Since ecosystems and nature in general represent huge structural and functional value (especially in their life-support function), they deserve protection. The question in any country is, "How much conservation is possible and acceptable from the viewpoint of cost-benefit substantiation, in searching the 'social optimum' of environmental policy?"
In order to address this complicated question, it must be understood that the substance of the answer is hidden in the notion of value alone. The value of nature can be categorized within the four main functions of the natural environment identified in Section 1. Ultimately, valuations of natural assets are dependent on the view of the evaluator, i.e., they are dependent on whether the evaluator's worldview is essentially anthropocentric or ecocentric.
The anthropocentric ethic relies fully on human self-interest and any kind of environmental value is derived only from individual preferences. The ecocentric ethic assumes that nature (and all living forms) is endowed with its own rights, which are independent of human preferences and that nature and ecosystems have positive "instrinsic" value. The Ecocentric worldview is incompatible with neoclassical economics, which respects only human/individual preferences and contains no means to express the independent rights of all other living species.
If all living species in the world have the right to exist, then these species and ecosystems have positive value irrespective of human desires or human will. Here is hidden the answer to the question of whether natural capital includes all ecosystems and natural resources or only some of them. Those who respect the neoclassical paradigm apply no intrinsic value to nature, and thus, not every ecosystem will have a positive value. At least one-fourth of people prefer this utilitarian approach to nature and assign no meaningful value to nature, or some parts of nature.
The anthropocentric, utilitarian approach to the valuation of nature reflects some forms of nature's benefit for the individual. These values are determined either by markets (use of natural resources as production inputs or goods for consumption, or use of nature for tourism, hunting, fishing etc.) or they are assessed by different methods developed for revealing individual preferences for non-marketed natural and environmental goods (quasi or pure public goods).
All the benefits arising from the current use of nature (either market or non-market natural and environmental goods) are expressed by the concept of use value. This concept was for many decades the only one which was respected by different economic schools and served as a reflection of utility of some good for some individual (ability to satisfy human needs or wants).
The concept of non-use value was introduced in 1967 by John V. Krutilla of Resources for the Future. The early valuation literature classified such non-use benefits as 'option value', 'existence value', and 'bequest value'. Option value is seen as an insurance premium that prospective users, unsure of their future use of a good, would be willing to pay to retain the option of future use. That is, an excess over expected consumer surplus. Existence value arises when individuals value an asset even though they will never see or use it directly. Bequest value is the benefit derived from knowing a resource will be passed on to future generations.
Current thinking combines the bequest value with the existence value. There has been considerable debate over the option value. Originally it was assumed that given supply uncertainty, irreversibility and risk averse behaviour, option value was positive. Later, according to Smith (1983), Freeman (1985), and Plummer (1986), option value was determined to be negative. More recently, Smith (1987) has argued that option value is not part of an individual motivation for valuing a resource.
In current economic literature devoted to non-use value, many discussions center around the inclusion of option value either into use value or into non-use value. It seems that these hesitations (as well as hesitations in explaining motives which underlie non-use value) are simply an expression of the fact that the traditional welfare economics (and cost-benefit analysis as well) is too narrow to explain the features ensuing from the growing interdependency between mankind and the environment, which is the result of the long-term inequality of an individual's rights and responsibilities in relation to nature (inequality motivated especially by self-interested behaviour as part of the neoclassical paradigm).
Is it use value or non-use value which underlies individual preferences, i.e., willingness to pay or willingness to accept? Is it economic value at all?
In a welfare theoretical context Smith (1987) defined, as an economic value, anything (i.e., motives) from which utility is derived and which is scarce. Pure neoclassic theorists stress that the utility is based only on self-interested preferences. For example, P.A. Diamond and J.A. Hausman write: "benefit-cost analyses and compensatory damage assessments should not take into account ethical values: instead they should be based only on self-interested (economic) preferences." (J.A. Hausman, 1993) Environmental economists define an economic value in a broader sense: "Regardless of whether markets exist or not, any environmental function that contributes to human welfare and for which people are willing to pay (either in practice or by proclamation) has an economic value." (D.W. Pearce, 1988) According to Pearce, an economic value is anything that is revealed in human preferences, regardless of whether such preferences are based on self-interest or on ethical respect to others. This wider conception of economic value is tied with the social dimension and public interest points of view.
We have already mentioned that besides these definitions of economic value based on human preferences, philosophers of environmental ethics define another approach under the rubric intrinsic value (Callicot 1985, Rolston 1981, 1985). Unlike the assignment of value by beliefs and preferences based on instrumental utility of an object in the satisfaction of human desires, instrinsic value is a product of belief that value is an intrinsic property of the object, independent of usefulness to humans. Such intrinsic justifications are important especially where unique and delicate ecosystems or endangered species are affected. As for the task of measurement, intrinsic values can be assigned either by means of existence value (human preference to the existence of things, independent of their instrumental services) or by means of expert evaluations.
R.J. Kopp and V.K. Smith (1993) propose grouping a resource's service flows according to the following taxonomy:
| Service category | Service flow characteristics |
|---|---|
| Pure private services | Goods usually are exchanged in normal markets; one individual's consumption excludes others' enjoyment; access to the good can be controlled; quantity of the good or service is directly observable in the market, e.g., commercial fishing. |
| Quasi-private/public | Goods usually are not exchanged in services markets; up to a point one individual's enjoyment does not affect others' enjoyment, but beyond this point congestion reduces the enjoyment of all; access can be controlled but often is not strictly regulated; the quantity of the good or service is inferred from observations on individual behaviour, e.g., recreational fishing. |
| Pure public services | Goods are not exchanged in markets; any number of individuals can enjoy the good while not reducing the enjoyment of anyone else; access cannot be controlled; quantity of the good or service cannot be determined by observation or inference, e.g., existence (or non-use) values. |
There are two main approaches, both direct and indirect, to reveal individual preferences for environmental assets, i.e., to estimate individuals' willingness to pay (WTP) or willingness to accept (WTA). Indirect approaches seek to assign a value to environmental assets by observing people's behaviour in related markets and by using data from these markets. The main methods in indirect valuation are the hedonic pricing and travel cost methods. In the direct approach individuals are asked directly (personally, by mail, or by phone) about their WTP or WTA. This method, discussed below, is called the contingent valuation method (CVM). (See also, R. Hoevenagel, 1993.) Altogether, more than fifteen valuation methods are available to price natural and environmental goods by means of individual preferences (for an overview see Mitchell and Carson, 1986, or Pearce and Turner, 1990).
R.K. Turner (1991) identified the services of wetland ecosystems. The following table lists the functions or services of the most threatened wetland types.
| Wetland types | Functions/services |
|---|---|
| 1. Floodplains | Flood storage; flood protection; wildlife habitat; nutrient cycling/storage and related pollution control; landscape value. |
| 2. Coastal | All those listed under 1 above, wetlands with the exception of aquifer recharge; shoreline protection/storm damage buffer zones; recreation; extended food web control; salinity balance mechanism; commercial goods output. |
| 3. Wet meadows | High bio-diversity; hydrologic cycle control; landscape water quality and aquifer storage/ buffer zones for agricultural run-off; recreation. |
| 4. Peatlands | Same as 3 above; global atmospheric cycle; resource extraction (energy and non-energy); specialized habitats. |
In connection with the above table it is worthwhile to stress the author's conclusion that while some measurement of direct use value, expressed in terms of environmental commodities and amenities of direct benefit to humans, has been undertaken, indirect use value has remained difficult to quantify. Not enough is known about wetland functions such as, for example, life-support and pollution assimilation. Equally, the non-use value (existence and bequest) has not been quantified, but studies of other environmental resources suggest that their existence values are positive and significant (Pearce, Turner, 1990).
Currently, the CV method is used most often. The CVM is based on the assumption that people have true, but hidden, preferences for all kinds of environmental goods and that they are capable of expressing these preferences in monetary units. However, the CVM is criticized by many economists. Some objections to this method are the following:
Although the CVM is criticized by many economists, nearly all of them agree that, if used properly, this method can offer satisfactory results. This method is useful because it directly evaluates concrete benefits of natural assets. To reach reasonable results, it is necessary to question the respondents regarding both WTP and WTA. Yet, in applying the CVM to non-use values, the issue of defining the quantity measure for the services being valued remains (R.J. Kopp, V.K. Smith, 1993).
Besides the methods based on WTP or WTA, other methods have been developed for environmental valuation, especially for the assessment of environmental deterioration. For example the valuation procedure suggested by UNSO (Statistical Office of the UN) is to estimate "the costs which would have been necessary to keep the natural capital intact." (UNSO, 1990) But are these costs the costs of avoiding the emissions or the costs of restoring the actual damage? The latter costs are probably much higher than the former ones.
In addition, some economists (Opaluch, Grigalunas, 1992) argue that because ethical issues may be of paramount importance in motivations for nonuse values, then nonuse values that are revealed in CVM surveys may not be consistent with the neoclassical concept of value (defined as monetary compensation required to maintain indifference). Instead of CVM they offer to use the cost of restoration for natural resource damage assessments in order to maintain a portfolio of environmental assets. At the same time, these authors admit that it may be difficult or even impossible to determine precisely how much restoration to undertake or when the system is restored.