Economic valuation ofenvironmental servicesM RafiqBased onAhmad Hassan’s book
According to the current paradigm in economics ‘The ecosystemis viewed as external to society, providing goods and services,unoccupied territory in which to expand, and assimilativecapacity to handle by-products....Economics seeks to integratethis externalized environment into its own paradigm throughthe concept of ‘valuation.’ This approach sounds reasonable onthe surface. Society should place a monetary value on the goodsand services provided by the ecosystem and also on the effectsof human activity on the ability of the ecosystem to providethese goods and services. Values for these ‘externalities’ canthen be inserted into the economic model. Within the economicmodel, these externalities would provide the self-regulationneeded to manage society’s use of the environment.(O’Neill and Kahn 2000: 333)
Introduction•Attempt to measure the benefits of environmentalimprovement or preservation of NRs.•Measuring damages avoided by taking actions.•Flood control, Air Cleaning, reduced emissions etc.•Benefits are inferred from assessment of reducedEnvironmental damages.•However, these damages are external cost.•Observing monetary value from market prices isdifficult.•How it is done???
Valuation of benefits: the methodological issue•WTPis the standard measure of Benefits.•Demand price at the margin.
Continue..•Individual make choice by comparingWTPwith thePrice.•WTP reflects or must reflect individual preferencesfor a certain good.•How this is related with social choice mechanism??
Continue..•What is the total benefit of reducing sulfuremission?•What are the interpretations??•Maximum amount of money people areWTP?•Minimum amount of money section of a societyneeded in order to voluntarily reduce emissions?•WTP and WTA.•These concepts are similar, provided, society valuegains and losses equally.