This document discusses various techniques for valuing environmental assets and services that are not traded in markets. It begins by defining environmental valuation and explaining concepts like total economic value and willingness to pay. It then describes several techniques in detail: hedonic pricing, travel cost method, contingent valuation method, production factor method, and averting behavior method. As an example, it summarizes a case study valuing the non-use benefits of maintaining a wetland in Greece using contingent valuation surveys.

1. Environmental Valuation Techniques:
A Review
Submitted To
Dr. Sandeep Srivastava
Civil Dept.
Submitted By
Abhigyan Anand
2013PCD5317

2. Environmental Valuation
 It refers to the assignment of money values to non-marketed
assets, goods and services, where the money values have a
particular and precise meaning.
 Non-marketed goods and services refer to those which may
not be directly bought and sold in the market place.
 Examples are scenic views, coral reefs, mountain vistas,
biodiversity.
 Accident prevention would be an example of a service which
is sometimes marketed (purchase of safety equipment) and
sometimes not (good driving behavior).
 If a good or service contributes positively to human
wellbeing, it has economic value.

3.  An individual’s wellbeing is determined by whether or not it
satisfies that individual’s preferences.
 Preferences are revealed in many ways, but the context of
interest is the market.
 Environmental values are measured in money terms through
the concept of individuals willingness to pay (WTP) or
willingness to accept (WTA) compensation for alterations in
environmental conditions.
 WTP measured by the maximum amount of money that that
person would be willing to pay in return for receiving the
benefit.
 WTA is measured by the minimum amount of money that
that person would be willing to accept as compensation for
incurring the cost.

4.  Total economic value (TEV), which explicitly recognizes that
the economic value of a good or service is composed of
different parts—some of which are tangible and directly used;
some of which are intangible or very remote. Diagram shows TEV
Total Economic Value = Total User Value + Total Non-useValue

5. Different Techniques
 Hedonic pricing
 Travel cost method (TCM)
 Contingent valuation method (CVM)
 Production Factor Method
 Averting Behavior Method

6. Hedonic pricing Method
• The hedonic pricing method infers the value of
environmental features from the prices of traded goods.
• It is applicable in those cases where the prices of a good is
directly influenced by environmental factors.
• Example is the housing market, where the value of two
comparable properties or apartments will differ depending on
the environmental amenities in the vicinity of each site.
• Hazardous waste site leads to a measurable drop in the
property price (compared to equivalent houses in other
locations),
• This difference in prices gives an indication of the external
cost of the waste site.

7.  Hedonic pricing can also be applied to the valuation of
external benefits.
 HPM has a very large data requirement because both primary
data (characteristics of the surroundings) and secondary data
(market transactions) need to be collected.
 The value of a house or wage depends on many factors: there
are social factors, such as employment opportunities, taxes
and accessibility.
 Data need to be gathered for all these factors.
 This makes HPM less suited for application in a decision
support tool.

8. Travel Cost Method
 The travel cost method is well suited for placing a value on
natural resources, amenities, natural parks, hunting, fishing,
and wildlife watching sites, and cultural heritage sites.
 It is based on the concept that if people travel to a site, then
their willingness to pay for visiting this site must be at least
as large as the travel cost incurred.
 The travel cost is comprised of the out−of−pocket
expenditures incurred to travel to and at the site, plus the
opportunity cost of time.
 It is also useful for estimating time costs and their impact on
the choice of transport mode.
 The problem with this method is that it does not take into
account multi-purpose travel (i.e. that individuals will visit
multiple sites on a single trip).

9. Contingent Valuation Method
 The contingent valuation method is a direct approach using a
hypothetical market.
 CVM is a survey method in which respondents are asked how
much they are willing to pay for the use or conservation of
natural goods.
 It is the only environmental valuation technique that takes
into account non-use values .
 However, using this method can lead to potential biases
(values can be under or over estimated).
 There are also high costs involved as it is expensive to
interview people individually.

10. Essential elements of the survey are:
 description of the natural good that is to be valued : includes
identifying all valuable attributes of the good
 description of the payment vehicle: how the money will be
paid
 description of the hypothetical market : include an
identification of who will provide and who will pay for the
nature improvement
It is said to be an appropriate economic valuation method for
environmental goods that have no indirect effects on other
goods.
It is therefore suited for the valuation of amenities or but not for
the valuation of natural processes, such as climate regulation .

11. Production Factor Method(PFM)
 PFM is based on the fact that many natural resources,
processes and qualities are used as production factors.
 Improvement of natural quality may lead to a reduction of
production costs for the sector making use of the relevant
quality.
 The PFM tries to value natural qualities by valuing their
impacts on production costs.
 The PFM has been applied to value the effects of water
quality on agriculture, fishery and industry and the effects of
air quality on buildings, crops and livestock.
 The method is meant to determine the value of changes in
natural qualities on the economic production system.

12. The method consists of two steps:
 First, the relation between a dose of pollution and an effect
on production (the response) is determined.
 Secondly, the response must be translated into economic
terms. This is can be done by means of the previously
described valuation methods (de Boer et al., 1997) and
consequently the PFM is not really a separate valuation
method.
The valuation part of PFM is mostly done by simply multiplying
the quantity change by the market price.
It would, however, be better to investigate all economic effects,
such as changes in demand and supply and in prices.
PFM can only produce cost-based estimates of the value of the
production capacity of nature

13. Averting Behavior Method(ABM)
 ABM is especially suited for valuing natural qualities.
 This is done by looking at expenditures made to avert or
mitigate negative effects from the reduction of a natural
quality.
 ABM relies on the assumption that people perceive the
negative effects of environmental deterioration on their
welfare and that they are able to adapt their behavior to avert
or reduce these effects.
 This means, that people experience the negative effects of
ozone depletion and that they will buy products such as hats
and sun-cream to prevent damage to their health.
 The willingness to pay for a clean environment is deducted
from people’s purchases of products and services to avert the
negative effects of pollution.

14.  ABM is a cost-based method, since the costs of purchasing
these items are used to value environmental qualities, even
though the social preferences for a healthy environment may
be much greater than the expenditures on these products.
 Buying such products actually means that they have less
money to spend on the environment .
 people may not react to small changes in environmental
quality. They may only react when a certain threshold has
been passed.

15. Summery of Economic Valuation Techniques

16. Case Study Cheimaditida wetland
 Several lakes in Greece were drained to generate
hydroelectric power or to expand agricultural land, resulting
in biodiversity loss.
 Greece lost 63% of its wetlands between 1920 and 1991
(Barbier et al.,1997).
 The aim of this case study is to estimate the non-use values of
the Cheimaditida wetland in Greece using the CVM which is
one of only two valuation techniques able to estimate non-use
values of environmental resources.
 These non-use values can be combined with use values of the
Cheimaditida wetland (Psychoudakis et al., 2005 for
estimates) to obtain its TEV which can then be used for CBA of
management strategies for this wetland.

17.  The main economic activities in the area are irrigation and
fertilizer-intensive agriculture and fishing.
 Both are adversely affecting water quantity and quality of
the wetland, thereby reducing its ability to maintain
biodiversity and other life support functions (Seferlis, 2004).
 Methodology:
 The purpose of this study is to elicit the non-use values
associated with the wetland .
 In this study, respondents were asked to state their valuation
(WTP) for an improvement in the quantity and quality of the
environment.
• These are the four characteristics, expected to generate non-use
values, were selected in this study: These were (a)
biodiversity, (b) open water surface area, (c) inherent
research and educational values that can be extracted from
the wetland and (d) values associated with environmentally
friendly employment opportunities.

18.  The majority of the non-use values associated with wetlands that
were estimated were attributed to biodiversity.
 Using these characteristics, and after extensive consultations with
scientific experts, the Greek Biotope and Wetland Centre, a
current scenario and two management scenarios were designed:
Scenario A: no management
 decline in population and size of habitats:-10%
 declines in Open water surface :-3–10%
Scenario B: managing the wetland to maintain current conditions
 Population and size of habitats:-current level
 Open water surface :-20%
Scenario C: managing the wetland to improve current conditions
 Increase in Biodiversity by:-10%
 Open water surface increase by :-60%

19.  Due to limited time and resources, an open-ended approach was
used to elicit WTP values for the two different wetland
management scenarios.
 An open-ended (OE) elicitation format asks the respondent
“How much are you willing to pay to…”, rather than a close-ended
format which asks “Are you willing to pay €X to…”.
 The respondents were asked whether they are WTP to move
from scenario A to B and if yes, to state their maximum WTP.
 Similarly the respondents were asked whether or not they are
WTP to move from scenario A to C and if yes, to state their
maximum WTP.
 While stating their WTP values the respondents were reminded
of their budget constraints, household expenses, as well as
other substitute sites in Greece.
 Result is shown in next slides

20. Means and standard deviations (in parenthesis) of respondent characteristics by group

21. Conclusion
 The results from the valuation model reveal that those who
visited the wetland and those with higher incomes were more
likely to attach higher values to the non-use values of the
wetland.
 The fact that there was sample selection bias for the first
improvement scenario (A to B) and no such bias for the second
improvement scenario (A to C)
 It suggests that the sample in the first scenario failed to be
representative of the whole population whereas the sample for
the second improvement scenario was representative of the
whole population.
 Thus, the Greek public would prefer a greater improvement in
management of the wetland to a smaller one.

22.  Overall, the results of this contingent valuation case study
indicate that the Greek public attaches positive and significant
non-use values to the Cheimaditida wetland.
 These results assert that CVM can produce valid nonmarket
estimates of non-use value.
 These non-use values can be combined with direct and indirect
use values of the Cheimaditida wetland to estimate its TEV,
which can provide policy makers with the necessary economic
information to carry out a CBA, and thus to ensure the
sustainable and efficient management of the Cheimaditida
wetland.

23. References
 Birol et al. ..“Using economic valuation techniques to inform water resources
management: A survey and critical appraisal of available techniques and an
application” 2006.
 Bishop et al..” Assessing the Economic Value of Ecosystem Conservation” 2004.
 Dixon et al.” Environmental Valuation: Challenges and Practices” 2008.
 Dosi et al.” Environmental Values, Valuation Methods, And Natural Disaster
Damage Assessment” 2000.
 Eastwood et al..” Generalisability in economic evaluation studies in healthcare: a
review and case studies” 2004.
 The Economic, Social and Ecological Value of Ecosystem Services: A Literature
Review 2005.
 Venkatachalam et al.“The contingent valuation method: a review” 2003.
 Zdemiroglu et al..”Economic Valuation with Stated Preference Techniques” 2002.

24. Thanks