The economic value of biodiversity: a scoping paper

Professor Jeff Bennett
Asia Pacific School of Economics and Government
The Australian National University, October 2003

8. Issues

The paucity of studies and their lack of policy significance, at least in the Australian context, requires an analysis of the factors that are impeding the economic valuation of biodiversity. Three major issues predominate: the lack of information to support economic valuation, ethical concerns about valuing environmental impacts in money terms and technical concerns especially regarding the validity of the results from stated preference technique applications.

Before the valuation techniques described in the previous section can be employed, a sound understanding of the biophysical relationships between resource use decisions and the ecological system needs to be established. For instance, to use the production function approach, it is necessary, for instance, to have an understanding of the links between farm management practices, the soil biota and then the productivity of the soil. To apply a stated choice method, the impacts of proposed resource use changes on the ecological system must be understood so that questionnaire respondents can have them explained. In other words, unless the ecological system is understood, the role of economics is very limited. The biophysical understanding is a prerequisite for any economic analysis of biodiversity value.

In many circumstances, the ability of biophysical scientists to predict the ecological outcomes of alternative resource management options is very limited. Often, the knowledge of the ecological system that is available is not of direct relevance to the type of policy issue that faces society. For instance, scientists may have a good understanding of the feeding habits of carp but may not be able to predict the impact of an alternative river management regime on the population of carp and the ecological state of the river. Similarly, the relationship between a particular soil organism and the root growth of wheat may be described but the impact on crop yield of a tillage regime that encourages the organism may not be predictable.

Hence, before economic valuation can achieve a greater role, the capacity of science to deliver policy relevant results needs to be expanded.

The second set of issues surrounding the use of economic valuation in the context of biodiversity involves the ethics of valuing non-marketed environmental impacts in monetary terms. In other words, the question “should it be done?” is raised. Elements in society raise objections to the monetisation of impacts that lie outside the market. The argument is that such values are outside the purview of the market and should not be “reduced” to the status of something that is bought and sold for a price.

This is not the place for an assessment of the morality of monetary valuation. This will always be a matter for individuals to resolve in their own minds. However, one point needs to be made. Decisions regarding the fate of biodiversity will always be made. They are unavoidable. When those decisions are made, whether by individuals or society at large, trade-offs are made either explicitly or implicitly. For instance, if it is decided to log a forest and so reduce the probability of a species surviving, then it has been decided that the value of the timber harvested (and hence the house frames, furniture or paper that are produced from that timber) is greater than the potential loss of biodiversity. Whether we like it or not, the trade off between the monetary value of the timber harvest and the non-monetary value of the biodiversity loss has been made a valuation of the biodiversity loss has been made, albeit implicitly. The issue of monetising biodiversity values is therefore more a question of whether the values are made explicit or are kept implicit in decisions rather than one of ethics.

The third set of issues that may limit the application of economic tools to the biodiversity debate relate to more technical concerns regarding the techniques’ capacities to deliver accurate estimates of biodiversity value. These technical concerns have mostly been directed at the stated preference techniques. Specific issues arise because of the complexity of the biodiversity issue and the capacity of the general public to understand those complexities when asked to respond to a questionnaire on the topic. There are also concerns regarding the possibility of strategic behaviour on the part of stated preference technique respondents. In other words, respondents may deliberately misrepresent their preferences in an attempt to manipulate the outcomes of the decision making process in their favour. They may also bias their responses simply because the questioning is hypothetical. The array of technical issues goes on and a vast array of economic literature has grown from their analysis. The point to make here is that the debate amongst economists on the issue of technical validity has not given comfort to decision makers. Without a clear signal from the profession that these techniques are sound, policy makers have been reluctant to see them implemented or their results given a high profile in the policy making process.

Ironically, whilst many of the concerns regarding technical matters focus on the potential for over stating the value of biodiversity benefits (for instance, the strategic response to a willingness to pay for an increase in biodiversity question is to offer more than one is actually willing to pay) others are concerned that the value estimates achieved are inadequate. This, it is argued, is because the techniques do not allow for the full incorporation of all the aspects of biodiversity protection.