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GEF
Session 2
Valuation of Environmental Resources
John A. Dixon
johnkailua@aol.com
World Bank Institute
Ashgabad, Novembe...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Why Do We Want Valuation in
NRM projects??
• To do a fuller accou...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Externalities and Valuation – key
ingredients in environmental
ec...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Externalities (both environmental or
economic)
• An externality o...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Both Externalities and Valuation
Affect Decision Making
(an examp...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Externalities can lead to MARKET FAILURES
Externalities can be po...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
The Total Economic Value
(TEV) Approach
• Includes both Use Value...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
The TEV Valuation Matrix
u s u a lly m e a s u r e s
o u tp u t
D...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Total Economic Values: use values
•direct use values
– directly c...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Total Economic Values: non-use values
•bequest values
– values of...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Choosing the best form of project/
policy analysis : BCA or CEA??...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Why BCA is usually preferred
(and NPV is best)
• BCA gives a quan...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
How to Determine Economic Values (prices):
Approaches to Economic...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Valuation techniques: Change in
production
• A basic “price x qua...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Valuation techniques: Hedonic price
methods
• Value environmental...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Valuation techniques: Contingent
valuation method (CVM)
• CVM as ...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Valuation techniques: Contingent
valuation method (CVM) –contd.
•...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Surrogate valuation techniques: the
Travel Cost Method
• A “revea...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Selected Case Studies – illustrating various
valuation approaches...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
WTP for a National Park in Georgia –
case study #1
• Estimating t...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Measuring WTP for Restoration of Lake
Sevan, Armenia – case study...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Paying for Management of a Marine
Park in Cancun, Mexico – case s...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Conclusions
• A wide variety of valuation techniques exist that
c...
Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing
GEF
Conclusions (cont’d)
• Some short cuts are possible (e.g. quick a...
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Valuation of Environmental Resources

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Important conceptual concerns, economic foundations of environmental valuation, scarcity, useful approaches for different environmental problems, and cautions.

John Dixon

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Transcript of "Valuation of Environmental Resources"

  1. 1. GEF Session 2 Valuation of Environmental Resources John A. Dixon johnkailua@aol.com World Bank Institute Ashgabad, November, 2005
  2. 2. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Why Do We Want Valuation in NRM projects?? • To do a fuller accounting of benefits and costs • To explicitly include environmental goods and services that are often ignored • To improve the chance of projects passing an IRR test • To overcome shortages in existing markets
  3. 3. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Externalities and Valuation – key ingredients in environmental economics • The two major causes of poor environmental / NRM analysis are externalities and valuation • Externalities – a disconnect between cause and effect, either over space or over time • Valuation – lack of market prices to signal scarcity or value
  4. 4. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Externalities (both environmental or economic) • An externality occurs when the action of one person affects the well-being of another person and that second person is not part of the decision-making process • Externalities can be addressed (internalized) by various means: – Eliminating the problem – Making compensation to the person affected – Consultation with and receiving approval from the person affected
  5. 5. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Both Externalities and Valuation Affect Decision Making (an example from a Mangrove forest) Location of Goods and Services On-Site Off-site ValuationofGoodsandServices Marketed 1 Usually included in an economic analysis (e.g., poles, charcoal, woodchips, mangrove crabs) 2 May be included (e.g., fish or shellfish caught in adjacent waters) Non- marketed 3 Seldom included (e.g., medicinal uses of mangrove, domestic fuelwood, food in times of famine, nursery area for juvenile fish, feeding ground for estuarine fish and shrimp, viewing and studying wildlife) 4 Usually ignored (e.g., nutrient flows to estuaries, buffer to storm damage)
  6. 6. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Externalities can lead to MARKET FAILURES Externalities can be positive or negative, and can result from consumption or production. Examples include: Source Positive Negative Production Private garden provides scenic view to nature lovers Air Pollution from factories-health impacts Consumption Listening to nice sounds/music; Immunization cigarette smoking P Ps QS D Costs imposed on affected party QP Q Ssocial cost Sprivate cost Social cost Pp
  7. 7. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF The Total Economic Value (TEV) Approach • Includes both Use Values and Non-Use Values • Use values include direct use, indirect use, and option values • Non-use values include bequest values and existence values • The TEV is the sum of all of these values
  8. 8. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF The TEV Valuation Matrix u s u a lly m e a s u r e s o u tp u t D ir e c t u s e v a lu e s ( s t r u c t u r a l v a lu e s ) u s u a lly m e a s u r e s b e n e fit s / s e r v ic e s I n d ir e c t u s e v a lu e s ( f u n c t io n a l v a lu e s ) O p t io n v a lu e s U s e v a l u e s B e q u e s t v a lu e s E x is t e n c e v a lu e s N o n - u s e v a l u e s T o t a l E c o n o m i c V a l u e
  9. 9. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Total Economic Values: use values •direct use values – directly consumable output ° food ° biomass ° recreation ° health °indirect use values – functional benefits ° ecological functions ° flood control ° storm protection – option values •future direct and indirect values ° biodiversity ° conserved habitats
  10. 10. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Total Economic Values: non-use values •bequest values – values of leaving use and non-use to future generation • habitats • irreversible changes •existence values –values from knowledge of continued existence • habitats • endangered species
  11. 11. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Choosing the best form of project/ policy analysis : BCA or CEA?? • B/CA or benefit –cost analysis – is preferred since it includes monetary estimates of benefits and costs over time • CEA – or cost-effectiveness analysis – is useful when it is impossible to estimate benefits of a project (project costs are almost always known) and so we seek the least cost way to reach a stated goal or objective
  12. 12. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Why BCA is usually preferred (and NPV is best) • BCA gives a quantitative measure of the generation of net social benefits (what we are most concerned about as societies) • BCA can take several forms – NPV (net present value), BC Ratio (benefit cost ratio) or IRR (internal rate of return) • All three use the same data as inputs but vary in how they use the discount rate • NPV is usually the best measure – WHY???
  13. 13. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF How to Determine Economic Values (prices): Approaches to Economic Valuation of Environmental Impacts • Changes in Production – Crops, fisheries, water – Health – Opportunity cost • Hedonic Approaches – Property value – Land values – Wage differential • Survey Techniques – CVM (Contingent Valuation Method) • Surrogate Markets – Travel Cost
  14. 14. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Valuation techniques: Change in production • A basic “price x quantity” approach that is very useful in many NRM projects • Changes in production may have been ignored because they occurred “off-site” (externalities) or because of pricing problems (valuation) • Easy to sell to decision makers
  15. 15. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Valuation techniques: Hedonic price methods • Value environmental amenities (and disamenities) by changes in property values or location-specific prices • Applied to housing, hotels, land and other site- specific valuation issues • A very strong revealed preference approach • Willingness to pay limited by ability to pay
  16. 16. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Valuation techniques: Contingent valuation method (CVM) • CVM as a second-best approach that relies on surveys and questions on willingness-to-pay (WTP) or willingness-accept-compensation (WTAC) • When should you use WTP and when WTAC??? – in theory and in practice?? • Especially useful when the market does not exist (e.g. a yet to be established protected area) or for bequest and existence values
  17. 17. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Valuation techniques: Contingent valuation method (CVM) –contd. • Extensively used for ecosystem damage assessment • Sometimes applied by the use of Benefit Transfer techniques – apply value from study A to location B for a similar resource • Good point about CVM – you always get an answer! • Bad point about CVM – you always get an answer!!
  18. 18. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Surrogate valuation techniques: the Travel Cost Method • A “revealed preference” approach based on observation or survey data on actual travel patterns • Solid theoretical and practical foundations and applications • A good technique for many recreational/ cultural amenities • The travel cost itself is not the value – but is used to derive a demand curve to then estimate values
  19. 19. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Selected Case Studies – illustrating various valuation approaches • National Parks in Georgia • Lake Sevan in Armenia • Marine Park management in Cancun, Mexico
  20. 20. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF WTP for a National Park in Georgia – case study #1 • Estimating the WTP for new and existing national parks in Georgia • Uses CVM to estimate WTP • Surveys Georgians within the country, and foreigners living in Georgia, Armenia, and Azerbaijan • Derives estimates for both daily and annual passes for Georgians
  21. 21. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Measuring WTP for Restoration of Lake Sevan, Armenia – case study #2 • Designed to supplement a change in productivity analysis of an investment operation by including use and non-use values • Includes Armenians in Armenia and also those Armenians who live abroad (a larger number) • Tests two payment vehicles – a one-time payment and monthly payments for 3 years • Applies Benefit Transfer to estimate expatriate WTP (based on relative income levels and other factors)
  22. 22. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Paying for Management of a Marine Park in Cancun, Mexico – case study #3 • A “paper park” in need of financial support • Large visitor numbers and large revenues associated with park use (snorkeling tours), but no entrance fees collected • Challenge : how to tap visitor WTP (and ability to pay), and retain revenues locally to help pay management costs • Used creative financing, working with stakeholders, new legal measures, and revenue sharing
  23. 23. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Conclusions • A wide variety of valuation techniques exist that can be used to value environmental resources • Literature expanding rapidly in both developed and developing countries • Increased acceptance of the techniques and the results by government decision makers • Cannot value all NRM project components –e.g. what is biodiversity worth????
  24. 24. Caspian EVE 2005/UNDP and WBI John A. Dixon, Valuing GEF Conclusions (cont’d) • Some short cuts are possible (e.g. quick and dirty approaches; benefit transfer) but have to be used with caution • Valuation can be built into project design and does not have to be terribly expensive • See your friendly local World Bank/ UNDP environmental economist for assistance!!!
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