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1.5
Determining Applicable Economic Valuations for LME
Ecosystem Services
Direct Output Impact
The Direct Output Impact (DOI) is used to estimate the“economic
impact” of goods and services from various LME marine
sectors. To find the DOI, the quantity of an ecosystem good
or service is multiplied by its market price.
71,72
This economic
impact measurement can be useful in determining the societal
importance of an ecosystem service. It does not, however,
reflect the “value”
73
of the good or service because the costs
of production inputs, including environmental degradation or
depletion of natural resource stocks, are not accounted for.
74
Total Economic Value
Total Economic Value (TEV) is typically the preferred
valuation method as it measures the “value” of ecosystem
services, or the net environmental benefits. Additionally,
TEV includes non-use values. It is an estimation of the “sum
of consumer surpluses (what consumers are willing to pay
over and above the market price for goods or services) and
producer surpluses (what firms, such as trawling companies,
earn from the sale of goods and services over and above their
cost of production).”
75
The standard approach to TEV valuation employs direct and
indirect observed behaviour methods. Direct observation
methods are usually applicable “where the ecosystem
services are privately owned and traded in functioning
markets.”
76
Indirect observationmethods use actual observed
behaviour “in a surrogate market, which is hypothesized to
have a direct relationship with the ecosystem service value.”
77
These indirect methods include:
• hedonic pricing methods: statistical techniques are used
to divide a price paid for a service into prices for each of
its attributes, including environmental attributes, e.g.
aesthetic views or clean air
• travel cost methods: a site’s demand function is derived
from travel costs that people incur to visit that destination
• replacement cost methods: an estimated value is assumed
from the cost of a service that has been substituted for
the service provided by an ecosystem, e.g. water filtration.
(Replacement cost methods have been criticized for over-
and underestimating value, as costs do not reflect the true
benefit or welfare of an ecosystem service).
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When observed behaviour methods are not available or
workable, a second TEV valuation approach based on
hypothetical behaviour is often conducted. People are asked
either directly how much they would be willing to pay for
specified benefits (contingent valuation), or are asked to
rank, by their willingness-to-pay for or willingness-to-accept,
different hypothetical bundles of goods.
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The Benefit Transfer Method
When neither the observed behaviour nor hypothetical
methods are available, a final approach known as “benefit
transfer” may be used. Due to lack of data regarding a given
ecosystem service, estimates from a different site or context
are used. For the valuation to be at all effective, the site and
populations affected by the service being valued must be
almost identical to the site and populations affected where
the actual estimates were made. For example, data regarding
the economic benefits of west, central and southern African
mangroves are unavailable so the west, central and southern
African studies “transfer” figures from valuations of south
Asian mangrove regions.
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However, since it has often been
used incorrectly, benefit transfer is a controversial method.
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Valuation Methods Used in the West, Central
and Southern African LME Studies
Due to lack of data, the three economic valuations
considered in this report largely provide DOI estimates as
opposed to estimated TEVs. Furthermore, when values, as
opposed to economic impacts, are approximated, they are
generally derived from the benefit transfer approach and/or
the replacement cost method.
The economic figures are reported as presented in the LME
studies, without any adjustments for inflation or exchange
rate fluctuations. Within this synthesis, all monetary amounts
will be listed in U.S. dollars and all values, unless otherwise
stated, are annual estimates.
These initial studies are not intended to serve as a basis for a
comprehensive management plan, but rather to illustrate a
“broad overview” that can “provide local resource managers
with indicators about the economic impact of different
economic sectors.”
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Regional studies would provide the
detail necessary for more thorough decision-making.
83
These
larger views are intended as “rough estimates”, given that
the “urgency of initiating a more sustainable management
practice in LME conservation” outweighs the uncertainty of
the results.
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