Putting a price tag on nature

Issues in Science and Technology, Winter 1997/1998 by Kenneth Richards

Marginal value also gets short shrift because the authors simply do not seem to understand the concept. For example, after providing estimates of the total potential value of natural pest control, Naylor and Ehrlich state that "[c]alculating the marginal cost is virtually impossible, however, due to the difficulty in identifying a baseline and measuring a unit change in the natural pest control service." But this reasonable statement begs the question of how to measure total value without first identifying a baseline and measuring marginal value. The authors then point out that in the case of the brown planthopper in Indonesia, reducing pesticide use and reestablishing natural pest control led to more than $1 billion in benefits. "Based on the magnitude of this result," they conclude, "one can only project that replacing pesticides with natural pest controls on a global scale would lead to marginal benefits in the tens of billions of dollars annually." This statement is nonsense; the units simply do not make sense. Marginal benefits are expressed in "dollars per unit of change." A crude measure of marginal benefits associated with pest management might be dollars saved per one-ton decrease in pesticide use. Clearly, the attempt to scale up from a specific case to estimate global marginal benefits is meaningless.

Mistaking costs for values In many cases, the authors also mistake the cost of replacing a service or avoiding its loss for the value of the service itself. For certain applications this is appropriate, particularly when the services are essential. However, it is also possible that if certain natural services were lost, they would not be fully replaced. For example, the fact that it might cost $250 billion annually to offset net biosphere carbon emissions does not mean that it is worth doing that, as assumed by Susan Alexander, Stephen Schneider, and Kalen Lagerquist. And the fact that it might cost $320 billion per year to artificially fertilize all land plants if all nitrogen cycling services were suddenly lost, does not imply that we would choose to do so, as implied by Daily, Matson, and Vitousek.

A similar mistake made throughout the book is the confusion of the economic impact of an activity with the social value of the opportunity for that activity. For example, Postel and Carpenter state that the "economic output" of freshwater fishing in 1991 in the United States was approximately $46 billion, an estimate based on total spending on equipment, travel, and intermediate services. But $46 billion is the cost of taking advantage of the fishing opportunity, not the value of the opportunity itself. Conceptually, the latter figure would be the difference between the total value individuals derive from fishing, less the cost of availing themselves of the opportunity. Hence, the higher the expenditure on the sport, the lower the actual net value derived. The $46 billion figure is actually a transfer payment that compensates service providers for the cost of providing the service. In a perfectly competitive economy, it can be used as an estimate of the cost of supplying the service, but it is not an indicator of the value of the ecosystem service. Similar mistakes are made by Postel and Carpenter with respect to freshwater transportation services and by Charles Peterson and Jane Lubchenco on employment loss related to overfishing of marine ecosystems.