CHAPTER 1 Introduction
1.2 Theoretical framework
Because of the public good nature of forests and of conservation programs designed to protect them, most of the costs of conservation are imposed on the surrounding local community, society or nation involved. The benefits are shared by the rest of the world. This is one economic key reason for over-exploitation of ecological resources and habitat conversion, for species extinction, ecosystem degradation, and so on (Barbier, et al., 1995).
1.2 Theoretical framework
1.2.1 The concept of Total Economic Value
Over the last decades valuation of environmental services – more precisely: to changes of environmental services – has become one of the most important and fastest growing areas of research in the field of environmental economics (Pearce, et al., 2006; Sagoff, 2008). In order to deal with the problem of the valuation of environmental benefits, one needs to properly define the meaning of value. This is a complex and multidimensional matter, however.
Economists have generally settled for a classification of environmental value, the components of which add up to total economic value (TEV) (Turner, et al., 2003).
The key distinction made is between use values (UV) and a remainder called non-use values (NUV). In the case of use values, it is useful to further distinguish between direct use values (DUV; e.g. values derived from direct use of the forest’s resources and services); indirect use values (IUV; e.g. indirect support and protection provided to economic activity and property by forest functions or regulatory services). Non-use values reflect value in addition to that which arises from usage. Thus individuals may make little or no use of a given environmental attribute or asset but would
existence (EXV), bequest (BV) or option values (OV). Option value relates to the willingness-to-pay (WTP) to retain an asset in order to keep alive the option to use it at some point in the future. In this respect, it falls under both use and non-use values.
While these differentiations are usually accepted even by many non-economists, several authors doubt if it makes sense to also subsume what they consider to be
“intrinsic values” in a TEV frame (Bowers 1993; Sagoff, 1988 & 2004). The the main value components by a given ecosystem add up to form the TEV: TEV= UV + NUV= [DUV + IUV] + OV + [EXV + BV].
The usefulness of the TEV classification in practice is debatable. Existing valuation techniques can distinguish use values from non-use values, but attempts to isolate option, bequest and existence value are more problematic (Pearce and Moran, 1994).
Therefore, it is convenient to jointly estimate those values for a given resource under the umbrella of non-use values.
As illustrated above, the benefits of tropical forests can be divided into use and non-use values. Together, non-use and non-non-use values make up the TEV of rainforests. These values can be further broken down according to whom they accrue. The relevant range of values for tropical forests in general, as well as their geographical distribution is presented in the following figure:
Figure 1. Total Economic Value
Ideally, one would include all types of relevant values in assessing the TEV of the forest. In practice, though, such a task is impossible due to the sheer volume of data necessary. Therefore it is crucial that we identify the most important values as well as the beneficiaries to whom they accrue. After all, evaluation of certain key values may prove to be sufficient to demonstrate the benefit of supporting conservation over alternative land uses. The types of values that appear underlined in Figure 1 are the ones chosen to be estimated in this study. Their inclusion is justified on their significant contribution towards the calculation of TEV, as indicated in the literature (Bulte et al., 2000). Direct values are the object of estimation of another dedicated study within the framework of the BMBF-funded Biota East research program (Guthiga, 2007).
1.2.2 Valuation Methods
There are several methods one may employ in order to estimate the TEV of a given resource/service. On the basis of the process through which valuation methods retrieve individuals’ preferences, one can distinguish two groups of valuation methods: revealed preference and stated preference methods. Essentially, the revealed preference approach infers the value of a non-market asset from a market in some well-recognized commodity which is influenced by the non-market asset.
Examples of revealed preference techniques are hedonic property pricing, hedonic wage compensation, travel cost method and preventive (or avertive) expenditure models (Freeman, 2003). However, as useful as these methods are, they can be used to value only a small fraction of environmental goods. The demand for many environmental goods cannot be completely estimated using revealed preference methods since they can only measure environmental changes that are accompanied by some sort of behavioral change in the market place (Freeman, 2003).
In order to tackle this problem, the use of the second type of valuation techniques, namely stated preference methods, has been advocated. Contingent Valuation (CV) and Choice Modeling (CM) are the most popular stated preference methods. Other
description of stated preference methods). CV uses surveys to elicit either WTP for a hypothetical change in the availability of an environmental amenity, or willingness to accept compensation (WTA) to forgo the change. In this respect, it involves asking individuals, in survey or experimental settings, to reveal their personal valuations of increments (or decrements) in unpriced goods by using 'contingent markets'. These markets define the good or amenity of interest, the status quo level of provision and the offered change, the institutional structure under which the good is to be provided and the payment vehicle. Simultaneously, these characteristics constitute the “frame”
of the valuation exercise (Bateman et al. 2002). The biggest advantage of CV and CM, and of stated preference methods in general, is that we can ask respondents for their WTP regardless of whether they make use of the non-market commodity or not.
In other words, we can obtain use as well as non-use values.