At the back of the environmental valuation chapter of the environmental econ text I'm using for the first time this semester, Goodstein uncritically writes:
In a very ambitious article in the journal Nature, an interdisciplinary group of scientists attempted to put a value on the sum total of global ecosystem services--ranging from waste treatment, to gas regulation, to nutrient cycling (Costanza et al. 1997). They concluded, stressing the huge uncertainties involved, that ecosystems provide a flow of market and nonmarket use value greater than $33 trillion per per, as against planetary product (world GDP) of $18 trillion.
I've written on how this estimate doesn't make sense since value can't be above income. One hangup with this criticism is the nature of the question. If the world exploded then, of course, we'd be missing out on more than world GDP. These aren't the questions where we need economic values.
The primary purpose of environmental valuation methods is to provide a benefit measure to compare against costs for benefit-cost analysis of environmental policy. The types of questions typically considered by benefit-cost analyses are marginal decisions (even climate change). In order words, what are the benefits and costs of an incremental improvement in environmental quality? The "what is the value of god?"-type questions don't make sense, at least not to me.
If you are interested in a better written, thought out, etc reply to the Costanza, et al paper (and others), check out "On Measuring Economic Values for Nature" by Bockstael, et al. Here is the abstract. Some excerpts:
Costanza et al. (9) and Pimentel et al. (11) calculate "total values" by scaling up a variety of estimates of values taken from other studies of ecosystem services and functions. The original studies valued small changes in specific and localized components of individual ecosystems, with each study implicitly holding constant other features of the global ecosystem and the economy. It is incorrect to extrapolate the value estimates obtained in any of these studies to a much larger scale, let alone to suppose that the extrapolated estimates could then be added together and applied to the whole planet.
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... at least one aspect of the errors of scaling up values can be easily illustrated. Whatever the private good involved in consumption choices, be it ball point pens or pairs of socks, we can expect that it will be subject to diminishing value as more of the good is purchased (and consumed) within a given (conveniently defined) period of time. In applications, this property implicitly reflects the fact that even though not all pairs of socks are the same, in most cases an individual's willingness to pay for another pair is likely to diminish the more he already has. In this example, the individual has plenty of close substitutes for this potential new purchase. Likewise, an individual's willingness to pay for another pen will be conditioned on how many others he already has. Take away those previously purchased socks or pens, and the willingness to pay for a new one is very different.
Thus, simple multiplication of a physical quantity by "unit value" (derived from a case study that estimated the economic value for a specific resource) is a serious error. Small changes in an ecosystem's services do not adequately characterize, with simple multipliers, the loss of a global ecosystem. Values estimated at one scale cannot be expanded by a convenient physical index of area, such as hectares, to another scale; nor can two separate value estimates, derived under different contexts, simply be added together. When we estimate a compensation measure for one element of an ecosystem, we assume that other aspects of the world that influence human well-being are unchanged. For example, we might compute a compensation measure for the elimination of a specific wetland, holding others constant. In another analysis, a compensation measure for the elimination of a different wetland might have been estimated, holding the first at its initial level. But the two compensation measures cannot be added together to obtain the correct compensation in the event that both wetlands are eliminated.
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Clearly, extrapolating from small-scale studies cannot help us to estimate the economic value for the world's ecosystems, but is there any reasonable answer to this question? We know that Costanza et al.'s estimate of an annual economic value of 33 trillion U.S. dollars is a logically inconsistent measure of what individuals would be willing to pay to avoid the loss, if only because this estimate exceeds their total ability to pay. Simply put, if, as Costanza et al. (9) estimate, the world's GNP is 18 trillion dollars, the world's population does not have 33 trillion dollars to spend annually.
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Suppose instead that one asks what compensation the people of the world would require in order to voluntarily give up the world's ecosystems. This willingness-to-accept form of the economic valuation question uses the alternative baseline and highlights the need to define clearly the alternative state that applies when the compensation is paid. This is required to measure the compensation necessary to equate each individual's well-being, given the current level of the world's ecosystems, with that in an alternative state. But what is this alternative state: a different, newly emerging set of ecosystems or a complete void?
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If the alternative state is "nothingness", then the answer to the willingness to accept question is trivial. There is no finite compensation that individuals would accept to agree to the loss of the world's ecosystems, and they would pay everything they had to avoid it. To an economist, this is the definition of an essential good, a good for which there is no finite compensation for its complete elimination. In this sense, ecosystems are essential.
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This paper is not intended as a judgment on the appropriate definition of value. It is about furthering good science. Without cooperation, ecologists and economists cannot serve the interests of society. Moreover, cooperation is impossible without a better appreciation and respect for each others' discipline.
It seems that there are two sorts of ecological economists. The first sort is the environmental economist who grew frustrated with some of the constraints of neoclassical economics but did not reject economics. I think of these types as "economic ecological economists." The work they do is environmental economics with greater integration of ecology and maybe a bit more fire and brimstone. These can all be good things.
The second sort is the ecologist who grew frustrated with economics and rejects neoclassical economics. In fact, this type is happy to stand up at a conference and tell everyone what is wrong with economics and economists. I think of these types as "ecological ecological economists." The work they do is ecology with some economics (and a lot of fire and brimstone) thrown in, and a lot of times the economics isn't always exactly right.
For me, the bottom line is: beware environmental values developed by the ecological ecological economist.
As a reader, recognize another bottom line: economists don't like ecologists invading their turf (and vice versa). I'm awake enough to realize that I'm probably guilty of that, sure.
