Poéticas Introducción

Basic concepts of economic valuation of environment are value, total economic value (TEV), willingness to pay (WTP), and willingness to accept (WTA).

The economic concept of value has been broadly defined as any net change in the welfare of society. This concept does not restrict environmental values to benefits from the direct use of a resource. TEV is the sum of both use values and non-use values. People may value environment for various reasons. They may derive benefits from a direct use of it, for example, from outdoor recreation or scenic driving, or from an indirect use, which might include reading or watching television programs about the resource. Part or all of the value people attach to a natural resource may, however, be unrelated to their use of it. They may want to conserve it because of ethical or moral obligations to nature itself (intrinsic value or existence value) or for the benefit of future generations (bequest value) (Hardarson and Hardarson 2000).

Figure 2.2. Total Economic Value (Source: Munasinghe 1993, 21)

Uncertainty regarding future preferences and regarding the impact of alternative uses of a natural resource can cause divergence between a person’s willingness to pay for conservation and the discounted future stream of one-year benefits that the person expects to derive from that resource. The difference is termed option value. Option value resulting from uncertainty about future preferences may be either negative or positive; whereas option value resulting from uncertainty regarding the impact of development is invariable positive as long as the individual in question dislikes uncertainty (is risk averse). Thus, the sign of the option value is, in general, indeterminate. Uncertainty about the future benefits of an environmental good and the irreversibility of development give rise to yet another type of value, so-called quasi- option value (Arrow and Fisher 1974). If all actions were reversible then society could base its decisions about development on comparisons of its current expectations about future benefits and costs. Irreversibility, however, makes conservation more attractive. Conservation becomes more attractive the greater the uncertainty about its future benefits and the sooner one can expect some information that leads to the resolution of (or significant reduction in) this uncertainty. The concept of quasi-option value recognizes the limitations of traditional cost-benefit analysis which only compares two

TOTAL ECONOMIC VALUE

Use Value Nonuse Values

Direct Use Indirect Use Option Value Bequest Value Existence Value Values Values

Outputs Functional Future direct and Value of leaving Value from that can be benefits indirect use values use and nonuse knowledge of

consumed values for continued existence directly offsprings irrespective of

present or future use

streams of benefits; one resulting from development and one from conservation forever. There are, however, other options available, namely not developing at this moment in time while not ruling out development later. This choice, which is eliminated by development, is always at least as attractive in terms of expected future benefits as the “conservation forever” alternative as we still have the option to stick to conservation but also keep the possibility open to develop the area later should that turn out to be attractive (Hardarson and Hardarson 2000).

Willingness to pay (WTP) reflects the maximum monetary amount that an individual would pay to obtain a good. Willingness to accept compensation (WTA) reflects the minimum monetary amount required to relinquish the good. WTP thus provides a purchase price, relevant for valuing the proposed gain of a good, whereas WTA provides a selling price, relevant for valuing a proposed relinquishment (Brown and Gregory 1999).

Referring considerable empirical and experimental evidence, Horowitz and McConnell (2002), Shogren et al. (1994), Shogren and Hayes (1997), Hanemann (1991), Kolstad and Guzman (1999), Brown and Gregory (1999), Adamowicz et al. (1993) and many others indicated that there is a divergence between willingness to accept compensation to give up a good and willingness to pay to obtain a good. Brown and Gregory (1999) stated that the disparity between willingness to pay and willingness to accept compensation has been demonstrated repeatedly. Because using WTP estimates of value where a WTA estimate is appropriate tends to undervalue environmental assets, this issue is important to environmental managers. They summarized the reasons for the disparity and discussed some of the implications for management of environmental assets, as well as suggested some approaches for dealing with lack of credible methods to estimate WTA values of environmental goods.

According to Brown (1994), explanations of the disparity between WTA and WTP include the income effect; loss aversion or the endowment affect, which are formalized in prospect theory; the suggestion that, for some goods, moral responsibility is felt more keenly in selling than in buying; and the substitution effect.

Willingness to pay and willingness to accept measures of welfare change have been found to differ substantially when elicited from surveys or experimental market transactions. Conventional economic theory suggests that the difference between willingness to pay and willingness to accept should be smaller than those observed in empirical tests. Adamowicz et al. (1993) focused on the hypothesis that the availability

of substitutes for the good being evaluated affects the difference between the two measures. Their results suggested that the existence of a substitute does reduce the difference between willingness to pay and willingness to accept, however, the difference between these two measures is significant with or without substitutes.

Horowitz and McConnell (2002) reviewed willingness to pay and willingness to accept studies. They stated that willingness to accept is usually substantially higher than willingness to pay. These constructs have been studied for roughly 30 years and with a wide variety of goods. Horowitz and McConnell found that the less the good is like an “ordinary market good”, the higher is the ratio. The ratio is highest for non-market goods, next highest for ordinary private goods, and lowest for experiments involving forms of money. A generalization of this pattern holds even when they account for differences in survey design: ordinary goods have lower ratios than non-ordinary ones. They also found that ratios in real experiments are not significantly different from hypothetical experiments and that incentive-compatible elicitation yields higher ratios.