The BP spill and nonuse values

Michael Greenstone:

The most difficult type of damages to measure is those that are not easily connected to an economic activity. And for many Americans — particularly the majority who live outside of the gulf region — these are the very damages that have created a public outcry. One classic example is the value that people place on knowing that some types of wildlife are healthy and thriving, which economists refer to as non-use values.

Consider the pictures of the brown pelicans coated in oil that many people, including myself, find heartbreaking. How much would they be willing to pay for this not to have happened to the pelicans or other wildlife (even if they have no intention of going to the gulf)?

There is no market-based way to measure this loss, so some economists have turned to surveys that directly ask people how much they would hypothetically be willing to pay.

The appeal of these surveys is that they provide a value to total up damages, but there are many skeptics who argue that such responses are not reliable. This is an active area of research in economics and there has been important progress in recent years.

The damages from the Deepwater Horizon spill will prove to be substantial, of that there is little doubt. While methods do exist for calculating some of the direct economic costs to local economies, the potentially bigger question remains as to how to best measure the broader non-use value of the environment. For the time being, we will have to muddle along with the imperfect techniques that economics has developed.

via roomfordebate.blogs.nytimes.com