This article shows the reasons why it is appropriate to value natural spaces from an economic point of view through a brief review of the benefits and costs derived from the protection of natural spaces; and finally, the most used environmental economic valuation methods or techniques are presented for the valuation of environmental goods and services within the world market, in the search for a sustainability of the stock of renewable and non-renewable natural resources.
Introduction
Today, the view that markets are the most effective and efficient institutions to allocate scarce resources is quite generalized, however, we know that in the presence of externalities, markets do not produce socially efficient allocations (examples: pollution, congestion, etc.).
For society, the environmental challenge consists in finding the optimal levels of pollution, which arise from comparing the benefits that society derives from activities that generate pollution with the social costs that pollution generates.
When reading some professors of Economic Theory such as Diego Azqueta, it is possible to get closer to understanding why, although the economic valuation of the natural environment is not the ultimate answer to the processes of degradation and over-exploitation of nature, it is a useful and complementary tool in the formulation of policies aimed at sustainable development.
Under the general guidelines of the globalization process of the economy, it seems that sustainable development reflects an ideological utopia of ecologists and environmentalists; being only possible with the radical change of world economic models.
On the other hand, such a situation does not seem very likely under the "explicit" control of the World Bank and the International Monetary Fund (supported by the globalization trend of the neoliberal model and the economic powers around the planet).
Taking this situation into account, the inclusion of environmental goods and services in the world market is not entirely wrong, in the search for a sustainable stock of renewable and non-renewable natural resources.
The economic valuation of natural resources is important in the search for sustainable development, in economic terms the user of natural resources will tend not to treat it as a free good; This is due to the fact that their objective will be to maintain the flow of benefits from the goods and services provided by them.
In other words, the rational user of these resources will tend to prevent the unnecessary depreciation of the raw material heritage and internalized in the business and national accounting (Tietemberg, 1988).
This article aims to raise the need for the economic valuation of natural resources through different market approaches in the search for the establishment of sustainable development.
Development
The degradation of the environment and natural resources, also known under the name of environmental goods and services, can be caused by excessive economic development or insufficient economic development.
Population growth, the extension of human settlements and industrialization cause increasing contamination in the most important physical-natural factors for the survival of living species.
These problems are the result of inadequate development, and part of their solution lies in well-planned economic growth.
Economic growth itself often causes degradation of the environment and natural resources.
The issue is not choosing between development and the environment, but rather proposing to incorporate cost-efficiency measures to restore, sustain and protect natural systems.
Sustainable development has appeared as an alternative for several decades and, like other models, arises from the enormous environmental crises caused by a purely economic rationality and the progressive loss of confidence in the viability of the economic growth and modernization model, such as only strategy.
The evolution of these paradigms reflects changes in environmental perception from an initial concern about the externalities of economic growth, to an interest in issues of cultural and natural diversity and integrity, sustainability and intergenerational rights.
At the end of the 1960s, the approach to economic growth was revised in the light of critics who argued that even when many countries achieved substantial economic growth, it did not stop Third World poverty, nor did it reverse the processes of degradation. natural and environmental pollution of the First World.
Probably the most popular definition has come from the hand of the Brundtland Report, this document assumes that sustainable development must meet the needs of present generations without compromising the right of future generations to meet their own needs.
But it is also known that sustainable development demands diversified strategies that improve the specific social, political, economic and environmental reality of each place.
The definition and interpretation of this concept helps to clarify that natural resources are the inputs of any economic activity developed by man and it is impossible to stop using them because it would imply for humanity to stop producing, feeding and therefore dying.
Natural resources are priceless, as there is no market where they can be exchanged.
However, this does not mean that they are worthless. Therefore, it is necessary to have some method that allows us to estimate said value or have an indicator of its importance in the welfare of society, which allows it to be compared with other components of the same, for which it will be feasible to use money as a common denominator.
The economic valuation of the environment yields information on the monetary value that the members of a certain group give to the different environmental alternatives with which they are confronted, defining this as a set of techniques and methods that allow measuring the expectations of benefits and costs derived from some actions such as: use of an environmental asset, carrying out an environmental improvement, generating environmental damage, among others.
Likewise, Kriström (1995) points out that the main reason why goods that lack a market are valued is the same reason why private goods are valued, that is, they will probably be used more efficiently if said goods they show a price.
In recent decades, environmental valuation methodologies have had a wide development in measuring those aspects that were previously classified as intangibles and that can now be measured in monetary terms, however the difference between goods, services and environmental impacts can involve the use of different methodologies for the valuation of each one.
The difference between the previous terms is given by the fact that the first are tangible resources used by humans as inputs in production or final consumption and that are spent and transformed in the process, the second have as characteristics that are not spent and They are not transformed in the process, but indirectly generate utility to the consumer, and the latter, also known as externalities, are the result or effect of the economic activity of one person on the well-being of another.
A characteristic feature of many environmental goods is the multitude of benefits they provide. Some of them are related to the use, direct or indirect, of the environmental good, while others, whose quantification is more complicated, have nothing to do with its use.
Following Boyle and Bishop (1985), four different types of value can be distinguished. In the first place, those whose use implies consumption, such as fishing or hunting.
Secondly, those whose use does not imply consumption, such as the satisfaction obtained by observing a sunset on the shores of a lake.
Third, those that provide services through indirect use.
Reorganizing the above, a first distinction could be made between use values and non-use values.
Use value is the most basic of all.
For example, a person visits a natural park to see the fauna and flora, to walk or play sports, etc. and, therefore, as a user, any alteration in its quality affects its level of well-being.
In relation to non-use values, traditionally identified in the economic literature, we will highlight two: the option value and the existence value.
Regarding the first, Weisbrod (1964) argued that an individual who was not sure about an eventual visit to a natural park, could be willing to pay a certain sum of money for a right of option to visit it in the future.
Therefore, for this individual, the disappearance of said natural park supposes an evident loss of well-being, while its conservation increases it.
For his part, Krutilla (1967) defined option value as the willingness to pay for the opportunity to choose between alternative and competitive uses of an environmental good.
However, to avoid confusion, a distinction should be made between the option value itself and the quasi-option value.
In relation to the first, it is the one that derives from the individual uncertainty that the person experiences with respect to whether or not said good will be available in the future.
The basic idea is that, given this supply uncertainty, and given the fact that most people dislike risk and uncertainty, an individual would be willing to pay more than the expected consumer surplus (ECE) to ensure that you can make use of the environmental asset later.
The total willingness to pay is called the option price (OP) and comprises the expected consumer surplus plus the option value (VO), where the latter is the additional payment made to ensure the future availability of the environmental good (Pearce and Turner, 1995):
Finally, the existence value is a value that is assigned to an environmental good and that is not related to any current or future use of the good.
In fact, there is a group of people who are affected in their well-being with respect to what happens to a certain environmental good even when they are not users of it, they simply positively value its mere existence.
At first glance, this may seem like a very strange category for an economic value, since the value would surely be derived from use.
The inclusion of externalities or values for which there is no established market within a broader framework compatible with traditional market values has been a constant in environmental economics.
The commonly accepted framework is the theory of total economic value developed by Pearce (1993) and Pearce and Turner (1990).
This theory has the goodness of adapting the economy to the quantification of natural and environmental resources.
The theory of externalities has been widely studied since Coase (1960).
Its quantification, generally based on experimental results obtained by statistical methods, was first applied to the environment outside of Spain (Constanza 1991, Hartwick 1977, Tietemberg 1988, Daly 1989, Johansson 1990, Hausman 1993, Pearce and Turner 1990, Pearce 1993, Cummings and Harrison 1995, to cite some relevant examples among many others).
In the 1990s, numerous applications were developed starting from Naredo (1993). It is worth mentioning works by Azqueta (1994), Azqueta and Pérez and Pérez (1996), Campos and Riera (1996), Riera (1994 and 1995) and Riera et al., (1994).
Table 1 shows an example of this theory adapted to the forest.
Source: Campos, 1999. An agroforestry economic accounting system. In: M. Merlo, H. Jöbstl and L. Venzi (ed.), Institutional aspects of managerial economics and accounting in forestry. Viterbo, IUFRO.
The existence of infinite real situations in which environmental economic valuation is necessary brings with it that economics professionals have developed a series of methods and techniques to address these problems.
Environmental Economics can contribute to this objective:
a) Helping to understand the economic causes of environmental problems in a market economy.
b) Collaborating in the search and design of policy instruments to be used to deal with pollution problems (short and long-term incentives, economic implications, cost-effectiveness), c) Analyzing the economic implications of environmental policy initiatives.
It is of interest to note that within the possibilities offered by environmental economics to value the environment, economic analysis presents various valuation methods and techniques.
They are generally classified under different forms, according to the value concept adopted, the solution algorithms used, through market approaches and the degree of availability of the required information (Agüero, 1995).
In accordance with the above and following the classification of Dixon (1988) and Revered (1990), a summary of the different valuation methods is presented, since they include the vast majority of valuation methods, grouping them according to the origin of the information in:
- Direct valuation methods Indirect valuation methods Contingent valuation methods Other methods.
Direct valuation methods are based on available market prices or on observation of changes in productivity.
They are applied when a change in the environmental quality or availability of a resource affects production or productivity. (Pearce and Markandya, 1989).
Changes in productivity, profit losses and opportunity cost are generally included in this category, depending on the information used for the valuation, obtained from conventional markets or from actually observed behaviors.
The change in productivity is a direct extension of the cost-benefit analysis, used when development projects affect production or productivity (positively or negatively), the changes can be valued using normal or corrected economic prices, when there are distortions in the market. This method is based on neoclassical welfare economics.
The costs and benefits of an action are accounted for whether they occur within the project's border or context or outside of it.
Although similar to the technique of assessing changes in productivity, in the profit loss method changes in human productivity resulting from negative effects on health due to pollution or environmental degradation or changes in the availability of natural resources are assessed.
Loss of earnings (wages) and medical expenses, resulting from environmental damage to health, are valued and considered as loss of profit or human capital.
This approach can be useful in industrial or road safety analysis and in projects that affect air quality.
Opportunity costs are based on the idea that the costs of using a resource for purposes that do not have market prices or are not traded can be estimated using the income lost from not using the resource in other uses as a variable..
Such is the case, for example, of preserving an area for a national park rather than using it for agricultural purposes.
The income lost from agricultural activity represents, in this case, the opportunity cost of the park. Thus, instead of directly valuing the benefits of the park, the income lost from preserving the area is estimated.
The opportunity cost is considered as the preservation cost.
Indirect valuation methods make use of market prices indirectly.
These methods are used when various aspects or attributes of natural resources or environmental services do not have prices reflected in an established market.
Among the methods grouped under this criterion we find: hedonic prices, salary differentials and travel cost.
The hedonic pricing method is based on determining the implicit prices of certain characteristics of a property that determine its value.
This is generally attributed to homes where the consideration of various variables (size, location, type of construction, etc.), allows determining the price differential with similar properties in other locations and can constitute a good approximation to the value of the environment or environmental quality.
The wage differential consists of estimating the wage differential required by a worker to accept a job to be performed under environmental conditions other than those in which it is usually carried out.
It is based on the theory of competitive markets in which the demand for labor is equal to the value of the marginal product of labor and the labor supply varies according to the conditions of the area or workplace.
Thus a higher wage will be used to attract labor to more polluted or degraded places.
The cost of travel method is one of the most used to value tourism goods and services or scenic resources.
Through surveys and estimates of the cost of moving from the place of origin to the tourist place (park, beaches, mountains, etc.), the costs incurred by visitors are determined according to distance, means of transport and conditions of use.
Surveys make it possible to identify socioeconomic characteristics of the interviewees, place of origin, days assigned to use the place (including travel time) and income left to earn.
With the information collected, the surplus (benefit) obtained with the costs incurred is determined and this is taken as a representative of the natural value or environmental service.
Contingent valuation methods are used when there is no market information about the preferences of individuals regarding certain natural resources or environmental services.
The survey seeks to know the assessments that individuals make of increases or decreases in quantity or quality of an environmental resource or service, under simulated conditions or hypothetical markets.
There are a wide range of specific contingent techniques based fundamentally on the theory of decisions and games used to estimate the willingness to pay (receive compensation) for an environmental good (damage), such as: bidding games, take it or leave it, games of exchange, choice of least cost and Delphi techniques.
The contingent valuation method is one of the techniques to estimate the value of goods for which there is no market, that is, it tries to simulate a market by applying surveys to potential consumers, asking them the maximum amount of money they would pay for the good if they had to buy it.
From there, the value of the good in question is deduced for the average consumer.
It also allows assessing changes in people's well-being before they occur.
The consumer benefit measures detected by the contingent valuation method are, theoretically and in general, different from those detected by the other methods.
The main reason resides in the fact that in addition to the values that the user perceives when consuming the good, the person can obtain well-being or satisfaction even if they are not a direct user of the good, understood as an option value which is understood within the economic value of an environmental asset, understood as the value that an individual associates with an environmental asset that they are not using, but that they think they can use in the future.
The usefulness of the method ranges from the administration that needs to evaluate the alternatives it proposes, to organizations concerned about the environment, who want to know the social value of natural heritage.
Issues much discussed in the monetary valuation of environmental benefits and costs are relevant in the debate around the monetary valuation of the environment, presenting two areas inherent to economic analysis: cost-benefit analysis (CBA) and the review process of national accounting.
The CBA method has been linked since its inception to the analysis of investment projects, seeking to reveal the preferences of the population regarding the proposed project.
However, the final decision must be based on some value judgment since not all individuals would accept a social cost-benefit analysis as a decision criterion for controversial issues such as certain environmental issues.
It is not simply a matter of adding algebraically, monetary gains and losses in a (correctly executed) exercise of social costs and benefits.
In other words, it is based on criteria for decision-making in a supposedly private and competitive economy.
Conclusions
In order to summarize the most significant aspects to which they arrive, it is considered conclusive to state the following:
The need and importance of the use of economic valuation is evidenced so that it allows the practice of effective and economically efficient policies for a sustainable management of species and ecosystems.
The process of economically valuing the environment occurs through the measurement and quantification of environmental quality because the changes that occur generate changes in the well-being of people.
Some techniques, such as those examined, allow estimating in monetary units the external effect on people of certain policies, actions and projects with environmental impact.
They are more reliable when the assessment is carried out on the users or people most directly affected (use values).
The use of environmental economic valuation methods allows knowing the benefits that society attributes to improving environmental quality and the costs that the different levels of intervention imply in the performance of environmental goods and services.
Bibliography
• Aguilera Klink, Federico y Alcántara, Vicente (Comp). "From Environmental Economics to Ecological Economics". Barcelona: Icaria: Fuheman, DI 1994.
• Azqueta, D. Economic Assessment of Environmental Quality. McGraw Hill Publishing House. Bogota 1994
• Azqueta, D. “Monographs on economy and environment, No. 4. 1994.
Campos, 1999. An agroforestry economic accounting system. In: M. Merlo, H. Jöbstl and L. Venzi (ed.), • Inter-American Center for the Development of Sustainable Ecosystems. Research Center for Development, Faculty of Economic Sciences, National University of Colombia. Bogota 1994.
Clawson, Marion and Jack L. Knetsch (1966) Economics of Outdoor Recreation. Washington, DC: Resources for the Future
Hotelling, Harold (1947) "The Economics of Public Recreation" in The Prewitt Report. Washington, DC: Department of the Interior.
• Martínez Alier, Joan. "The Ecological Economy as Human Ecology". III Foro del Ajusco. College of Mexico. September 1996.
• Moreno Carlos, González María. Pilot Project of Integrated Economic - Environmental Accounting for Colombia. DANE. Bogota 1998.
• Naredo, J, Manuel. "Fundamentals of Ecological Economics". Icaria-Fuheman, Barcelona. 1994
• Naredo, J, M and Valero, A. "Economic Development and Economic deterioration." Madrid. Argentina Foundation. 1999.
• Pearce, D. And Turner. "Economics of Natural and Environmental Resources". Madrid College of Economists
Pere R. Possibilities and limitations of the instruments used in the assessment of externalities. Article for the magazine ICE. 1992.
• Pere R. Contingent Valuation Manual. 1993
Rosen, Sherwin (1974) "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition" Journal of Political Economy vol. 82, pp. 34-55.
• Tietemberg, T. Environmental and natural resource economics. Scott Foresman And Company. Boston. 1988.
Trice, Andrew H. and Samuel E. Wood (1958) "Measurement of Recreation Benefits" Land Economics vol. 32, pp. 195-207.
Download the original file
