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Economic Valuation of Biodiversity – Scope and Limitations

The Scope and Limitations of the Economic Valuation of Biodiversity

Vikas Yadav1, Parul Yadav 2 and B P Singh 3

1
Department of Zoology, S V College, Aligarh, 2Department of Zoology, D S College,
Aligarh and 3Department of Geography, S V College, Aligarh 202001.
Communicated 28 October 2010
Abstract

Conservation ecologists have long stressed the need of understanding the value of natural assets
from an anthropocentric point. Economics and other analysis techniques provide a tool to
evaluate and assess the value of natural assets and express them in monetary terms that are easy
to understand by policy makers, public and businesses. Economic analysis essentially assesses
the use and non-use values of a natural asset. Economic analysis of natural resources is thus, a
utilitarian approach that does not consider their cultural, religious, ecological, genetic, scientific,
educational, recreational and aesthetic significance. Despite its limitations, economic analysis
has an important role in conservation. The correct evaluation of these values is essential to
framing the right policies to address the causes underlying the loss of biodiversity and to ensure
an equitable distribution of resources.

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Introduction Components of Total Economic Value
(TEV)
A proper economic analysis needs to
identify the costs and benefits of natural
Total Value of a resource incorporates the
resources. Conservation strategies now try to
sum of its Instrumental (use and non use
assess the value of a resource by the direct
values including existence values) and Non-
monetization approach. This approach is
instrumental values. Non-instrumental
based on market-based measures of
values may be intrinsic or inherent values
willingness to pay or to accept the given
(Ehrlich and Ehrlich, 1992 call them ethical
value as the correct measure of its worth.
values). Economic analysis attempts to
This approach has both merits and
evaluate the Total Economic Value (TEV)
limitations. In this paper, we shall discuss
of a resource and not its Total Value (TV).
the scope and limitations associated with the
economic valuation of natural resources.
TEV = Direct-use value +
Address correspondence to Vikas Yadav, Department of
Indirect-use value + Option
Zoology, S V College Aligarh, India, 202001. value + Existence value
Limitations of the TEV approach
When calculating these values it is important
to remember that non-use and use values are
interdependent.
Therefore, care must be taken to avoid
double counting. Moreover, some ecologists
believe that TEV does not capture primary
values (Turner, 1992). TEV is also likely to
underestimate the true economic value, as it
does not estimate the life support function
performed by natural ecosystems. Under
certain circumstances, TEV is unable to
capture the intrinsic value of a resource.

Figure 1: Total Value of a Natural Resource

Use Values Non- Use Values
1- Direct Value 2- Indirect Value 3 - Option Value 4 - Existence Value

Timber and non Modifying micro Future resource Inherent value, gifts,
timber products like climate utilization value of inheritance etc.
Traditional Medicine direct and Indirect
values
Tourism Reducing air pollution
Genetic resource Nutrient recycling
Education Carbon capture and
storage
Habitat of indigenous
people

Table 2 - Total Economic Value of a Forest (Based on Pearce 1991 and Leslie 1987)
Methods of Economic Valuation
Natural Resources
Four broad categories of valuation methods
are used for evaluating the economic
potential of a natural resource. These are
a) Conventional market approaches -
When the output from a resource is
measurable, conventional market approaches
are used. Two approaches, namely the dose
response approach and the replacement cost
technique are typically used.
b) Household production functions-
Evaluates expenditures on commodities that
are substitutes or complements of a natural
resource. e.g., using the travel cost method
for estimating recreational value (tourism
value) or the cost of noise insulation as a
proxy for the noise reduction function of a
forest.
c) Hedonic price methods – Property
markets are used as a proxy for determining
the price of characteristics like clean air,
noise levels, etc. Similarly, wage markets
are used to value the mortality and
morbidity risk. This approach has a limited
value in the context of developing countries
where the labour market may not adequately
reflect the risk associated with hazardous
jobs.
of d) Experimental methods – This is a
hypothetical technique based on
questionnaires and in-depth interviews with
respondents. Contingent valuation and stated
preference method are the two popular
hypothetical valuation methods. The beauty
of this approach is that values can be
assigned to almost any environmental
attribute. On the flip side, this approach is
marred by charges of non objectivity,
strategic bias, and the divergence between
studies evaluating the willingness to pay
(WTP) and willingness to accept (WTA)
compensation. Economic appraisal
techniques can be extended to evaluate the
economic benefits of Bioremediation
(Anderson 1993; Salt et al, 1995; Yadav and
Yadav, 2010 a) or to assess the value of the
declining population of endangered animals
(Yadav and Yadav 2010 b).
Economic appraisal techniques are far from
perfect. For example, government subsidies
for agriculture for example can increase the
opportunity cost of conservation of forests.
Another example is the debate surrounding
the economic valuation of the loss of vulture
population in India.
Notwithstanding the limitations of the
economic analysis of biological resources,
the economic valuation approach is set to
play a crucial role in future conservation
strategies. The recently released TEEB
report is a step in the right direction.
References
1. Anderson et al., Bioremediation in the
rhizosphere. Environ. Sci Tech., 1993,
27 (13), pp 2630–2636.
2. Ehrlich, P. and Ehrlich, A. (1992) The
Value of Biodiversity. Ambio 21.3: 219-
226.
3. Leslie, A.J. (1987) A second look at the
economics of natural management
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Unasylva 155.39: 46-57.
4. Markandya et.al., Counting the cost of
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vultures in India. Ecological Economics,
Volume 67, Issue 2, 15 September 2008,
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5. Pearce, D.W. (1991) An Economic
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