, including direct-use benefits and ecosystem services, and nonuse values, which are psychological benefits. Economists have devised various techniques to estimate the total economic value of environmental resources. Some values can be inferred from markets, either directly or indirectly. Revealed preference methods include travel cost models, hedonic pricing, and the defensive expenditures approach. These techniques can be used to estimate the benefits of outdoor recreation, drinking water quality, air quality, and a few other environmental services. Nonuse values, often an important component of the value of natural resources, can only be measured using stated preference methods such as contingent valuation. CV uses surveys to ask respondents about their willingness to pay for environmental improvements. Contingent valuation is controversial because of potential biases that cast doubt on the validity of the method. Contingent ranking provides an alternative that still uses surveys to elicit policy preferences but avoids many of the potential biases of CV studies.