223352304-Economic-Valuation-Of.pptx - Economic valuation...

Economic valuation of
environmental services
M Rafiq
Based on
Ahmad Hassan’s book

According to the current paradigm in economics ‘The ecosystem
is viewed as external to society, providing goods and services,
unoccupied territory in which to expand, and assimilative
capacity to handle by-products .... Economics seeks to integrate
this externalized environment into its own paradigm through
the concept of ‘valuation.’ This approach sounds reasonable on
the surface. Society should place a monetary value on the goods
and services provided by the ecosystem and also on the effects
of human activity on the ability of the ecosystem to provide
these goods and services. Values for these ‘externalities’ can
then be inserted into the economic model. Within the economic
model, these externalities would provide the self-regulation
needed to manage society’s use of the environment.
(O’Neill and Kahn 2000: 333)

Introduction
•
Attempt to measure the benefits of environmental
improvement or preservation of NRs.
•
Measuring damages avoided by taking actions.
•
Flood control, Air Cleaning, reduced emissions etc.
•
Benefits are inferred from assessment of reduced
Environmental damages.
•
However, these damages are external cost.
•
Observing monetary value from market prices is
difficult.
•
How it is done???

Valuation of benefits: the methodological issue
•
WTP is the standard measure of Benefits.
•
Demand price at the margin.

Continue..
•
Individual make choice by comparing WTP with the
Price.
•
WTP reflects or must reflect individual preferences
for a certain good.
•
How this is related with social choice mechanism??

Continue..
•
What is the total benefit of reducing sulfur
emission?
•
What are the interpretations??
•
Maximum amount of money people are WTP ?
•
Minimum amount of money section of a society
needed in order to voluntarily reduce emissions?
•
WTP and WTA.
•
These concepts are similar, provided, society value
gains and losses equally.

Continue..