Valuing Changes in Production—Basic Principles with an Example from the Philippines

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John A. Dixon
johnkailua@aol.com
The World Bank Institute

Direct valuation methods, change in productivity methods, replacement costs, pricing issues. Philippines case study.

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Valuing Changes in Production—Basic Principles with an Example from the Philippines

  1. 1. GEF Session 7 Valuing Changes in Production—Basic Principles with an Example from the Philippines John A. Dixon johnkailua@aol.com The World Bank Institute Ashgabad, November 2005
  2. 2. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Change in Productivity – more than just Ps and Qs?? • The most basic valuation technique – relies on physical measures of changes in production (the Qs) and prices, often market prices (the Ps) • Then, P x Q = a monetary value • Key assumption – the prices are non- distorted and reflect opportunity costs
  3. 3. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Applications of Change in Productivity approach • Natural resource sector – changes in crop production, forestry, fisheries, aquifers, others • Human Health – another form of change in productivity • Ecosystems – harder to measure but possible. E.g. watersheds, coral reefs, mangroves, others
  4. 4. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Cautions • Cause and effect links need to be clearly understood – percentage change in mangroves and decrease in fish catch • Prices – make sure prices are appropriate for the commodity and the scale – e.g. Mendelsohn study on value of tropical rainforest (per ha) never considered marketing all the output! Or the Puerto Rican mangrove damage study – buying mangroves retail by the hectare!
  5. 5. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Advantages • Produces valuation results in monetary term and can be easily explained to Minister of Finance (and the press and public)! • Transparent approach that can be easily re-calculated and used to provoke a discussion(e.g. if you don’t like my numbers, give me better ones!) • Does NOT rely on CVM!!
  6. 6. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Valuing Productivity Impacts in Palawan, Philippines Palawan – An application of the change in production approach with unidirectional externalities (or, should Mr. Coase visit Palawan?) 3 main user groups (all legal users): – Loggers – Traditional fishermen – Resort operators / scuba divers
  7. 7. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Valuation Techniques • Changes in Production – Crops, fisheries, water – Health – Opportunity cost/ecosystems • Hedonic Approaches – Property value – Land values – Wage differential • Survey Techniques – CVM (Contingent Valuation Method) • Surrogate Markets – Travel Cost
  8. 8. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Change in Production – the study site PALAWAN
  9. 9. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Change in Production – changes in variables/ productivity over time -- PALAWAN
  10. 10. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Change in Production - PALAWAN The Economic Analysis: • Examined Generation of Gross Revenues from three industries – Logging – Fisheries – Tourism • Assumptions – Revenue information easier to obtain than cost data (second best solution); not a BCA! – Even imperfect information can prompt better disclosure and increased provision of data
  11. 11. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Gross Revenues Over 10 Years (millions $) Option 1 Option 2 Gross Revenue No logging Continued logging Option 1 - Option 2 Tourism 47.4 8.2 39.2 Fisheries 28.1 12.8 15.3 Logging 0 12.9 -12.9 75.5 33.9 41.6 Option 1 Option 2 Present Value at 10% D.R. No logging Continued logging Option 1 - Option 2 Tourism 25.5 6.3 19.2 Fisheries 17.2 9.1 8.1 Logging 0 9.8 -9.8 42.7 25.2 17.5 Change in Production - PALAWAN
  12. 12. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Is a Coasian solution possible?? • Coase Theorem: irregardless of the initial resource(or property rights) allocation, with trade it will be possible to reach a pareto superior outcome – What do you suggest in the case of Palawan? – What are the most likely obstacles to a Coasian solution – What about equity issues?
  13. 13. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Other alternatives include (and their pros and cons) • Government imposed logging ban (but question of an “economic taking”)?? • Fisherman and tourism resort operators join forces to “buy out” the loggers – what are the problems with this?? • Alternative logging practices – can these solve the externality problem and allow continued logging??
  14. 14. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Palawan revisited • Loggers stopped initially and then returned • Reef damaged but has recovered over the past 10 years • Tourism has expanded – but this is a case of before/after analysis NOT with and without analysis! • Valuable for planning land use in other sites
  15. 15. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Change in Production – the lessons from the PALAWAN study 1. Modest research costs to produce useful results 2. Value of combined ecological-economic analysis 3. Broader applicability of approach 4. Valuation and evaluation techniques exist that can be used 5. Useful for convincing decision makers that these resources have value
  16. 16. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF Change in productivity can be used in many situations • Changes in recreational values • Change in agricultural productivity in the Iran due to changes in water quantity and quality • Change in fish catch due to stock degradation (Caspian; worldwide) • Change in lake water quality due to shoreline development
  17. 17. Caspian EVE 2005/UNDP and WBI John A. Dixon, GEF A Final Note – Gross vs Net Values • Change in productivity should normally be done on a net value basis (seeking changes in economic values, not gross revenues) • Sometimes, however, gross values are presented (as in Palawan) • The correct measure depends on the resource and the type of change (lost production versus complete loss, and production decisions made)

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