The Economic Valuation of Biological Diversity

Tropical Ecology Support
Program (TÖB)
The Economic Valuation

of Biological Diversity
Tropical Ecology Support
Program (TÖB)
The Economic Valuation

of Biological Diversity
Dr. Thomas Plän
Eschborn, 1999
TÖB Publication No.: TÖB P-3e
Published by: Deutsche Gesellschaft für

Technische Zusammenarbeit (GTZ) GmbH
Postfach 5180
D-65726 Eschborn
Responsible: Tropenökologisches Begleitprogramm (TÖB)
Dr. Claus Bätke
Author: Dr. Thomas Plän, inf – Informationsmanagement,
Biotechnologie / Biodiversitätsnutzung,
Lessingstr. 3a, D-93049 Regensburg, Germany
Tel.: +49-941-299054, Fax: +49-941-25627,
email: Tplaen@t-online.de
Edited by: Michaela Hammer
Nominal fee: DM 5,-
ISBN:
Produced by: TZ-Verlagsgesellschaft mbH, D-64380 Roßdorf
© 1999 All rights reserved

Foreword
For the majority of the world's population, tropical ecosystems are a vital life-
sustaining force. However, the progressive destruction and depletion of natural
resources in developing countries are jeopardising efforts aimed at achieving
sustainable development and effective poverty reduction.
The Flanking Program for Tropical Ecology is a supraregional service project
being run by the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ)
GmbH on behalf of the Federal German Ministry for Economic Cooperation
and Development (BMZ), its mandate being to help collect and process
experience in this sector, thus improving the information status.
On request, the program flanks specific projects with studies focusing on
issues relevant to tropical ecology. By so doing, it is aiming to further develop
concepts and approaches geared to protecting, conserving and ensuring the
sustainable use of tropical ecosystems. At the same time, this research work
provides the basis for designing innovative instruments that will facilitate more
ecologically-sound development cooperation in future.
By applying scientific results at grass-roots extension level, the program assists
other projects in the implementation of international agreements, in particular
Agenda 21 and the Biodiversity Convention, to which the BMZ attaches great
importance.
A key element of the program concept centres on a joint approach which
provides German and local scientists with a forum for discussion. The
Flanking Program for Tropical Ecology is thus making a valuable contribution
to the practice-oriented upgrading of counterpart experts and the consolidation
of tropical-ecology expertise in partner countries.
This series of publications has been produced in a generally comprehensible
form with the specific aim of presenting its results and recommendations to all
organisations and institutions active in development cooperation, and also to all
those members of the general public who are interested in environmental and
development-policy issues.
Dr. H. P. Schipulle Dr. C. van Tuyll

Head of the Environmental Policy, Head of the Rural Development Division
Protection of Natural Resources and
Forestry Division
Federal German Ministry for Economic Deutsche Gesellschaft für Technische
Cooperation and Development (BMZ) Zusammenarbeit (GTZ) mbH
Contents
Table of Contents
TABLE OF CONTENTS .....................................................................I
LIST OF FIGURES..........................................................................IV
LIST OF TABLES ...........................................................................IV
GLOSSARY ...................................................................................V
SUMMARY ...................................................................................IX
1 INTRODUCTION ......................................................................1
1.1 Description of the development cooperation project and
purpose of the project ................................................................. 1
1.2 Analysis of problems .................................................................. 2
1.3 Objectives................................................................................... 3
2 RESULTS AND ANALYSIS ........................................................7

2.1 Decrease in biodiversity as a consequence of the lack of
markets and of market failure ..................................................... 7
2.2 Classification of the types of values of biological diversity ...... 11
2.3 Examples of evaluating biological diversity ............................. 22
2.3.1 Use value of genes and biochemicals............................ 22
2.3.2 Use value of species...................................................... 28
2.3.3 Use value of ecosystems and landscapes....................... 30
3 RECOMMENDATIONS ............................................................35
3.1 Valuation methods and techniques............................................ 35
3.1.1 Determining direct and passive use values on
simulated markets ......................................................... 38
3.1.2 Indirectly determining direct use values........................ 43
3.1.3 Determining indirect use values.................................... 45
I
The Economic Valuation of Biological Diversity
3.2 The cost aspect of the conservation and destruction of

biological diversity and the cost-benefit analysis procedure ..... 48
3.2.1 Opportunity costs: restoration costs, sustainability
costs, lost use values..................................................... 48
3.2.2 Cost-benefit analysis..................................................... 52
3.3 Organisation of markets with appropriate prices....................... 53
3.3.1 Monetisation and cost-benefit analyses......................... 54
3.3.2 Dismantling failed interventions ................................... 55
3.3.3 Creation of private property rights and integrated
biodiversity management.............................................. 56
3.3.4 Creation of market-based regulatory instruments.......... 58
3.3.5 Creation of global markets............................................ 61
3.4 Recommendations for development cooperation ...................... 65
3.4.1 Project-oriented cost-benefit analyses using the
available valuation instruments..................................... 66
3.4.2 Training and capacity-building to inventor and
monitor biodiversity ..................................................... 66
3.4.3 Creation and/or strengthening of institutional
prerequisites for the development and
implementation of national biodiversity strategies ........ 67
3.4.4 Training and capacity-building to conduct cost-
benefit analyses and valuation techniques..................... 67
3.4.5 Supporting research capacities in developing
countries at the frontier between ecology and
economics 68
3.4.6 Identification of interventions failures .......................... 70
3.4.7 Creation of incentive instruments ................................. 71
3.4.8 Participation of local communities in biodiversity
yields ............................................................................ 71
II
Contents
3.4.9 Assistance in the creation of property rights ................. 72

3.4.10 Cooperation in establishing global environmental
markets through bilateral and multilateral
agreements.................................................................... 73
4 BIBLIOGRAPHY ....................................................................75
4.1 Cited references........................................................................ 75
4.2 Other references ....................................................................... 83
III
List of figures
Fig. 1: Total economic value of a biological asset 13
Fig. 2: Classification of resources 17
Fig. 3: Classification of economic values and attributable valuation

methods (methods in angled brackets are less suitable ones) 37
Fig. 4: Comparison of the resulting costs and use of protected areas 52
List of tables
Table 1: Use values of genes and biochemicals 28
Table 2: Use values of species 30
Table 3: Use values of ecosystems 33
IV
Glossary
Glossary
Allocation Mechanism for the allocation of productive factors or

mechanism resources to certain goals
Assimilation Admission and processing of a substrate
Bequest value Value of keeping a resource intact for future

generations
Biodiversity or General term for the number, variety and diversity of

biological diversity living organisms in a certain environment or unit of
space, divisible into the order and integration levels
genes, species and ecosystems
Biological resource General term for genetic resources, organisms or

parts of organisms, populations or any other
biological component of ecosystems of actual or
potential use or value for mankind
Bioprospecting Exploration of biodiversity in search of commercially

exploitable genetic and biochemical resources
Biotic Of or relating to organisms or life processes
Cost-benefit analysis Collection and evaluation of relevant actions or

(CBA) measures and their alternatives in monetary terms
Direct use value Value of biological resources or resource systems by

consumption or production or by their direct
interaction with market subjects
Discounting Preference of a currently available private use, which
V
involves social destruction, over a private use in the

future, which also involves social preservation
Ecosystem Fundamental functional ecological unit which

includes organisms and environment, divisible into
energy flows, food chains, diversity samples,
biogeochemical food cycles, development and
evolution, cybernetics
Emission rights Pollution licence entitling the holder to a certain level

of emissions
Existence value Intrinsic value of a resource
Global environmental Global markets which have either been enforced by

markets (GEMs) international sets of rules or have resulted from
voluntary agreements
Gross national Total value of the goods and services produced by

product (GNP) firms owned by a country
Gross primary Entire photosynthesis, including organic material

production used during respiration
Habitat Place in which an organism lives
Indirect use value Value of biological resources or achievement for

directly used resources or ecosystems
Market analysis Analysis of the procurements and sales prospects of

an enterprise or an industry and the market influences
affecting it at a certain time
VI
Glossary
Natural capital The natural wealth of biological resources
Net primary Quantity of organic material stored in green plants

production minus that used in respiration
Opportunity costs Costs of alternatives that are not used
Option value Use reserved for a later time
Passive use value Measurement of the significance of resources or

similar factors for us, our descendants or other
species
Population Total individuals belonging to a certain species in a

certain area
Preference Ranking of demand for certain goods by individuals
Productivity Accumulation of one organic substance per unit of

time
Quasi-option value Value of delaying an irreversible decision to wait for

additional information to help in the decision-making
process
Surrogate market Evaluation of markets for private goods and services

concept related to the relevant resources and products
Screening Purposeful search for certain substances or effects
Travel cost approach Market approach based on the expenditure required

for a particular journey corresponding to or
characteristic of products or resources, etc.
VII
Total economic value Sum or aggregation of direct value, indirect value,

(TEV) option/quasi-option value and passive use value of a
resource or a resource system
Transferable International trade development rights to enable

development rights adequate protection of global biodiversity values, in
(TDRs) particular in tropical countries
Willingness to pay Survey to obtain a value, e.g. for biological diversity
VIII
Summary
Summary
Biological diversity is decreasing at all levels of integration at an alarming
rate. The market prices of biological resources do not reflect their true
values because of a lack of internalisation of external costs and benefits.
This omission is an indication of market failure, based in particular on the
difference between private and social/ecological benefits, on the lack of
markets and on failed interventions.
This paper is based on the hypothesis that the failure to allocate economic
values to the respective components of biological diversity is one of the
causes of this decrease in diversity. Conversely, the allocation of the
appropriate economic values to these components should be able to halt
this trend and to reverse it.
After an introductory chapter, the chapter on "Results and Analysis"

highlights the loss of biodiversity under the aspect of the lack of markets
and of market failure. It is postulated that a market-oriented strategy to
valuate the components of biological diversity would help to stop this
decline. Types of values of biological diversity are therefore subdivided
into different use-dependent and use-independent categories. The
social/ecological value of biological resources or services is made up of
four categories of use values: the direct use value, indirect use value,
option/quasi-option use value and passive use value. These are added
together to give the so-called total economic value (TEV). However, there
is a certain amount of overlap between these types of values, which means
that there is a danger of values attributes being counted more than once in
different value categories. The more aspects of use value that can be
determined and compiled to form the TEV, the closer the TEV will come to
the "real" value of a biological asset. However, if this TEV fails to be
IX
reflected by market prices, it remains a theoretical concept. Because of the

benefits of biological diversity and the lack of information available about
these benefits as a result of market failure, there is an urgent need for
economic valuation studies to be carried out.
The results of several studies carried out to assess genes and biochemicals,
species, ecosystems and landscapes in terms of the use values of the
respective components of biological diversity are highlighted.
The third chapter discusses application relevance and recommendations for

action and presents the relevant assessment methods. These methods
primarily suggest how markets would need to be reformed in order to
correct the present imbalance between prices and values and/or, where this
is not possible, provide decision-making aids indicating the political
measures that need to be taken to correct market signals.
The contingent valuation method (CVM) and related methods of analysis

are of particular importance in this context, because they allow combined
valuations of the direct use value, the option/quasi-option use value and the
passive use value of the components of biological diversity. Moreover,
these methods are the only useful ones to determine passive or non-use
values. Alternative indirect techniques by which to determine direct use
values are also presented.
Methods to determine preferences such as the CVM are not suitable to

determine the indirect use values (e.g. ecological regulatory functions) of
nature as a production factor, since these values support economic activities
or even enable such activities to be carried out regardless of preferences. In
order to determine indirect use values, methods such as productivity
change, maintenance or optimisation work effort, the restoration cost
approach and the production-function approach are currently being applied.
X
Summary
The latter approach is designed to determine the physical effects that

changes of ecological functions have on economic activities.
In order to be able to be compared with use values and benefits, the costs
associated with the conservation, sustainable use and restoration of
biological diversity need to be determined. On the basis of the results of
this analysis, the alternative that is not chosen generates opportunity costs.
Finally, cost-benefit analyses (CBAs) allow relevant activities and their

alternatives to be identified and valuated in monetary terms. The relevant
cost and benefit variables have to established to allow an accurate direct
comparison of the possible alternatives to be made.
By applying valuation methods, it was able to be shown that the economic

benefits of conserving biological diversity are limited at a local level, are
somewhat higher at a regional and national level and become substantial at
a global level. In contrast, the costs frequently show the opposite trend:
They are significant at a local level and low at a regional and national level.
In order to allow effective conservation of biodiversity, the imbalance on
each of these levels needs to be corrected.
In this context, four measures are discussed which should lead to an

effective translation of the evaluation approaches into the creation of
markets. They concern the following:
The removal of damaging distortions of market mechanisms (deregulation)

by dismantling failed interventions. In order to establish prices that reflect
social costs, it is important to abolish all supportive measures that
artificially reduce the private costs of activities detrimental to biodiversity.
The creation of markets by privatisation and integrated biodiversity

management based on the efficiency criterion, i.e. those who control assets
XI
should also be those who profit from the benefits of these assets. This could
be attained by establishing property rights to those biological resources to
which vested titles do not yet exist and/or by transferring vested titles from
the State to landowners (including those not yet entitled to land tenure due
to pending reforms).
The introduction of control instruments, in particular market-induced

instruments, in addition to regulatory ones. While the latter imply direct
control (reduction/limitation) of unwanted actions in conjunction with
legislative or politically agreed standards, market economy-based
intervention instruments (MEIs) create economic incentives. Strictly
speaking, MEIs include all political measures explicitly related to private
benefits and costs by which the comparative social benefits and costs can
be incorporated into market prices. These instruments can be subdivided
into five categories: duties/taxes/fees, subsidies, pledge systems, tradable
rights and compensatory incentives.
The creation of global environmental markets (GEMs). These markets can

be enforced by international law or can be created on the basis of voluntary
agreements. A common feature of both approaches are bilateral or
multilateral transfer payments. The particular practical relevance of
approaches used to valuate conservation, sustainable use and restoration
costs for transfer payments (e.g. transferable development rights, TDRs)
lies in the fact that these payments can be related to the amount of money
required in national and international budgets to be spent inter alia on
conservation. In this respect, it is not sufficient to provide donor countries
with financial compensation. The transfer payments must also reach those
individuals and communities immediately involved in using and preserving
the components of biological diversity in question.
XII
Summary
After describing application-relevant methods and mechanisms, ten

specific recommendations are made for development cooperation (DC):
• the establishment of project-oriented cost-benefit analyses applying the

available valuation methodology for the DC projects themselves,
• training and capacity-building to inventory and monitor biodiversity in

the partner countries,
• the creation and enforcement of institutional frameworks for the

development and implementation of national biodiversity strategies,
• training and capacity-building within the partner countries to carry out

cost-benefit analyses and valuation techniques,
• the support of research capacities in developing countries at the frontier

between ecology and economics,
• the identification of failed interventions and consultation concerning

their dismantling,
• consultation on the establishment of economic incentives, especially

market-based ones,
• the development of strategies for the participation of local communities

in biodiversity yields,
• assistance in the creation of vested titles/property rights and
• cooperation in creating GEMs on the basis of bilateral and multilateral

agreements.
XIII
Introduction
1 Introduction
1.1 Description of the development cooperation project

and purpose of the project
In December 1994, with the financial support of the German Forum on
Environment and Development, the present author submitted a carefully
considered preliminary study on "Economic concepts in the valuation of
biological diversity". This study contained a short presentation and
evaluation of economic valuation concepts of biological diversity.
After discussions had been held with those involved in the Deutsche
Gesellschaft für technische Zusammenarbeit (GTZ) GmbH's Tropical
Ecology Support Programme (TÖB), this preliminary study was developed
into a final study to be translated into English and laid out in accordance
with the guidelines for TÖB research projects. Above all, it was to be
revised to enable it to be used for practical purposes: How are valuation
studies on biological diversity carried out and what methods are available
to obtain adequate payment for the determined values?
First of all, the German version of the study was therefore revised to meet
comprehensibility criteria. In order to enable it to be put to practical use, it
was also supplemented by a description of the methods used to valuate
biological diversity, procedures used for cost-benefit analyses (CBAs),
recommendations regarding the organisation of markets with appropriate
prices and supplementary recommendations for development cooperation
(DC). Finally, the revised text was translated into English.
1
1.2 Analysis of problems

Biological diversity or biodiversity is the umbrella term for the number,
variety and diversity of living organisms in a certain environment and unit
of space. It is subdivided into the following order and integration levels:
• genes (and their derivatives),
• species and
• ecosystems.
On all three of these levels of integration and on a global scale, biological

diversity is decreasing at an alarming rate. This paper is based on the
hypothesis that the failure to allocate economic values to the respective
components of biological diversity is one of the causes of this decrease in
diversity. Conversely, the allocation of the appropriate economic values to
the components in question should be able to halt and even reverse this
trend.
If market prices reflected the actual value of biological resources (including

resource systems) and of their services (especially ecological ones), i.e. if
external costs were internalised and the costs of the respective resources
thus corresponded to all the values attributable to them, and if not only
their private value but also their social (and ecological) value became
apparent on the market to a sufficient degree, this notion should support
conservation and the sustainable use of biological diversity. In addition, the
socio-economic benefits of biological resources need to be determined as
comprehensively as possible and translated into marks or dollars. Even if
complete monetisation of the components of biological diversity cannot be
achieved (e.g. because access to certain goods and resources is impossible
2
Introduction
to monitor and control), it might nevertheless be possible to arrive at an

approximate value for these components.
1.3 Objectives
This study is concerned with existing valuations of the components of
biological diversity, i.e. those to which market prices have been assigned,
either as raw materials or as refined products. In addition, the various
methods of direct and indirect valuation that are used to try to capture the
"real" value of biological resources over and above their actual market
prices are listed and classified.
Which methods are available to determine the direct and indirect use values
of biological resources? To what extent do biological resources contribute
directly or indirectly to the economic prosperity and the socio-economic
development of political economies? Or, put differently, what is the "real"
value that authors attach to commercially used and usable biological
resources? And how do they estimate the indirect value of biological
resources, most obvious in functions such as flood protection,
photosynthesis, climate stabilisation and soil protection?
Many different approaches exist. One common procedure is the calculation

of those costs that are incurred by restoration ecology. Another procedure
is based on the market prices of biological resources using the theoretical
concept of maximum sustainable harvests. A further approach addresses
ecological and economic productivity. In this study, an attempt is made to
categorise the various approaches and to evaluate their respective deficits,
without overlooking the pitfalls of an exclusively economically oriented
valuation approach.
3
On the basis of the deficits that are identified, hypotheses of quality goals,
values and costs of biological diversity are derived. Scientific, political and
economic aspects are considered in order to establish which economic
and/or monetary preconditions need to be fulfilled in order to enable
biodiversity to be conserved and restored.
Using cost-benefit analyses, the social conservation, sustainable use and

restoration of biological diversity in monetary terms and their related costs
and benefits can be compared with the private and social values of
competitive benefits and costs. The following three steps are presented:
• the consequences of these competitive scenarios are identified,
• these scenarios are quantified in terms of their respective economic

benefits and costs and
• cost-benefit analyses are summarised and compared.
However, even if this comparison favours the conservation alternative, this

does not yet result in a conservation effect. This can only happen if the
actual use value and its cost advantages become visible on the market in
market prices. This can be accomplished as follows:
• by creating markets for the components of biological diversity,
• by using free market instruments to correct the existing price

imbalances,
by using regulatory interventions to impose balancing effects that even a

functioning market could not achieve.
This also raises the question of financing instruments that could generate
the crucial incentive for the conservation, sustainable use or restoration of
4
Introduction
biological diversity at a national and international level. The concluding

discussion concerns how financial instruments that already exist or that are
in preparation should be considered and how they should be developed or
modified.
This paper is organised as follows:
Following this introductory chapter, the second chapter on "Results and

Analysis" highlights the loss of biodiversity under the aspect of the lack of
markets and of market failure. It is postulated that a market-oriented
valuation of the components of biological diversity would help to counter
this loss. To this end, types of values of the components of biological
diversity are then subdivided into different use-dependent and use-
independent categories. Finally, actual and target values of genes, species
and ecosystems are presented and illustrated using examples.
In the third chapter on "Recommendations", methods are presented to

valuate biological diversity for the different use values. The second section
of this chapter deals with the cost aspect of conservation and presents the
instrument of cost-benefit analysis. In the third section, measures are
discussed which should lead to an effective translation of the evaluation
approaches into the creation of markets. These measures are developed into
recommendations for DC.
5
Results and Analysis
2 Results and Analysis
2.1 Decrease in biodiversity as a consequence of the lack

of markets and of market failure
The notion that economic well-being may not be impaired and that it may
even be enhanced if the profits obtained by depleting natural capital are
reinvested in reproducible capital is not particularly new in the literature on
theoretical economics. It has been suggested that reinvestment of the profits
derived from the intertemporal efficient use of exhaustible natural
resources in reproducible and hence non-exhaustible capital will ensure a
constant stream of consumption over time (e.g. Hartwick 1977; Solow
1974, 1986).
In the context of ecological crisis, however, the increasing rate of loss of

biological resources has led to a fundamental reappraisal of the role of the
living environment in the economy in recent years. Biodiversity is now
increasingly regarded as a form of natural capital that supports economic
activities. In Art. 2 of the Convention on Biological Diversity (CBD),
biological diversity is therefore defined as "variability among living
organisms from all sources including, inter alia, terrestrial, marine and
other aquatic ecosystems and the ecological complexes of which they are
part". This definition "includes variety within species, between species and
of ecosystems". In the same passage, biological resources are characterised
as including "genetic resources, organisms or parts thereof, populations or
any other biotic component of ecosystems with actual or potential use or
value for humanity".
In order for biological diversity and resources to be able to contribute to

general prosperity, their economic yields have to become comparable to
7
and higher than competitive sources. In other words, if the yields from
investments that reduce the natural capital are higher than those that sustain
it, the consumption of natural capital is economically justified (Barbier et
al. 1994, pp. 53f.).
This economic justification, however, is currently disappearing. Market

prices of biological resources do not reflect the true value of these
resources because they do not include external costs and benefits. The
failure to include such external effects in the price is an indication of
market failure.
This market failure can have different causes:
• Difference between private and social benefits: Where components of

biological diversity are traded on markets, their market prices usually
reflect only the private benefits and not the social (and ecological)
benefits that are attributable to them in different degrees from the local
to the global level. The assignment of market prices to marketed
components of biological diversity thus does not mean that these prices
reflect their actual economic values. Partially reliable methods to
establish the social value of the components of biological diversity are
lacking. Above all, there are no mechanisms that permit the integration
of such valuation results into market prices.
• Lack of property rights to components of biological diversity or the

discounting problem, i.e. preference of a currently available private use,
which involves social destruction, over a private use in the future, which
also involves social preservation, makes it more difficult to find a
solution to this problem.
8
• Lack of markets: The problem is not only that only certain attributes of
the biological components that are traded on markets are included in
market prices, but that most biological resources and ecological services
are not traded on markets at all, while there are markets for alternative
uses. The market does not take into account anthropogenic influences on
biological diversity or the effects of biological diversity on humans.
Local and/or global markets for the relevant components of biological
diversity in which the market subjects could convert their value
conceptions of biological/ecological goods and services into purchases
and sales by aid of the price mechanism are lacking.
• Interventions failures: Additional market failures as a consequence of

politic failure, e.g. by disincentives (e.g. subsidies, direct income
transfers, tax exemptions), making existing markets inefficient and
favouring the depreciation or destruction of biological resources (clear-
cutting, cultivation of certain species, nutrient supplies detrimental to
the ecosystem).
Despite these limitations, the ability of the market to bring private and
social benefits closer together and to contribute to a reduction of the threat
to biological diversity should not be underestimated. "Finally, the quality of
an allocation mechanism (= mechanism for the allocation of productive
factors or resources to certain goals) may not exclusively be judged on the
basis of a comparison of its results with ideal results, which are ultimately
not attainable by any allocation mechanism (the so-called Nirvana
approach). (...) Since in reality only incompletely functioning allocation
mechanisms are available, it is worth asking what the market may
contribute in pragmatic terms to taking care of natural resources" (Endres
and Querner 1993, p. 139). By setting prices that reflect the real economic
9
value, the social interest in the conservation of biological resources

becomes translatable into an individual interest.
Overcoming this market failure therefore implies the following:
• the inclusion of the social values and costs of biological diversity in

market prices,
• the creation of markets for the value-oriented mobilisation of demand

for and supply of biological resources and
• the abolition of price-distorting political and economic interventions.
The benefit that a certain component of biological diversity gives its

consumers governs the purchase decision (e.g. pharmacologically
exploitable resource, resource that can be exploited in tourism) and thus
also the price. This benefit corresponds to the value that a potential
consumer attaches to the respective component. One of the most important
tasks of the monetisation of biological diversity is therefore to reflect this
benefit and/or value in the market price. The appropriate methodology will
be dealt with in a later section.
According to Hampicke (1991, pp. 104f.), regarding biological diversity in

economic and monetary terms obviously does not mean dealing with the
monetary value of a species or nature on its own ("this kind of monetisation
approach would not be allowed"). The question is actually how much it
would cost to stop destruction of these resources and/or to re-establish their
maximum possible functional capacity. "It cannot be agreed that this goes
beyond the borders of what is admissible in monetary analyses. The
criticism not infrequently expressed by the public that this kind of
monetisation can only be based on misunderstandings could be avoided if
people listened more carefully to what most economists really said." "If a
10
level of nature conservation is postulated that makes nature almost

inviolable, then in economic terms this means that it is not possible to fall
below this minimum level of species conservation even against paying
demand - in purely mathematical terms, the price of this is infinitely high.
It would only be at our disposal if the costs of nature conservation were
unreasonably high, which might be interpreted as meaning that they are so
high they cannot be expressed in monetary terms – e.g. if human lives have
to be sacrificed. Then a decision must be made between two non-
monetisable alternatives, a decision nobody would be envied for having to
make."
2.2 Classification of the types of values of biological

diversity
The demand for biological goods results from the different value
preferences of market subjects. Use values are relative and linked to market
subjects and their preferences, i.e. all decisions on political allocation result
in opportunity costs (i.e. the costs of alternatives that are not used). In cost-
benefit analyses (see Sect. 3.2.2), the alternatives can then be weighed up
against each other. The social value of biological resources or services is
thus composed of four categories of use value:
Use-dependent values
1. The direct value of biological resources or resource systems is derived

from their direct use (by consumption or production) or from their direct
interaction with market subjects. Some biological resources are traded on
markets, and their direct use values (e.g. agriculturally useful plants and
animals, wood, medicinal plants, wildlife watching) are included in their
market prices. Expenditure on the use of ecosystems for tourism, hunting
11
or fishing also reflects their direct market values. As already mentioned,

these market prices are incomplete, because they do not take account of
certain social value attributes.
2. The indirect value of biological resources or services results from the

value that these have for directly used resources or ecosystems. Many
biological resources derive their value from their indirect economic
importance for directly used resources. Indirect values result from (a)
their benefit for other directly used species and/or their genes (indirect
biocoenotic value), (b) their importance for ecological services, e.g.
protection from erosion, assimilation of biological waste materials,
microclimatic stabilisation, water retention, carbon storage (indirect
ecosystem value), and (c) their importance for future evolution (indirect
evolutionary value).
3. The option use value describes a use reserved for a later time. The option
to use biological resources at a later date is kept open by value
assignment. The quasi-option value refers to the delay of an irreversible
decision to wait for additional information to help in the decision-
making process. Because future information connected with the resource
in question may be valuable, this resource remains untouched for the
time being. Due to gaps in our knowledge, it can be difficult to assess
risks and uncertainties when carrying out an evaluation; together with
the partially irreversible consequences of the alternative use of the
components of biological diversity, this means that the concept of the
quasi-option value is becoming increasingly important.
Use-independent values
4. The passive use value of biological diversity results from the importance
attributed to it for us, our descendants or other species. It can be
12
subdivided into its bequest value (the value of keeping a resource intact
for future generations) and its existence value (the value conferred by
ensuring the survival of a resource). The non-use or passive use value of
biological resources is nearly completely determined by ethical
considerations and is of importance where individuals who do not intend
to use components of biological diversity would nevertheless feel a loss
if these disappeared (Brown 1990; Randall 1991).
The direct value, indirect value, option/quasi-option value and passive use
value of resources or resource systems add up to give their total economic
value (TEV, Fig. 1).
TEV = F (DUV, IUV, OV, QOV, BV, EV)
TEV = UV + NUV = (DUV + IUV + OV + QOV) + (BV + EV)
TEV: Total economic value

UV: Use value
NUV: Non-use value
DUV: Direct use value
IUV: Indirect use value
OP: Option value
QOV: Quasi-option value
BV: Bequest value
EV: Existence value
Fig. 1: Total economic value of a biological asset
There is some overlap between the different types of values, which means
that there is a risk of the same value attributes being counted more than
13
once in different value categories. This is particularly true of option,

bequest and existence values. However, there are different concepts in
economics of how the valuations of environmental changes should be
aggregated in order to arrive at an overall economic evaluation.
ad 1.Many biological resources are traded directly on local or international

markets. This suggests that some direct use values of biological
resources will be reflected in the prices of marketed goods and
services. However, because subjects (individuals, public and private
institutions, companies) can more readily perceive the economic value
of marketed products and services of biological resources than the
value of non-commercial and direct subsistence uses, the result may
be a bias towards the development of the commercial use and an
exploitation of biological resources. This may mean not only that
commercial fishery, forestry and agricultural operations, for example,
may be preferred to subsistence operations or to a philosophy of
nature conservation involving doing nothing, but also that many
natural ecosystems and habitats may also be converted to other
monetisable direct uses (Perrings 1995, p. 866).
The user value, for instance, is a typical non-monetised direct use

value, corresponding to the individual personal benefit of biological
diversity, e.g. by observing or photographing nature or being
stimulated to carry out artistic activities. Where this direct use value is
commercialised (e.g. by charging fees for wildlife watching), it
becomes a serious alternative to other price-related direct uses (e.g.
hunting).
However, the explicit view of the direct use value shows that a value-
related consideration of non-monetised direct alternative uses is
14
necessary in order to give them a fair chance on the market. (On the
creation of markets by monetisation, see Sect. 3.3).
ad 2.The indirect use value of a particular component of biological

diversity is not usually taken into account by market prices. Its
expression in monetary terms becomes more realistic the more
indirect the particular use is. While an indirect biocoenotic use of soil
micro-organisms (e.g. Leguminosae are associated with nitrogen-
fixing bacteria) for the direct use of legumes is relatively easy to
derive, the central ecological role that elephants play in the
diversification of African savannas and forests, the spreading of seeds,
the prevention of scrubland, the expansion of grassland and the
reduction in numbers of the tsetse fly is considerably more difficult to
quantify, and indirect ecological use values, in particular, do not
readily lend themselves to direct economic assessment. Determining
these use values by value preferences becomes increasingly difficult
and ultimately impossible due to the complexity of the object and of
system properties that are emerging in the light of present ecological
knowledge.
ad 3.Difficult theoretical calculations in decision-making suggest that

decisions with irreversible results should be examined particularly
carefully in terms of possible consequences; moreover, in situations in
which there is both an irreversible and a reversible alternative, the
reversible one should be chosen. While the basic idea of the option
value is to maintain access options on components of biological
diversity that are not used at present, the idea of the quasi-option value
is to use expenditure on biodiversity conservation to diminish
uncertainty and/or to avoid irreversible decisions (Hampicke 1991,
pp. 87f.). The difficult methodical question here is how much society
15
should pay for the conservation of components of biological diversity

that might one day become useful.
ad 4.The bequest value is often included in the existence value, and the
user value is sometimes added to these two values, reflecting the
personal benefits of biological diversity. Since there is some overlap
between these value types, these value components should be
determined as a holistic non-use or passive use value.
The more aspects of use value that can be determined and integrated into
the TEV, the closer it comes to representing the "real" value of biological
goods or services. In particular, due to the aspects of passive use and option
value, the TEV is subject to group- and culture-dependent differences.
Above all, however, the TEV remains a theoretical variable unless it is
reflected by market prices.
In addition to the relativity of values and prices on the user level, further
limitations result from the usability of the respective resources. The use
value includes the following:
a) the extent to which biological resources can be used for different

purposes (transformability),
b) the extent to which they are replaceable by other resources

(substitutability) and
c) whether the use of biological resources by a market subject impairs the

use of these or other resources by other market subjects (rival usability,
sustainability criterion).
16
However, market prices are not only based on demand and the value
preferences of market subjects it indicates. The market prices of biological
resources are also determined by
d) supply and by exclusivity of their usability, i.e. by (actual and

intellectual) property rights and their effectiveness. Purely public goods
(e.g. air, water) or a jointly usable resources pool (e.g. the welfare effects
of the forest) can in fact be attributed with values, but because they are
not scarce, they remain outside the market.
Figure 2 shows the relation between the sustainability criterion (c) and the
supply aspect (d).
Others cannot be excluded Others can be excluded

from the use of resources from the use of resources
Use of resources by A does not
influence consumption by Purely public goods
others Resources under
(e.g. national) sovereignty
Jointly usable resource pool
Use of resources by A does
influence consumption by Private goods
others
Fig. 2: Classification of resources
ad a-c)The values of competitively usable resources have to be determined

in separate valuation steps and be evaluated comparatively in cost-
benefit analyses (see Sect. 3.2.2). Their results differ particularly due
to the conflict between interests of private and social use. It is the
dominance of private use interests in the market that frequently
17
constitutes a threat to biological diversity. Markets and market prices

exist for purely privately used goods, but not for purely public goods.
ad d) When the Convention on Biological Diversity (CBD) came into

force, exclusive national rights of use and property were created for
the large majority of biological resources.
Use rights to biological resources that are privately owned are purely
exclusive. However, there is still some controversy over a whole range
of biological resources and their services as to whether the use rights
should be exclusively private or national. Vogel (1994) correctly
acknowledges that it is only through consistent privatisation of
biological resources that an interest in sustainability can become
generally accepted against alternative uses.
Before the CBD came into effect, those of the earth's biological
resources that are now subject to national sovereignty were treated as
the common heritage of mankind and thus as non-exclusively usable,
freely accessible resources. Now that the CBD has come into force,
the number of non-exclusive biological resources has decreased
considerably. Resources that are still non-exclusively usable include
marine biology resources outside national sovereignty zones.
Ecological services of biological diversity are usually also non-
exclusively usable (e.g. the production of oxygen by green plants).
A gradual transition is taking place between exclusively privately

usable biological resources and (the few) completely non-exclusively
usable resources freely accessible to the public. The items "resources
under national sovereignty" and "jointly usable resource pool" in
Fig. 2 are the quasi-exclusive and/or quasi-non-exclusive links
between these extremes. In determining use values, it is important to
18
make value preferences much more visible in markets by means of

property interests.
Regardless of whether a local, national or global perspective is taken,

normative valuation approaches have to be integrated into the TEV of
biological resources in order to take proper account of rights of access and
property, unless the goods concerned are public ones.
At the beginning of this paper, the hierarchical division of biological

resources into the levels of genes, species and ecosystems was presented.
TEVs can be determined on each of these three levels (and on further
intermediate levels). However, the TEV of a gene or a biochemical will
obviously not be suitable to show the TEV of its host species, and the TEV
of a species (or a biocoenosis) is not sufficient to illustrate the value of the
respective ecosystem. To use an analogy, the total value of a screw cannot
be used deduce the value of an engine, the value of an engine cannot be
used to determine the value of an aeroplane and the value of an aeroplane
does not indicate the value of an airport. The significance of economic
valuation depends on the integration level on which it was carried out.
In this respect, it is not surprising that particular attention is paid to the

application of economic valuation approaches at the level of the ecosystem
(Barbier et al. 1994). If cost-benefit analyses (see Sect. 3.2.2) of an
ecosystem's TEV result in the conservation option, this also includes a
number of components of biological diversity on the lower integration
levels for which individual TEVs do not need to be determined (and which
would presumably not be technically feasible). If cost-benefit analyses of
an ecosystem result in the options sustainable use, restoration or alternative
use, then supplementing the TEV on lower hierarchical levels may become
19
necessary in order to arrive at evaluations or specific management

recommendations for specific populations or genetic resources.
Economic valuations of biological resources of the lower levels can of

course lead to effects that make a TEV on a higher integration level
superfluous. In addition, depending on the economic question concerned,
dealing with objects on a lower level of the hierarchy can lead to
synergistic results that are relevant for higher levels as well. For instance,
screening all the higher plants of an ecosystem for pharmacological
ingredients may have a direct ecosystem-sustaining effect, while interest in
one specific gene will only generate marginal conservation effects, if any.
Furthermore, the notion of a so-called primary value has also been

introduced; this is added to the TEV (i.e. the secondary value) to give the
total environmental value (TV). It represents properties of an ecosystem or
biosphere that are highly relevant in economic terms, but that cannot be
captured by value preferences. Whether it will be possible to express it in
economic terms at all is contentious (see Perrings 1995, pp. 842f.). There is
no clear-cut distinction between this and the indirect use value, and it is
therefore not discussed separately here. The properties of its system should
be integrated in the indirect use value.
The central importance of these values for monetisation approaches,

however, is undisputed. Immler (1993) states that "the productive natural
capital is the key category in a holistic ecological/economic valuation". In
answer to the objection that economics does not offer the tools for
operationalising pricing, he rightly points out that "any approximation to
this admittedly difficult unit is better and more reasonable than an
operational term which is certainly wrong" and that "the lack of industrial
understanding of the category 'natural capital' is not the consequence of a
20
nature that cannot be understood, but of an economics that does not want to
know anything about it".
One method of approximation is the production-function approach. The

transformation of ecological value units into economic ones could be
successful on the basis of productivity, both an ecological and an economic
concept. Ecological productivity (net and gross primary production) has a
theoretically assignable (potential) maximum, which could be defined as
the productivity of the primary ecosystems ("world-wide wilderness
productivity") and/or by the theoretical productivity of ecosystems after the
sudden end of human influences ("potential natural productivity").
Cultivated ecological systems may obviously show the same net
productivity (agricultural areas including external fertiliser supply) but a
smaller gross productivity than autochthonous ecosystems. (Due to the
ecological degradation phenomena such as nutrient washing and soil
erosion that accompany the creation of cultivated ecological systems,
however, their net primary production also diminishes over time; 20% of
cultivable soil has been lost over the past 30 years world-wide). Even back
in 1986, humans consumed 40% of the global terrestrial net primary
production (Vitousek et al. 1986).
However, even if ecosystems were ranked by determining their TEVs, this

would not correspond to ecologically specified rankings (e.g. on the basis
of productivity criteria). This is partially because of the inclusion of non-
use values (whereby a mountainous region that is not particularly
productive, but attractive might gain a higher monetary value than a highly
productive grassland, for example). However, it is primarily due to the fact
that there are at present still no methods or scientific information to
approximate the actual indirect use value. For instance, we need to
understand the role of species in mediating the key structuring processes in
21
ecosystems over a range of environmental conditions. This requires

ecological and economic production functions to be specified (Perrings
1995, p. 889).
It also requires not just snapshots of the value of ecosystem function, but
also time series that show how the value of such functions is changing. Not
only the ecological aspect, but also the evolutionary component is not taken
into consideration sufficiently in economic valuation approaches of
biological diversity, although awareness of the value of the genetic
resources of plants and their relatives in the wild has risen in economic
terms as well, implicitly acknowledging its importance (see e.g. Mooney
and Fowler 1991). However, it is only by regarding natural ecosystems in
economic terms as durable in situ production, experimentation and storage
sites of biodiversity evolution that conservationists' expectations linked to
bioprospecting strategies can have a chance of being realised.
2.3 Examples of evaluating biological diversity

This section deals with estimates of the value of genes, species and
ecosystems arrived at using the valuation methods described previously and
methodologically illustrated in Sect. 3.1 (see Perrings 1995, pp. 844 ff.).
2.3.1 Use value of genes and biochemicals
Whereas the utilisation of genes (animal and plant breeding) or natural

products used to be linked to the cultivation of the respective species, new
biotechnologies now permit genes and biochemicals to be utilised
independently of their parent species, e.g. in cell cultures or transgenic
organisms. This makes the examples discussed in this section different
from product examples such as ivory or timber, whose use remains bound
to the species producing them. However, the borders between the two types
22
are transient, and it may be more profitable not to make use of these
biotechnological options and to obtain certain natural products from
complete (cultivated or wild living) individuals of the species of origin.
The direct use value of genetic diversity results from delivering the raw
material with desirable properties for the pharmaceutical, agricultural and
food production industry. Modern biotechnology and genetic engineering
(with the potential for intra- and inter-species gene transfer they offer)
allow the use potential of genetic resources to be extended and therefore
lead economically to an increase and/or a supplementary effect to the direct
use value of genetic resources and their derivatives (natural products).
The size of the market for biotechnologically manufactured products

world-wide is now more than US $250 billion per year, and private
biotechnological research and development (R&D) investments in the
countries of the Organisation for Economic Cooperation and Development
(OECD) amount to approximately US $9 billion per year. The annual
growth rates vary between 8% (biotechnological processes) and 20%-35%
(gene technology processes). For example, the United States' proceeds of
sale in 1992 amounted to approximately US $5 billion, i.e. a 35% increase
compared to the previous year (Burrill and Lee 1992; cited in Downes
1993). For the year 2000, a tenfold increase is expected (Industrial
Biotechnology Association 1992; cited in Downes 1993).
Like the existing and potential market prices specified in the following
examples, these are usually distorted by transfer components, and
corrections therefore have to be made for economic cost calculations (cf.
Hampicke 1991, pp. 180f.). Above all, however, the obtained or attainable
price for the respective biological resources is not determined ecologically,
but solely on the basis of market criteria.
23
Nevertheless, conservation effects on biological resources can arise from

the presence or development of a market (although the opposite can also
occur). Thus bioprospecting projects are associated with the idea that the
identification (via bioassays) and development of useful biochemicals and
genes might result in a market that exerts conservation effects on concrete
resources in situ with optional conservation effects on other resources in
the same habitat that are not yet commercially exploited. According to
Sánchez and Juma (1994), the exchange of genetic resources and
technologies between the North and the South should increase to about
10% of the respective world trade volume.
Some authors have published papers about the commercial value of genetic
resources. However, some of these data are questionable, because indirect
or passive use values were hardly integrated into these valuations and
TEVs are also lacking. As far as direct use options are concerned,
pharmacological or agricultural uses of genes and biochemicals have been
dealt with more intensely, whereas enzyme use or the genetic resources of
ornamental plants, for example, have been largely neglected.
A study by Sedjo et al. (1994) addresses prospecting strategies for genetic

resources by comparing them with a lottery. Neither the prize nor the
possible number of main winners among whom the prize is finally divided
is known, and it is not clear whether numbers are drawn for which no
tickets have been submitted. This comparison highlights the unknown
spatial distribution of organisms and the uncertainty about whether the
relevant gene or biomolecule might also be found in other organisms. Due
to genetic engineering, the market for genetic resources is developing into
new segments, and it is not known how scarce most biological resources
actually are; the willingness of industry to pay high prices for biomolecules
is thus relatively small. The study by Sedjo and colleagues concludes that,
24
under optimal conditions, a maximum economic yield of US $10,000 per

species might result. With respect to endangered habitats in which the
relevant species exist, a maximum of $20 per hectare might be paid.
On the basis of respective contracts, prospecting companies have so far

been willing to pay approximately $50-200 per unprocessed in situ sample
(Laird 1993). However, it would be too simplistic to infer the market value
of the genetic material from these amounts, because it is primarily the
labour-intensive collection that is paid for and not the material itself.
Pharmacologically useful biomolecules
According to a study by the OECD (1987), about 25% of all medicaments

in the OECD countries are of plant origin; if we include those countries that
are not industrially developed, the overall world-wide proportion increases
to 75%. In the OECD member countries, plant-based medicaments
amounting to more than DM 100 billion were sold in 1985. Two fifths of
all modern U.S. pharmaceutical products contain one or more ingredients
of natural origin (Oldfield 1984).
The commercial value of medicines derived from species living in the wild
is estimated at more than US $40 billion p.a. world-wide, and the figure for
the United States in 1980 was US $8112 billion. The present share of the
genetic material used for pharmaceutical products originating from the
South amounts to about US $4.7 billion. The present hectare yields of
medicinal plants from the tropical rain forest are estimated to range from
$262 to $1000 (Pearce and Moran 1994).
Assuming a rate of extinction of 10%, an estimated 2067 plant species will

have become extinct by the year 2000, 16 of them of special
25
pharmaceutical interest; Farnsworth and Soejarto (1985) have estimated

this to entail an economic loss of US $3.25 billion ($16×203 million).
By means of bioprospecting, i.e. screening biological diversity in search of

commercially exploitable genetic and biochemical resources, the value of
the germ plasm for medicinal purposes from the South, which currently
amounts to approximately US $4.7 billion, might rise over the next
10 years to US $47 billion. For Costa Rica, Aylward (1993) estimated the
value of "pharmaceutical prospecting" at $4.81 million per successfully
prospected product. However, these figures have to be related to capital
outlays of over US $200 million for the development of a single successful
pharmaceutical ready for the market (Krattiger and Lesser 1994).
Mendelsohn and Balick (1995) are sceptical regarding the future economic
importance of bioprospecting. They estimate the entire social value of non-
discovered tropical pharmaceuticals at only approximately US $150 billion
or US $48 per hectare, and the market value for private enterprises at US
$3 billion or US $1 per hectare.
A rough estimation of the pharmaceutical value of extinct plant species on

behalf of UNEP came to the conclusion that the average "pharmaceutical"
loss for each of these species amounts to approximately $80,000 (UNEP
1993). This figure is problematic, however, because some "best-sellers"
that have earned the companies that sell them millions (e.g. aspirin, taxol)
are included in this estimate.
Genetic resources of plants
The complexity of modern and traditional breeding practices means that

only a very general approximation of the actual monetary value is possible,
and even then only for the most common grain varieties. This uncertainty
26
in putting a number on the existing market value is reflected in estimations

concerning the contribution of the genetic resources of the South to the
valuation of food production in the North. For wheat and corn, the figures
are estimated at US $75 million p.a. for Australia, US $500 million p.a. for
the United States and US $2.7 billion p.a. for all the OECD countries
together (Mooney and Fowler 1991). According to Woodruff and Gall
(1992), about half of the increase in agricultural productivity in this century
can be directly attributed to artificial selection, recombination and intra-
species gene transfer.
Calculations by the U.S. seed industry show that a genetic trait of a plant in
the Third World that can be used for breeding purposes may contribute
over $2 billion annually to the yields of U.S. wheat, rice and corn
producers. The U.S. Department of Agriculture estimates that genetic plant
material has led to an average increase in productivity of about 1% a year,
with an initial monetary value far exceeding US $1.billion.
Bioprospecting as a source of new cultivated plants and of raw materials to

breed improved plant varieties and as a supplier of natural pesticides and
renewable resources such as fibres and botanical chemicals has great
potential (Plotkin 1992).
At the beginning of the next millennium, the world-wide biotechnology

food sector will increase to US $20 billion (a sixfold increase).
27
Table 1: Use values of genes and biochemicals
Components used Evaluation method Estimated Source

applied value (US $)
Plants Market analysis: 2,580,000 Farnsworth and
estimations of Soejarto 1985
proceeds of sale
Plants Market analysis 474,000 Principe 1989
Trees Market analysis 7,500 McAllister 1991
Plants Evaluation of the 23,700,000 Principe 1989
number of lives saved
Species from Cameroon Costs of renewing 15-150 Ruitenbeek
patents 1989
Species from Costa Rica Market analysis, 253 Harvard
estimated licence fees Business School
Plants of the rain forest Market analysis and 585-1,050,000 Pearce and
evaluation of human Puroshothaman
lives saved 1992
Pharmaceutical bioprospecting for a Market analysis: net 4.81 million Aylward 1993
commercially successful plant returns on
product bioprospecting
Living organisms Market analysis: 52-46,000 Reid et al. 1993
returns on purchase +
licence fees
2.3.2 Use value of species
In contrast to Sect. 2.3.1., the components of biological diversity dealt with

in this section are used as total organisms.
Use of plants
Of the approximately 250,000 higher plant species that have been described
world-wide, about one third probably has edible components, i.e. around
80,000 species. About 15,000 species (including spice plants, herbs, etc.)
28
are actually used for human nutrition (Heywood 1994, personal

communication). Supraregionally or world-wide, about 150 species are
cultivated for human nutrition. However, only five varieties of grain
(wheat, corn, rice, barley and millet) account for 50% of vegetable nutrition
in humans, and 20 species supply 90% of the world-wide demand (Myers
1989).
The quantity of renewable resources currently used and processed world-

wide amounts to approximately 2 billion tons of timber, 2 billion tons of
grain (including the food supply) and 2 billion tons of other products such
as sugar-cane, carrots, oil and leguminous plants. The global timber trade is
worth approximately $80 billion annually.
According to Peters et al. (1989), the present net value of sustainably used
biological raw materials (rubber, fruits, wood) from the rain forest in Peru
amounts to $6330 per hectare, i.e. more than sixfold the value of utilisable
wood ($490/ha). In the German chemical industry, about 2 million tons of
renewable resources are utilised at present (i.e. 10% of the entire
consumption of raw materials).
Use of game animals
Prescott-Allen and Prescott-Allen (1986) estimate the monetary

contributions of wild and semi-wild animals and plants as accounting for
approximately 4% of the gross national product (GNP) in the United States
and Canada. Barnes and Pearce (1991) have shown that the direct use value
of certain forms of wildlife management is financially more productive
than the transformation of game reserves into pasture areas (cf. Table 2).
29
Table 2: Use values of species
Components of biodiversity Evaluation Estimated Source

used method applied value (US $)
Wildlife watching value of elephants, CVM; travel cost 25 Brown and Henry 1989
Kenya method million/year
Ivory exports before the export ban, 35-35 Barbier et al. 1990
Africa million/year
Use of wild buffaloes, Zimbabwe 3.5-4.5/ha Child 1990
Export of non-coniferous wood 11 billion/year Barbier et al. 1994
products, entire tropics
Harvest of wood fruits and latex, 6330/ha Peters et al. 1989
Peru
Fish and firewood from wetlands, 38-59/ha Barbier et al. 1991
Nigeria
Improvement of the survival CRM 21/person and Brown et al. 1994
probability of the Northern spotted year
owl
CVM, contingent valuation method; CRM, contingent ranking method.
2.3.3 Use value of ecosystems and landscapes
Ecological resources and services that can be derived from the production,
carrier and information functions of ecosystems produce economic yields
in the form of direct use values. Direct use values include timber and non-
wood products, medicinal plants, plant genes, hunting and fishery,
recreation and tourism, education and human living areas, since all these
products and services are the result of a direct use of forests. Direct use
presupposes access to forest resources, among other things.
In contrast, indirect use does not require access to forest resources. The
most important indirect use values of biological diversity include the
regulatory functions of ecosystems. Each ecosystem is composed of a
30
whole range of physical, biological and chemical components. Interaction

between these components results in specific types of ecosystem functions
or characteristics such as the nutrient cycle, biological productivity, water
regime and sedimentation. These regulatory ecological functions are
fundamental to numerous secondary ecological functions and services,
which again are of fundamental importance in human life and societies
(e.g. erosion protection, water retention, detoxification, assimilation of
biological waste, climatic stabilisation, carbon storage).
As far as the role of individual species in the mediation of such regulatory

functions is understood, it is principally possible to establish the indirect
use value of such species. Indeed, the relationship between individual
organisms and ecosystem functioning is of central importance in the
concept of indirect use valuation.
Immler (1989) assumes that roughly a third of GNP (based on the German
GNP) would be necessary to re-establish the disturbed non-human natural
services and processes.
Most studies assessing the economic value of forests only take account of
partial values and not the TEV (for a relevant review, see Perrings 1995,
pp. 886f.). Indirect and non-use values are usually completely neglected,
and direct use values are also frequently only incompletely considered.
The first attempt to estimate the TEV of tropical forest habitats was
undertaken by Castro (1994). Castro calculated an average net actual value
of $1278-$2871 per hectare for Costa Rica's game wilderness. Multiplied
by the total area of 1.3 million hectares, this gave a present total value of
$1.7-$3.7 billion, of which, according to this study, 34% benefits Costa
Rica and 66% the world community.
31
Kaosard et al. (1994) evaluated not the total, but almost the total economic
value of the Khao Yai Park in Thailand (not including non-use values for
people who do not live in Thailand and estimations of carbon storage). The
comparative evaluation with agriculturally managed areas arrived at a
figure of $250 per hectare (see Table 3).
Barbier et al. (1991) showed that the direct use of the Hadejia Jama'are
floodplain in Nigeria for fishery, the production of firewood and migration
agriculture results in economic yields that are higher than alternative
irrigation projects upstream.
32
Table 3: Use values of ecosystems
Components used Evaluation method Estimated value Source

applied (US $)
Nature tourism, Cameroon: 19/ha Ruitenbeek 1989
Sustaining soil fertility by Productivity change 8/ha and 23/ha Ruitenbeek 1989
forests and inundation
control, Cameroon
Khao Yai Park, Thailand CVM, travel cost 80 million/year, Kaosard et al.
method 400/ha/year 1994
Ecotourism, Costa Rica Travel cost method 1250/ha Tobias and
Mendelsohn 1991
Importance of wetlands for Production-function Ellis and Fisher
crab production, Arabian approach 1987
Sea
Valuation of reserves, Production-function 566,070-2,160,000 Munasinghe 1993;
Madagascar approach, CVM, travel Kramer et al. 1993
cost method
Carbon storage by forests, 1300/ha/year Pearce 1990
Brazil
Importance of mangroves 536 million Ruitenbeek 1992
for agriculture, fishery,
Indonesia
Water retention by forests, 232-388/acre Bowes and
USA Krutilla 1989
Forest in Peru, Rio Nanay Productivity method 6300/ha for non- Peters et al. 1989
(comparisons of timber products
income) vs. 1000 for clear-
cutting
Primeval forest, Costa Rica TEV 102-214/ha/year, Castro 1994
1278-2871/ha,
133-278
million/year, 1.7-
3.7 billion
33
Recommendations
3 Recommendations
3.1 Valuation methods and techniques

Because of the benefits of biological diversity and the lack of information
about these benefits due to market failure, there is an urgent need for
economic valuation studies to be carried out. In the following, relevant
valuation methods are thus presented. Arguments in favour of their
application include the following:
• they give valuable information on how markets need to be reformed in

order to correct the present bias and/or, where this is not possible,
• they provide decision-making aids indicating political measures that

should be taken to correct market signals.
When applying these valuation methods, however, it is important to

remember what is actually being measured by the valuation technique, e.g.
direct use benefits, net benefits including use and non-use benefits, etc.,
and the reliability of the different data and methodologies in assessing these
different benefits yields (Perrings 1995, p. 878).
As Fig. 3 shows, the use value categories "direct use values", "indirect use
values", "option/quasi-option values" and "non-use values", which together
give the TEV, allow the application of various valuation methods. In the
following, these methods are presented and the range of effects to be
valued is considered.
Not all of these methods are able to completely determine biodiversity-

related costs and benefits. Each of them, however, is useful in the correct
35
context. Roughly speaking, we can differentiate between monetisation

methods as follows (see OECD 1996, p. 74):
• on the basis of actual market prices (market analyses),
• on the basis of simulated market prices (contingent valuation and

ranking; individual choice model),
• on the basis of surrogate market prices (e.g. the travel cost approach and
hedonic price approach) and
• on the basis of the production-function approach (e.g. value of changes

of productivity, avoided damage costs).
Since, in the context of this study, we are interested in the external use
values of biological diversity that are not reflected by actual market prices,
the subsequent discussion is limited to valuation approaches for simulated
markets (Sect. 3.1), surrogate markets (Sect. 3.2) and the production-
function approach (Sect. 3.3). The common instrument of market analysis
is therefore not discussed here.
The presently available set of valuation methods show very large

differences not only in valuation methodology, but also in their
conceptional treatment of the problem. For instance, there is still no
consensus on how to determine the existence value (Perrings 1995, p. 891).
These methods presuppose acceptance by those with political

responsibility. They have to guarantee that the monetisation requirements
that are identified become economically effective by income transmissions,
taxes, etc.
36
Recommendations
Fig. 3: Classification of economic values and attributable valuation

methods (methods in angled brackets are less suitable ones)
Use values Non-use values
Direct use values Indirect use values Option values Existence values
(functional values) Quasi-option values Bequest values
METHODS: METHODS: METHODS: METHODS:
Market analysis Avoided 'Individual choice' Contingent valuation

damage costs model method
Travel cost Prophylactic Restricted

method expenses information value
Contingent valuation Value of productivity Contingent valuation

method changes method
Hedonic prices <Transplantation

costs>
'Public' prices <Replacement cost

approach>
<Replacement cost
approach etc.>
Figure 3 highlights the particular importance of the contingent valuation

method (CVM); this method allows statements to be made about all use
value categories with the exception of the indirect use value. Indeed, it is
the only useful method to identify non-use values. This is because passive
or non-use values of the components of biological diversity are not related
to any activity or even the purchase of market goods and thus cannot be
determined using indirect valuation methods (Stephan and Ahlheim 1996,
p. 153).
37
3.1.1 Determining direct and passive use values on simulated markets
Sociological interviewing methods are the most practicable approaches to

determine the economic value of the components of biological diversity. In
principle, these methods can be differentiated according to two interview
objectives:
• to attribute a value to the components of biological diversity concerned

(contingent valuation method, CVM) on the basis of analyses of
willingness to pay (WTP) and willingness to accept (WTA) or
• to rank values (contingent ranking method, CRM).
The best way to apply the direct valuation method is to determine the
WTP/WTA of one environment-related use for the person being
interviewed or the one that corresponds to his or her personal opinion and
knowledge, e.g. recreation options. WTP analyses on the basis of losses of
environmental/biological diversity are more problematic. Moreover, we
still have some way to go before the psychological and cognitive processes
that influence the formulation of answers can be definitively assessed.
Even if the direct valuation method is not exact enough for carrying out
cost-benefit analyses or for legislative purposes, provided that specific
questions are asked, its results may nevertheless be used as a
supplementary public opinion poll to establish earmarking priorities
concerning the use and conservation of biodiversity, particularly because it
is the only method that is able to translate non-use values into market prices
(Blamey and Common 1993).
The main problem of this method is undoubtedly related to the possible

disparity between the data obtained from interviewees concerning their
WTP and the amounts that they are actually willing to pay if the need arises
(Ruck 1990, p. 330). In Australia, for instance, CVMs and related methods
38
Recommendations
are not generally recognised as accepted methods, since the values that are
determined are seen as improbably high (Blamey 1996).
Contingent valuation method (CVM)
In a direct analysis of WTP or willingness to renounce, value preferences

are determined on the basis of interviews. This method is referred to as the
CVM, not least because of the hypothetical nature of the situation
("simulated market situation"). It is applied to determine direct use, non-use
or passive use (existence and bequest values) and option/quasi-option use
values, but not indirect use values. Thus CVM (and the analogous CRM)
differ from all other important economic valuation methods, which can
only be used to determine one type of use value.
According to Pearce and Moran (1994), the CVM is the most important
method for the economic valuation of biodiversity, largely because it is the
only one that directly reflects the non-use-orientated (bequest and
existence) values of biodiversity. In addition to information retrieval and
information exchange during the interview process, verbatim minutes and
tape recordings allow the interviewer to analyse the biodiversity-related
knowledge and understanding of the interviewee ("think-aloud analysis").
Interest in this method has greatly increased over the last 10 years:
• because it is the only procedure that can be used to evaluate non-use-

values,
• because well-conceived and correctly conducted interviews might be as

valid as valuations of direct use values obtained by other methods and
• because the conception, analysis and interpretation of stated preferences

have also improved, e.g. the "scientific sampling" and "benefit
39
estimation" theories have improved the computerised data

administration and analysis of public opinion polls and their validity.
The first stage of a CVM involves providing interviewees with background

information about the relevant biological resources. They are given further
information about the quality, quantity and the time-scale of changes.
In the second stage, a payment instrument is selected. This involves asking

interviewees whether they would be willing to pay into a hypothetical fund
or whether they would prefer a tax or a price increase. At this stage, it is
very important for the interviewer to propose a reliable payment instrument
and to be able to depict a plausible and acceptable scenario for the
interviewee.
In the third stage, a method has to be selected that allows the WTP or
willingness to renounce to be determined as accurately as possible. In an
open-ended approach, interviewees have to state the maximum amount that
they would be ready to pay or renounce. If a "dichotomous choice"
approach is used, the interviewee is confronted with a concrete amount that
is varied within a group of interviewees to come as close as possible to the
"real" value (see Perrings 1995, pp. 845f.; Hampicke 1991, pp. 118ff.;
Pearce and Moran 1994, pp. 58ff.).
Valuation of the direct value assigned to a product or service on the basis

of the interview requires verification of the reliability and validity, and
answers need to be examined to identify any possible falsifications.
In order to obtain exact and reliable answers regarding the WTP,

standardised guidelines can be used, such as those developed by the U.S.
National Oceanic and Atmospheric Administration Committee (NOAA;
Arrow 1993):
40
Recommendations
1. Sample type and size - probability sampling is essential. The choice of sample
specific designs and size is a difficult technical question that requires the guidance
of a professional sampling statistician.
2. Minimize non-responses - high non-response rates would make CV (contingent

valuation) survey results unreliable.
3. Personal interview - it is improbable that reliable value estimates can be elicited

with mail surveys. Face-to-face interviews are usually preferable, although
telephone interviews have some advantages in terms of costs and centralized
supervision.
4. Pretesting for interviewer effects - an important respect in which CV surveys differ

from actual referendum is the presence of an interviewer (except in the case of mail
survey). It is possible that interviewers contribute to 'social desirability' bias, since
preserving the environment is widely viewed as something positive. In order to test
this possibility, major CV studies should incorporate experiments that assess
interviewer effects.
5. Reporting - every report of a CV study should make clear the definition of the
population sampled, the sampling frame used, the sample size, the overall sample
non-response rate and its components (e.g., refusals), and item non-responses on all
important questions. The report should also reproduce the exact wording and
sequence of the questionnaire and of other communications to respondents (e.g.,
advance letters). All data from the study should be archived and made available to
interested parties.
6. Careful pretesting of a CV questionnaire - respondents in a CV survey are

ordinarily presented with a good deal of new and often technical information, well
beyond what is typical in most surveys. This requires very careful pilot work and
pre-testing, plus evidence from the final survey that respondents understood and
accepted the description of the good or service offered and the questioning
reasonably well.
7. Conservative design - when aspects of the survey design and the analysis of the
responses are ambiguous, the option that tends to underestimate the willingness-to-
pay is generally preferred. A conservative design increases the reliability of the
41
estimate by eliminating extreme responses that can enlarge estimated values wildly
and implausibly.
8. Elicitation format - the willingness-to-pay format should be used instead of

compensation required because the former is the conservative choice.
9. Referendum format - the valuation question should be posed as a vote on a

referendum.
10. Accurate description of the program or policy - adequate information must be

provided to respondents about the environmental program that is offered.
11. Pretesting of photographs - the effects of photographs on subjects must be carefully

explored.
12. Reminder of substitute commodities - respondents must be reminded of substitute

commodities. This reminder should be introduced forcefully and directly prior to the
main valuation to assure that the respondents have the alternatives clearly in mind.
13. Temporal averaging - time-dependent measurement noise should be reduced by

averaging across independently drawn samples taken at different points in time. A
clear and substantial time trend in the responses would cast doubt on the reliability
of the value information obtained from a CV survey.
14. 'No-answer' option - a 'no-answer' option should be explicitly allowed in the

addition to the 'yes' or 'no' options on the main valuation (referendum) question.
Respondents who choose the 'no-answer' option should be asked to explain their
choice.
15. Yes/no follow-ups - yes and no responses should be followed-up by the open-ended
question: 'Why did you vote yes/no?'
16. Cross-tabulations - the survey should include a variety of other questions that help
interpret the responses to the primary valuation question. The final report should
include summaries of willingness-to-pay broken down by these categories (e.g.,
income, education, attitudes towards biodiversity).
17. Checks on understanding and acceptance - the survey instrument should not be so
complex that it poses tasks that are beyond the ability or interest level of many
participants.
42
Recommendations
Contingent ranking method (CRM)
The CRM is the stepsister of the CVM. The different feature in this
interview situation is that respondents are confronted with a set of options
that they are asked to rank according to their valuation scale. For each of
the options, the interviewer designates a set of characteristics and describes
how the options differ. The resulting costs should be delineated for each
option.
Asking questions about relative valuations and specifically costed

alternatives facilitates the choice for the interviewee; conversely, however,
it becomes more difficult to determine the actual monetary limit.
Further methodological progress
The "stated preference" method (SPM; Adamowicz 1994; Louviere 1994)

promises further improvements in the direct valuation process. Application
of the SPM (which was originally developed for the marketing and
transportation business) allows consumer responses to be made to a larger
range of subject characteristics than is normally possible using direct
valuation analysis.
3.1.2 Indirectly determining direct use values
The indirect or surrogate market valuation methods are all based on the fact
that the commodities "nature" or "biological resources" are consumed
together with complementary private goods with well-known or easily
determinable prices. These indirect approaches are techniques that derive
preferences from actual market-based observations. Preferences for a
biodiversity commodity can be assumed if an individual buys a product that
is somehow related to the biodiversity commodity in question. The relevant
techniques are as follows:
43
• the travel cost method,
• the "hedonic price" approach,
• the avertive behaviour approach and
• the dose-response method.
Surrogate market techniques focus on markets for private commodities and

services that are related to biological (or environmental) resources or
products. The products or services sold on these surrogate markets
correspond to the products/resources in question, because individuals
reveal their preferences for a biodiversity commodity by purchasing a
related object or service. "Strongly simplified: If a bird watcher spends DM
1000 on a telescope, then he is obviously willing to pay at least DM 1000
to watch birds" (Hampicke 1991, p. 115).
However, the potential of surrogate market approaches is limited for

several reasons:
• No hypothetical conclusions can be drawn. If the natural commodity is

no longer available, there will be no expenditure on the surrogate object
(in the case described above, the telescope) either.
• The method only measures the intensity of a personal interest ("user

value"), and not the interest in conserving biological diversity
("existence value").
• The relationship between private expenditure and the conservation goal

is frequently weak (e.g. telescopes may also serve other purposes).
• Experiencing nature is often non-specific; many people experience

biological diversity even in an ecologically worthless spruce forest.
44
Recommendations
Analogous limitations need to be addressed in the travel cost method. The

relationship between travel expenses and the valuation of the components
of biodiversity at the journey's destination is questionable if this journey is
undertaken for other reasons as well. Nevertheless, this method can lead to
valuable explanations about the WTP for experiencing nature, especially if
expensive and very specific destinations (e.g. a national park) have been
chosen. Past applications refer to large game parks in Africa (Brown and
Henry 1989) and tropical forest reserves in Costa Rica (Tobias and
Mendelsohn 1991), for example. In the latter study, it was shown that the
WTP of native and foreign visitors (primarily from the United States)
corresponding to a hectare of tropical forest exceeds the purchase price by
two powers of ten. In economic terms, the only possible conclusion is that
the area of the reserve should be increased. With respect to the travel cost
method, Ruck (1990, p. 261) states that, in the case of Kenya and Tanzania,
the abolition of national parks as tourist attractions would also lead to
substantial losses in seaside tourism, whereas in countries such as Sri
Lanka, India or the Ivory Coast, where tourism is largely beach or congress
tourism and national parks do not play a central role, there would be less or
no effects on the cost-benefit analyses of the tourism industry.
The dose-response approach is designed to determine relationships between

damage and its causes (e.g. pollution load); a certain load level is related to
the output change, which in turn leads to value changes on the market. This
approach, however, is only applicable to environmental changes and is
therefore not suitable for the economics of use-independent values.
3.1.3 Determining indirect use values
The methods presented in Sects. 3.1.1 and 3.1.2 to determine preferences

are not suitable to determine the direct or indirect use values (ecological
45
regulatory functions) of nature as production factors, since they support

economic activities regardless of preferences. In order to determine indirect
use values, other methods therefore have to be applied. However, such
methods currently still suffer from our lack of knowledge about the
functional importance of biological diversity and the ecological services
linked to them.
Indirect productivity measurements
The productivity change method can be used to determine the direct and
indirect use values of ecosystems within market prices. For instance, the
value of the ecological function of a forest in the catchment area of a
hydroelectric power plant can be measured by the net value of the
difference in water power production because of sedimentation in the
presence or absence (clearing) of forest or with a smaller (reduction) forest
stand.
A related productivity method measures the expenditure of work by a

market subject (individual, enterprise) to maintain or optimise ecological
effects (e.g. a farmer building terraces to prevent soil erosion). The
observed protective or preventive expenditure provides a measure of the
subject's valuation of the relevant ecological services (Perrings 1995,
p. 856).
The replacement cost approach focuses on the costs of replacing (e.g.

reintroduction) or restoring (e.g. reforestation) components of biological
diversity.
Avoidance and repair costs are difficult to determine, since neither

sophisticated techniques nor reliable cost levels are available for the
avoidance or repair of environmental damage. We cannot use the costs of
46
Recommendations
reducing the percentage of sulphur dioxide and nitrogen oxide in the air to
approximately zero to conclude that the value of clean air corresponds to
the level of avoidance costs. An estimation of forest degradation by acid
rain or the loss of fishery resources by water pollution on the basis of
avoidance costs, for example, will be misleading unless those concerned
are willing to bear these costs. The final report by the German Ministry of
the Environment's research programme on the "Costs of Environmental
Pollution/Benefit of Environmental Protection" puts the relevant avoidance
costs at DM 130 million p.a. (Wicke 1986).
Production-function approach
The production-function approach determines the physical effects of

changes of ecological functions on economic activities. The consequences
of these changes become visible in the change in economic yield of these
economic activities. Thus a relation between economic and ecological
productivity is produced.
In order to translate ecological into economic productivity, it is clearly

necessary to understand how regulatory ecological functions support
economic activities, and this is still the limiting factor. This becomes even
more difficult where the causes (e.g. the functional role of individual
species) of ecological functions have to be understood in greater detail. It is
highly desirable both from an economic and an ecological point of view to
promote this understanding.
Our lack of understanding of the ecological causes of economic

productivity should not prevent production-function valuations from being
carried out using existing knowledge. On the basis of different assumptions
about causal links between ecological and economic factors, Ruitenbeek
47
(1992), for instance, has carried out valuations in different scenarios. The
results of these valuation approaches are given in Sect. 2.3.
The marketable yield Q is formally represented as being dependent on a set

of factors: Q = F(Xi ... Xk, S). [In the study by Ellis and Fisher (1987) on
the effect of wetlands on the crab harvest, QS is the area of the wetlands in
question.]
3.2 The cost aspect of the conservation and destruction of

biological diversity and the cost-benefit analysis
procedure
The preceding sections have dealt with the type and range of economic use
values of biological resources and the methods used to determine them.
This section discusses the costs associated with the conservation,
sustainable use and restoration of biological diversity in order to balance
these costs with their social and economic benefits. If biological resources
for conservation, sustainable use or restoration can be treated as scarce
resources and valued accordingly, they can be balanced against alternative
uses. The forgone opportunities are referred to as opportunity costs. On the
basis of cost-benefit analyses (see below), the relevant activities and their
alternatives can ultimately be determined and evaluated in monetary terms.
3.2.1 Opportunity costs: restoration costs, sustainability costs, lost use

values
How much does it cost not to destroy nature? Since the pioneering work by
Krutilla and Fisher (1975), this question has been addressed by a number of
studies. Approaches such as that used by Bishop (1980) to estimate
conservation costs for individual species are still rare; other studies deal
48
Recommendations
with the opportunity costs of area requirements for nature conservation.

The starting point of this kind of research was the work carried out by
Goldstein (1971), who compared two alternative uses of areas in the
Midwest of the United States. Retaining the area as an adventure range for
WTP bird hunters instead of intensifying its agricultural uses proved to be
economically more favourable.
Some studies, such as the ones by Turner et al. (1983) and Krutilla and
Fisher (1975), have established that maintaining a natural condition does
not cause economic costs, because large investment planning has proved to
be unprofitable. A study by Willis et al. (1988) elucidates the difference
between land use costs if distorted prices support a use that destroys nature
while lower opportunity costs are arrived at by correct calculations.
The TEV approach should be used as the basis on which to calculate

opportunity costs. Use-dependent and use-independent values have to be
taken into account, and market price-based and market price-independent
methods should be examined to valuate them. In 1989, the U.S. Court of
Appeals ruled that the procedural guidelines of the U.S. Ministry of the
Interior for the monetary valuation of environmental damage should be
revised (Marggraf and Streb 1997, p. 17). However, this court decision has
not yet been implemented, although a second ruling that environmental
damage should be valuated on the basis of the sum of restoration costs and
forgone use options has now been put into practice.
At this point, it would seem appropriate to step aside for a moment and
consider the actual and potential market values of the (minimum) goals and
costs of biodiversity. What are the ecological and biodiversity standards
that should be aimed at from a scientific point of view? And how can they
49
be translated into global and national economic units to make their

economic superiority visible?
"The progressive destruction of nature in many developing countries calls

for an answer to the question of the number, size and geographical location
of national parks that might be regarded as economically optimal within a
given time frame for a country or for human civilisation" (Ruck 1990,
p. 365), where "national park" is used as a synonym for protected,
sustainably used or restored ecosystems/biodiversity. Ruck (pp. 365ff.)
presents ways to arrive at economic responses to this question.
"Market prices for products and factors partly reflect material scarcity and
thus opportunity costs, but they are usually distorted by transfer
components, and corrections therefore need to be made for calculations of
economic costs. A distinction should always be made between dynamic and
static sets of costs, and each has to be incorporated in the other" (Hampicke
1991, p. 180). Funds for the conservation of biological diversity should
always be spent according to defined priorities and as efficiently as
possible: certain goals can either be attained at minimum costs, or the
degree to which a given goal is realised should be maximised at a given
cost. The practical cost categories for the conservation of biological
diversity can be divided into investment, work and land use costs, and each
poses specific problems. A number of studies that have been undertaken
world-wide concerning conflicts of various sizes show that opportunity
costs for the conservation of biological diversity are often far lower than
expected. In those federal states that belonged to West Germany before
German reunification, for example, DM 1 billion would be sufficient to
implement a thorough nature protection programme.
50
Recommendations
Wells (1992) compared the costs and benefits of protected areas at the
local, regional and global level, qualitatively estimating the distribution of
costs and benefits on these different levels. His estimation of the benefit of
protected areas was based on the work of Dixon and Sherman (1990; cited
in Wells 1992). It was shown that the economic benefits of protected areas
are limited at a local level, are somewhat higher at regional and national
levels and become substantial at a global level. The related costs follow the
opposite trend: They are significant at a local level, moderate at a regional
and national level and small at a global level (e.g. contributions to
multilateral financing mechanisms, cf. Fig. 4).
Wells (1992) concluded that to ensure that biodiversity is effectively

protected, this imbalance needs to be corrected by:
• North-South money transfers and
• an increase in profits at both a local and a regional and national level,

e.g. by the expansion of sustainable use strategies.
In order for local communities to actually profit from sustainable uses,

however, further socio-economic and legal conditions have to be fulfilled
on a national and regional level. These concern aspects such as land tenure
rights, property rights to biological diversity and the promotion of rural
development.
51
Fig. 4: Comparison of the resulting costs and use of protected areas
Potentially significant benefits Potentially significant costs

LOCAL LEVEL
Consumption benefit Indirect costs (e.g. damage by grazing)
Recreation/tourism Opportunity costs (e.g. by restriction of
use)
Future values
REGIONAL/NATIONAL LEVEL
Recreation/tourism Direct costs (establishment of protected
areas)
Water drainage areas Opportunity costs
Future values
GLOBAL LEVEL
Biological diversity (Minimum costs)
Non-consumption use
Ecological processes
Environmental education and research
Future values
3.2.2 Cost-benefit analysis
Cost-benefit analyses (CBAs) allow biodiversity-relevant activities and

their alternatives to be evaluated and expressed in monetary terms. In order
to be able to compare the costs and benefits of alternative uses, the
following procedure should be followed:
1. All the consequences of a relevant action should be identified (e.g. use,

alternative use, change in the status quo of biodiversity).
2. The present private benefits PV[B(DEV)] and costs PV[C(DEV)]

associated with the individual action taken should be determined and the
difference between them calculated: PV[B(DEV)] - PV[C(DEV)].
3. Depending on the relevant integration level, the present local, national,

global or total (TEVtot = TEVg + TEVn + TEVl) social benefit
52
Recommendations
PV[TEV(SUB)] of the alternative use (e.g. conservation, sustainable

use) should be calculated; its social costs PV[C(SUB)] are then
subtracted.
4. If the difference PV[TEV(SUB) - C(SUB)] is larger than the difference

PV[B(DEV) - C(DEV)], then the social use alternative is the
economically relevant one. It will also be politically relevant whether
the private user is able to participate in the social global, national and/or
local yields.
If the costs and benefits of an action are to be calculated without

considering an alternative scenario, step 2 should be omitted. The action
concerned will then be economically reasonable if the valued benefit
exceeds the respective costs. Since the cost-benefit analysis requires
national and international costs and benefits to be identified and quantified
as comprehensively as possible, it also includes individual cost and benefit
aspects (e.g. external effects), even if these are not economically apparent.
3.3 Organisation of markets with appropriate prices

In the preceding sections, the causes of market failure were explained in
terms of the valuation or rather the lack of valuation of biological diversity.
In addition, techniques were described with which the actual value of the
components of biological diversity can be determined (TEVs at a local,
national and global level, etc.). The critical question is now how these
theoretical insights and methods can have a practical impact on markets
and prices and how the external costs and benefits of biological resources
can become visible on the markets and in market prices.
53
3.3.1 Monetisation and cost-benefit analyses
In order for market prices to approximate the "real" value of the

components of biological diversity and/or for efficient market price-
relevant decisions to be made, it is first necessary to gather all the available
information about the value of biodiversity commodities. The first step
from theory to practice therefore has to be to apply the valuation techniques
described in Sect. 3.1 and the cost-benefit analyses presented in Sect. 3.2.
Barbier et al. (1994) draw some important conclusions from the
investigation of Mantadia National Park for the practical relevance of cost-
benefit analyses (Munasinghe 1993):
• Firstly, valuation techniques have to be adapted to the local situation; in

the specific case concerned, the currency "rice" was used to value the
economic advantages of forests.
• Secondly, by carefully selecting and applying valuation techniques in

relevant situations, useful indications can be obtained of the values that
would be impaired by the selected land use alternative. It is important to
realise what is actually measured by the particular valuation method
used, e.g. direct use effects, net proceeds from direct and indirect use
effects, etc., and to have a clear idea of the reliability of data and
methods for the evaluation of the respective advantages.
• Thirdly, it also needs to be clarified what was not measured by the study
in question, on which level of the hierarchy the study was conducted
and whether the TEV or only elements thereof were determined.
Only with such specifically adapted instruments and the initial knowledge
they provide about the "real" economic value of the biological resources
and their use can the following central issue be addressed: What are the
54
Recommendations
mechanisms that transform the socio-economic values that have been

determined into monetary reality on the market?
Four such mechanisms will be discussed below:
1. the removal of damaging distortions of market mechanisms

(deregulation) by dismantling failed interventions (Sect. 3.3.2),
2. the creation of markets by privatisation and integrated biodiversity

management (Sect. 3.3.3),
3. market-induced control systems (Sect. 3.3.4.) and
4. the creation of global biodiversity markets (Sect. 3.3.5).
3.3.2 Dismantling failed interventions
Governments generally tend to intervene in markets. This may be done

with the best intentions. However, even though some interventions may use
price corrections to adjust external effects that are damaging to
biodiversity, many interventions run counter to the goals of protection
biodiversity, even if they serve other important purposes. Well-known
examples of such intervention prices are deforestation subsidies, water
prices that are too low, subsidisation of agriculture, etc. Such measures are
referred to as perverse incentives, i.e. incentives that lead to a decrease in
biological diversity, and are the result of policy failure. The most perverse
incentives are those that have been created to promote goals that destroy
biodiversity (OECD 1996, p. 70).
An important step towards achieving prices that reflect social costs is

therefore to abolish any supportive measures that artificially reduce the
private costs of actions that are detrimental to biodiversity. The OECD
(1998) has very recently undertaken a study of this problem, which will be
55
referred to later. One way of correcting the price distortions caused by price
controls or national monopolies is to take internationally valid competitive
market prices as "shadow" prices (Ruck 1990, p. 220).
3.3.3 Creation of private property rights and integrated biodiversity

management
In an ideal free market, the market develops on its own such that private
use interests work to support social interests and correcting measures are
kept to a minimum. In order to at least come close to this ideal, private
users have be able to profit from the national or global yields of the
conservation and/or sustainable use of biodiversity. This could be achieved
by creating vested titles to those biological resources to which vested titles
do not yet exist and/or by transferring property rights from the State to
landowners (including those who should be entitled to such rights due to
pending land reforms).
This approach would be the logical consequence of the "national

sovereignty regime" over genetic resources that was created by the CBD to
replace the former "free access regime" to shift it at the local level. It would
meet the efficiency criterion that those who control net assets should also
be those who profit from the utilisable effects of these net assets. If a local
community cannot draw net use from its investment (the sustainable use of
ecosystems/components of biodiversity), it will not have an interest in
maintaining its investment (Pearce and Moran 1994, p. 144).
Persson (1994) was able to show that the transferral of vested titles to
squatters causes them to stop clearing, in particular if discounting is lower
than the future value of the forest. These property rights could further be
licensed, e.g. as bioprospecting ratios, visitor ratios, harvest ratios,
emission rights, development rights, etc.
56
Recommendations
With respect to genes, species and ecosystems as levels in the biodiversity

hierarchy, property rights will probably refer to the ecosystem level. It
would be advisable for transferred vested titles not to be restricted to single
uses, but to be open for the whole range of use options, e.g. tourism,
bioprospecting, hunting, renewable resources, etc. For a comprehensive
bioprospecting strategy could ensure conservation effects for the specific
resource in situ; moreover, it may also generate conservation effects for
other resources in the same habitat that are not yet being sought or
commercially exploited.
This presupposes that a bioprospecting strategy will be open in terms of the

species, genes and biomolecules it is looking for. A broader screening
policy for commercially useful resources means that the quasi-option value
of the resources that are not yet being screened for can create preservation
effects for the whole ecosystem more effectively. If prospecting is more
specific (species xy, effect ab), a holistic protective effect becomes less
likely, particularly if shortages or losses may result from subsequent
exploitation of the resources being sought. The status of the components of
biodiversity concerned should therefore be monitored by means of pre- and
post-prospecting programmes.
Bioprospecting opens up new sources of income for developing countries.

Instead of having to ask for new technologies and transfer payments from
the North, these countries may be able to offer "genetic technology" in the
form of raw materials, plant-based medicines, etc. (Krattiger and Lesser
1994). For a more lasting success in bioprospecting strategies, it would also
be helpful to transfer an increasing amount of relevant biotechnological
know-how ("capacity-building") to the area from which bioresources
originate to enable further processed resources to be marketed not only
globally, but also regionally.
57
The same is true of ecotourism; multiple attractions can increase the

duration of usability, but here, too, monitoring programmes should be
implemented to register any side-effects, and benefits were to be shared
with the local communities concerned.
3.3.4 Creation of market-based regulatory instruments
Many regulatory instruments are available to bridge the gap between TEVs
and current market prices on the national market. The main distinction is
between regulatory and market-based instruments. While regulatory
instruments imply the direct control (reduction/limitation) of unwanted
actions in conjunction with legislative or politically agreed standards,
market-based instruments create economic incentives. "It is no accident
that 'command and control' concepts have dominated environmental policy
so far world-wide. The reasons for this are the sectoral organisation and
splintering of national competences, the minor political importance of
national environmental institutions and, last but not least, the insufficient
integration of environmental policy into public discussion in many
countries" (Paulus 1995).
Economic incentive systems can be subdivided into four categories:
1. Positive incentives: any monetary (direct payment, cost-sharing, tax

advantages) or non-monetary inducement (such as awards in recognition
of outstanding performance) that motivates individuals or groups
(governments, international organisations, local communities) to
conserve biological diversity.
2. Disincentives: any mechanism that internalises the costs of use and/or

damage of biological resources in order to discourage activities that
deplete biological diversity.
58
Recommendations
3. Indirect incentives: any mechanism that creates or improves upon

markets and price signals for biological resources, encouraging the
conservation and sustainable use of biological diversity.
4. Perverse incentives: an incentive that induces behaviour leading to a

reduction in biological diversity. Perverse incentives are the result of
failed government intervention. Most perverse incentives are designed to
achieve other policy objectives and their "perversity" is thus an external
factor or an unanticipated side-effect of the policy (OECD 1996, p. 70).
If the results of economic valuations of biological resources do not lead to

reformed or newly created markets, the economic value of biological
resources can only be asserted by intervention. The notion that the market
is basically flexible enough, with only occasional State subsidies required,
is only a qualitative one. "By no means can it be concluded that economic
adjustment processes and government incentives are implemented in time
and to a sufficient extent to avoid the catastrophic consequences of
resource shortages" (Endres and Querner 1993; on market failure, see
pp. 124ff.).
However, despite the shortcomings of the market mechanism outlined

above in reflecting the TEV of the relevant components of biological
diversity, the capacity of the market to contribute to solving the problem of
the destruction of biodiversity should not be underestimated. As only
incomplete allocation mechanisms currently exist, it is not certain how the
market can contribute to the conservation of natural resources in pragmatic
terms (Endres and Querner 1993, p. 139).
In order to optimise the quality of an allocation mechanism, free market

economy intervention instruments (MEIs) should be used. Examples of
such mechanisms include environment-related fees, a price strategy with
59
resources and inputs, duties and taxes, subsidies, environmental funds,

tradable rights and licences, flexible levies, pledge systems, etc. (Paulus
1995).
Strictly speaking, MEIs include all political measures explicitly related to

private costs and benefits by which the comparative social costs and
benefits can be incorporated into market prices. These MEIs can be
subdivided into five categories:
1. charges, taxes, fees or additional prices to be paid for the social costs
arising from damage,
2. subsidies to assist individuals in altering activities or conforming to

environmental standards,
3. deposit/refund or fee/rebate systems in which a surcharge is levied on the

price of products leading to resource depletion which is then refunded if
the product is recycled or if the depleted resource is restored,
4. tradable permits by which rights to exploit resources can be exchanged

and
5. compensatory incentives to create markets or financial inducements for

certain individuals or groups who bear a disproportionate share of the
risks or costs of the conservation of biological resources (Barbier et al.
1994, p. 180).
MEIs, however, entail a considerable amount of administrative and/or

monitoring expenditure. It is therefore important to examine carefully, as
Paulus (1995) does, the institutional conditions and to integrate measures
into existing structures wherever possible. The following criteria need to be
taken into account when selecting measures: ecological effectiveness,
60
Recommendations
economic efficiency, administrative management, public costs and yields,

distribution effects and interspersing ability.
No single MEI instrument will be sufficient to counter specific threats to

biological diversity, and a range of MEIs will be necessary to address the
complex problems of the social costs of conservation, sustainable use and
restoration of biological diversity.
In principle, the groups that damage biological resources should bear the
damage prevention costs and/or the social costs connected with the
damage. Otherwise, those who use biological resources would have to bear
the entire costs of using resources, including the costs of control and
prevention. Conversely, the incremental costs connected with the
mobilisation of non-marketed uses should be offset by the utilisation of
positive incentive systems. The latter could be implemented using market-
based control instruments, as clearly shown by Lippke (1996, p. 253).
3.3.5 Creation of global markets
As mentioned several times in the preceding sections, many conservation

and/or sustainable use approaches produce global benefits. The
conservation of biological diversity in a tropical rain forest may benefit
individuals and groups in other countries, e.g. because they profit from its
renewable resources, because its biogeochemical cycles have global
benefits or because they want it to exist for its own sake.
However, if the country that owns the resources cannot derive monetary
benefit from these global external use values due to a lack of appropriate
markets, it will have no or little incentive to conserve the biological
resources in question.
61
It is therefore necessary to create global markets (GEMs). These markets

can be enforced by international law or may result from voluntary
agreements. Examples of the latter include debt-for-nature swaps or
benefit-sharing agreements, as concluded by Merck & Co., Shaman
Pharmaceuticals, Biotics Ltd. and others with the owners of bioresources.
Regulation-induced markets have gained attention in the context of the
Climate Convention, e.g. the intergovernmental agreement on CO2
reduction between Norway, Poland and Mexico concluded via the Global
Environmental Facility (GEF) or the afforestation agreements entered into
by various U.S. energy companies.
Both approaches - regulation-induced and voluntary agreements - have a

common feature: bilateral or multilateral transfer payments. Indeed, in the
foreseeable future, well-organised and specific financial transfer services
will be indispensable. The particular practical relevance of monetisation
approaches for the conservation, sustainable use and restoration costs of
biological diversity lies in the fact that these approaches will form the basis
of assessment for the budgets of national and international measures for the
protection of biological diversity. This is especially relevant for the
implementation of the CBD with regard to international financing
instruments such as the GEF and biodiversity portfolios of the World Bank,
the Development Bank of the United Nations and continental development
banks. The concept of "incremental costs" in the realisation of the CBD and
the conservation of biological diversity may be helpful in this respect.
Exactly what is covered by the term "full incremental costs" in accordance
with Art. 20 of the CBD is still the subject of detailed discussion. A
definition of the scope of this term, however, is urgently needed, since it
determines which elements of biodiversity-relevant projects may be
62
Recommendations
covered as "incremental costs" by the financial mechanisms of the

CBD/GEF.
For a definition of incremental costs, the (then still interim) secretariat of

the CBD listed several items to justify transfer payments in the light of the
CBD; however, these also suggest that a complicated bureaucracy will need
to be established (UNEP/CBD/IC/2/17 of 25 April 1994). It might be more
appropriate to restrict net incremental costs to the CBD aims of
conservation and sustainable use (global externalities of biodiversity loss),
because to achieve the third aim, the sharing of benefits and not
incremental costs would have to be refunded, but yields would have to be
divided. According to Glowka et al. (1994), incremental costs could be
defined in a simplified form as those costs that are necessary to conserve,
use sustainably or restore the components of biodiversity defined by quality
goals (if necessary, minus the immediate yields from the direct sustainable
use of biodiversity and benefit-sharing), whereby the extent of the specific
financial expenditure should be based on non-use-related monetary values.
The International Conservation Financing Project of the World Resources

Institute has attempted to calculate the annual funds necessary for the
conservation of biological resources and estimates a total of $20-50 million
per year (Reid and Miller 1989). The conservation for 20 years of 2000
animal species with 500 individuals each costs approximately $25 billion
alone, as much as the first landing by man on the moon. The traditional
conservation of tropical rain forests is estimated to cost $170 million per
year for at least 5 years.
In order to develop a ranking order for transfer payments, a cost-efficiency

index for biodiversity projects has been developed (see the Second Global
Biodiversity Forum, Nassau 1994):
63
• a suitable indicator of the benefits of biodiversity or of biological

significance: data at a national level on species diversity and endemism
(per km2) may be used to represent the benefits gained by the
conservation activity concerned;
• cost of intervention: represented by the amount of investment (per km2)

in conservation measures at a national level;
• probability of success (willingness to conserve): the percentage of land

area defined as protected area is used to assess the probability of
success;
• degree of threat: deforestation rates and population growth are used to

approximate the level of threat.
It should be remembered that it is not sufficient to guarantee the return of

profit shares to the countries owning the resources. Instead, financial
compensation for the use or exploitation of biological diversity must
benefit those groups (e.g. local communities, conservation organisations,
national park administrations) that directly protect and sustainably use
biodiversity. However, this presupposes a whole range of institutional,
organisational and legal conditions, including procedures to ensure the
predictability and reliability of the distribution of transfer funds as
equivalents for economic values.
A number of financing instruments (e.g. an international rain forest fund,

resource franchise agreements) are being discussed to ascertain strategic
international payments. Because of their free market nature, transferable
development rights (TDRs) appear to be particularly promising to allow
adequate conservation of global biodiversity values in tropical countries.
64
Recommendations
The first step towards establishing TDRs for the conservation of biological
diversity would be to differentiate between conservation and development
areas. Individuals owning land in the conservation areas would also receive
TDRs, but would not be allowed to implement these rights within the
conservation areas. Instead, they could sell these vested titles in
development areas in which there is assumed to be a high demand for
limited development rights. Full compensation should thus result for the
owners of the conservation areas by the sales of development rights.
Such a market for TDRs could develop internationally. Tropical countries

could exclude areas of authentic ecosystems from alternative use and offer
TDRs locally and internationally at prices that cover their opportunity costs
(current net value of the forgone development alternative; for further
discussion, see Panayotou 1994). To a certain extent, a TDR system
already exists in the form of the debt-for-nature swaps. The essential
element of these agreements is the transfer of development rights for
conservation areas to international non-governmental organisations
(NGOs) in exchange for assuming part of the national debts of the
countries concerned. However, the extent of these rights is usually not
correlated with the opportunity costs.
3.4 Recommendations for development cooperation

The example of valuation techniques highlights the fundamental dilemma
of environmental economics, i.e. the need to proceed from generalisations
to formulate operational recommendations for action. The economic
analyses in many case studies are fairly convincing, but their scientific
theory is often still not translated into practice. Development co-operation
is required in order to develop operational concepts and to implement them
in pilot projects. The key concepts in this context are the acquisition of
65
knowledge about specific costs and benefits, training and capacity-

building.
3.4.1 Project-oriented cost-benefit analyses using the available

valuation instruments
The most obvious measure might be to introduce biodiversity valuation

techniques and comprehensive cost-benefit analyses in project planning
and to create project-oriented cost-benefit analyses (as a continuation of
project environmental-impact assessments, EIAs) as a basis on which to
determine project-related TEVs. This would require the development of
appropriate training programmes and guidelines for those responsible for
the projects in Germany and in the partner country, which should initially
be conducted in a pilot phase for selected projects. When developing such
programmes and guidelines, care should be taken to ensure that the
necessary standardisation still allows sufficient scope for the individual
project conditions and the practical adaptation of the relevant procedures
(e.g. CVM).
3.4.2 Training and capacity-building to inventor and monitor

biodiversity
In order to carry out economic valuations of the components of biological

diversity under reasonable conditions, the component to be valuated must
be adequately characterised, i.e. inventories of the components of
biological diversity concerned should be made on the relevant hierarchy
and integration levels (e.g. genes, species, ecosystems); in the follow-up,
these inventories also need to be reviewed using monitoring and
assessment programmes. There is now an extensive body of literature (e.g.
Stork and Samways 1995; Guarino et al. 1995) on the implementation of
66
Recommendations
such programmes, and this issue will not be addressed in detail here.
Particular attention should be paid to rapid biodiversity assessment
techniques (discussed in the literature) and to close cooperation between
experts and parataxonomists, as has been documented particularly clearly
for the Instituto de la Biodiversidad (INBio) in Costa Rica. DC is required
to support and to participate in biodiversity inventories in the partner
countries by means of suitable training courses and infrastructure measures.
3.4.3 Creation and/or strengthening of institutional prerequisites for

the development and implementation of national biodiversity
strategies
In this context, it is necessary to support the national and regional

authorities responsible for the conservation and sustainable use of
biological diversity in diverse areas, to help integrate biodiversity
conservation strategies in the planning of land use and to support
cooperation among the organisations involved (government authorities,
local authorities, environmental and development organisations, social
movements, development cooperation institutions). DC can contribute to
this process, e.g. by providing consultancy services. A possible form of
support is to ensure that yields from the use of genetic resources are
proportionately supplied to protected areas. At the same time, legislation
must be examined and amended to ensure its compatibility with
conservation and development goals.
3.4.4 Training and capacity-building to conduct cost-benefit analyses

and valuation techniques
Not only should project planning be carried out in donor countries (cf.
Sect. 3.4.1), but the know-how for the application of valuation techniques
67
and the implementation of cost-benefit analyses should also be transferred

to the recipient countries by means of DC in association with the capacities
to be built and developed in order to catalogue biodiversity. DC should
organise project-related (advanced) training courses and consult the
relevant institutions of the partner country. At the same time, legislation
should be examined and amended in the light of the relevant methods and
techniques, as done for the relevant American DOI guidelines, for example.
3.4.5 Supporting research capacities in developing countries at the

frontier between ecology and economics
Due to the rising demand for genetic resources, resulting in increased

bioprospecting activity in tropical forests, for example, national inventory
programmes on biological diversity and ecosystem research need to be
supported in order to set up sustainable utilisation strategies. An
international fund should provide support in capacity-building to inventory
biological diversity, to document and analyse samples and to exchange
information. Free access to information and the participation of local
communities need to be ensured. Experience at institutions such as the
Costa Rican Instituto de la Biodiversidad (INBio) suggest that we should
be thinking about models for other countries above and beyond this Costa
Rican approach.
The research and technology capacity of developing countries can be

supported by private initiatives; however, due to the size of these tasks, this
alone will not be sufficient and supplementary efforts will be necessary. In
close cooperation with partner institutions in the tropical countries, foreign
research institutions should contribute to the complex field of basic
research in the rain forests. In this context, it should be ensured that
research results are accessible to all those involved, that emphasis is placed
68
Recommendations
on building national research capacities and that research results are put
into practice by means of environmental education.
One extremely important area in which DC is required is undoubtedly the

establishment and promotion of modern biodiversity research in partner
countries, in particular the creation of a sound modern taxonomy, as this
forms the basis of all other fields of biodiversity research. "Taxonomy is
fundamental in providing the units and the pattern to humankind's notion of
species diversity" (Bisby 1995). As Hubert Markl puts it, "It has to be
clearly stated: Without the active contribution of lively and productive
biotaxonomic research - above all organism inventories of the tropics and
subtropics and the seas of all latitudes - it will be impossible to gain the
ecological insights that are necessary for the global management of the
biosphere (a profitable form of management to our benefit, e.g. self-
restraint in relation to natural communities) in such a way that mankind and
nature will be able to live together on a long-term basis, something our
future depends on. (...) As an infrastructure-related task of biodiversity
research, however, this reflects only part of the particular scientific value of
biotaxonomic research. Is it not the sophisticated differentiation of life
forms that forms the indispensable prerequisite for our astonishment and
enthusiasm for all kinds of organisms more than anything else: their
marvellous ability to adapt to their environment, their skilful methods of
conquering ecological niches, their inexhaustible wealth of original
solutions for all of life's problems from the procurement of food in
competition with their own and other species, the avoidance of enemies, the
fight against parasites and, finally, the development of supra-organismal
social systems whose abilities to learn and adapt seem to know no limits
even in animals, let alone in humans? We would not be able to carry out
research on any of this without the clear distinctions identified by
69
taxonomic research that provide the basis for our comparative analyses"
(Markl 1995).
Important tasks for the future include developing a modern taxonomy as an

integral science combining both classical and molecular methods (see
Bisby 1995) and training methodically (classical/molecular) holistic
taxonomists who also have a particular expertise in data processing using
information technology. It should be added that taxonomy will also become
increasingly significant as an infrastructure for biotechnology. In the
context of bioprospecting, biodiversity conservationists have pinned their
hopes on strategies of participative use for biotechnologically exploitable
natural substances for the in situ preservation of biological diversity. DC
should therefore also take account of research into chemical ecology and
natural products, including the industrial, sociological and economic
aspects of biodiversity. Where possible, appropriate DC projects should be
integrated into international scientific biodiversity initiatives such as
DIVERSITAS, BioNET International or Species 2000.
A further key area of biodiversity research for DC is the area of

biodiversity economics. In recent years, not least as a result of discussions
on the CBD, this subdiscipline of environmental economics has undergone
rapid development, and there have been a number of publications focusing
on valuation studies of biological resources. Interdisciplinary coordinated
research efforts are still largely lacking, however.
3.4.6 Identification of interventions failures
In order to come closer to the goal of having prices that reflect social costs,
it is necessary both to eliminate subsidies that artificially lower private
costs and to implement suitable economic instruments or other regulatory
measures to ensure that harmful external effects are taken into account in
70
Recommendations
price setting. As part of DC, consultancy services are required in this

context to support the dismantling of misdirected economic instruments on
the basis of TEVs and cost-benefit analyses; in addition, approval for
biodiversity project funding needs to be linked to the removal of any
disincentives counterproductive to the aim of the project.
3.4.7 Creation of incentive instruments
Consumption and non-consumption values of biological diversity are only

partially reflected in market prices. An overall economic calculation should
also consider ecological follow-up costs. Subsidising non-sustainable uses
sends the wrong politico-economic signals and frequently causes the
exploitation of natural resources. Within the framework of project
cooperation, DC should therefore recommend that more attention be paid to
economic incentives for the conservation of biological diversity together
with the abolition of subsidies for ecologically harmful land uses.
By means of consultancy services, national governments and authorities

should be encouraged to use and test economic instruments able to generate
market prices that approximate previously determined TEVs.
3.4.8 Participation of local communities in biodiversity yields
Successful work on a project requires the appropriate participation of local

communities in decision-making processes and the identification of
problems in project planning, implementation, and monitoring and
evaluation. Decision-making processes concerning the organisation of the
project should be made as transparent as possible and should include
objection options for the local communities concerned.
71
The effectiveness of economic incentives for local communities has not

been sufficiently considered so far. Bioprospecting and the gathering of
biological resources by national organisations offer the opportunity for fair
and equitable participation by local communities, and benefit-sharing
arrangements should be made at the beginning of a project. Private
initiatives that take account of such participation should be supported by
government authorities.
3.4.9 Assistance in the creation of property rights
The property rights of local communities need to be strengthened and

secured. This includes examining land tenure structures and strengthening
the rights of indigenous peoples and traditional communities to their
cultural identity and the collective intellectual property of their traditional
knowledge.
While industrial innovations and newly developed products enjoy the

protection of legally enforced intellectual property rights at an international
level, e.g. patent rights (recently internationally strengthened by the GATT
agreement), the collective intellectual property of traditional local
communities and indigenous peoples is not internationally recognised. If
the wealth of experience and valuable knowledge of this part of humanity
is to be used in a fair and equitable way for the management and
sustainable use of biological resources, these rights need to be
strengthened.
Action particularly needs to be taken in the following areas:
• in the evaluation of land tenure systems to support sustainable

management practices and the transfer of vested titles to biological
diversity (keyword: privatisation),
72
Recommendations
• in the establishment of legal instruments to protect the collective

intellectual property of indigenous peoples and traditional local
communities and
• in the examination of the influence that international rules such as the

GATT and TRIPS agreements (strengthening of patent rights) might
have on the availability of environmentally acceptable technologies in
developing countries and the socio-economic and ecological effects that
they may have on the lives of small farmers and indigenous peoples.
3.4.10 Cooperation in establishing global environmental markets

through bilateral and multilateral agreements
As in the implementation of the Climate Convention (with the goal of a

reduction in the emission of CO2), where both bilateral and multilateral
conventions and agreements under public and private law have been made,
similar agreements should be made with the specific goal of biodiversity
conservation. As example that might be mentioned here is the U.S. Forest
for the Future Initiative. The participation and motivation of the private
sector should also be sought in such bilateral or multilateral agreements on
biodiversity.
73
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Tropical Ecology Support

The Economic Valuation

The Economic Valuation

Dr. Thomas Plän

Published by: Deutsche Gesellschaft für

© 1999 All rights reserved

Dr. H. P. Schipulle Dr. C. van Tuyll

TABLE OF CONTENTS .....................................................................I

LIST OF TABLES ...........................................................................IV

2 RESULTS AND ANALYSIS ........................................................7

3.2 The cost aspect of the conservation and destruction of

3.4.9 Assistance in the creation of property rights ................. 72

Fig. 2: Classification of resources 17

Fig. 3: Classification of economic values and attributable valuation

Fig. 4: Comparison of the resulting costs and use of protected areas 52

Table 2: Use values of species 30

Table 3: Use values of ecosystems 33

Allocation Mechanism for the allocation of productive factors or

Assimilation Admission and processing of a substrate

Bequest value Value of keeping a resource intact for future

Biodiversity or General term for the number, variety and diversity of

Biological resource General term for genetic resources, organisms or

Bioprospecting Exploration of biodiversity in search of commercially

Biotic Of or relating to organisms or life processes

Cost-benefit analysis Collection and evaluation of relevant actions or

Direct use value Value of biological resources or resource systems by

Discounting Preference of a currently available private use, which

involves social destruction, over a private use in the

Ecosystem Fundamental functional ecological unit which

Emission rights Pollution licence entitling the holder to a certain level

Existence value Intrinsic value of a resource

Global environmental Global markets which have either been enforced by

Gross national Total value of the goods and services produced by

Gross primary Entire photosynthesis, including organic material

Habitat Place in which an organism lives

Indirect use value Value of biological resources or achievement for

Market analysis Analysis of the procurements and sales prospects of

Natural capital The natural wealth of biological resources

Net primary Quantity of organic material stored in green plants

Opportunity costs Costs of alternatives that are not used

Option value Use reserved for a later time

Passive use value Measurement of the significance of resources or

Population Total individuals belonging to a certain species in a

Preference Ranking of demand for certain goods by individuals

Productivity Accumulation of one organic substance per unit of

Quasi-option value Value of delaying an irreversible decision to wait for

Surrogate market Evaluation of markets for private goods and services

Screening Purposeful search for certain substances or effects

Travel cost approach Market approach based on the expenditure required

Total economic value Sum or aggregation of direct value, indirect value,

Transferable International trade development rights to enable

Willingness to pay Survey to obtain a value, e.g. for biological diversity

After an introductory chapter, the chapter on "Results and Analysis"

reflected by market prices, it remains a theoretical concept. Because of the

The third chapter discusses application relevance and recommendations for

The contingent valuation method (CVM) and related methods of analysis

Methods to determine preferences such as the CVM are not suitable to

The latter approach is designed to determine the physical effects that

Finally, cost-benefit analyses (CBAs) allow relevant activities and their

By applying valuation methods, it was able to be shown that the economic

In this context, four measures are discussed which should lead to an

The removal of damaging distortions of market mechanisms (deregulation)

The creation of markets by privatisation and integrated biodiversity