1. Environmental and Natural Resource Economics 3rd ed. Jonathan M
Environmental and Natural Resource Economics 3rd ed. Jonathan M. Harris and Brian Roach Chapter 6 – Valuing the Environment
Copyright © 2013 Jonathan M. Harris

2. Figure 6.1: Components of Total Economic Value
Use Values
Non-use Values
Direct Use Value
Indirect Use Value
Option Value
Bequest Value
Existence Value
Total economic value is composed of both use and non-use values.
• Timber
• Non-timber
products
• Hiking
• Hunting
• Soil erosion
control
• Flood
protection
• Carbon
storage
• Future
recreation
• Potential
pharma-
ceuticals
• Forest
available
for future
generations
• Welfare
from just
knowing
forest exists

3. Table 6.1: Sample of Recent Environmental Contingent Valuation Results
Good or Service Valued
WTP Dollars
Reduced highway noise and air pollution in Spain1
$22/year
Increased biodiversity in Hungary2
$23–$69/year
Increased supplies of renewable energy in the United States3
$10–$27/month
Urban greening in China4
$20–$29/year
Increased forest reserves in Norway5
$261–$303 (one-time payment)
Clean drinking water supplies in Pakistan6
$7–$9/month
Grassland conservation in Italy7
$11–$19/year
Marine biodiversity in the islands8
$121–$837 (one-time payment)
River recreation in Australia9
$113/day
Contingent valuation gives a range of estimates for various non-marketed goods.
Sources:
1. Lera-Lopez et al., 2012; 2. Szabo, 2011; 3. Mozumder et al., 2011; 4. Chen and Jim 2011; 5. Lindhjem and Navrud, 2011; 6. Akram
and Olmstead, 2011; 7. Marzetti et al., 2011; 8. Ressurreicao et al., 2011; 9. Rolfe and Dyack, 2010.
Note: WTP = willing to pay.

4. Table 6.2: Present Value of a $100 Impact, by Discount Rate
Years
Discount Rate 1% 3% 5% 7%
10%
$100.00 10
$90.53
$74.41
$61.39
$50.83
$38.55 20
$81.95
$55.37
$37.69
$25.84
$14.86 30
$74.19
$41.20
$23.14
$13.14
$5.73 50
$60.80
$22.81
$8.72
$3.39
$0.85
100
$36.97
$5.20
$0.76
$0.12
$0.01
Present values of future costs and benefits decline rapidly at higher discount rates.

5. Figure 6.2: Present Value of a $100 Impact, by Discount Rate
At discount rates above 3%, costs that are 50 to 100 years in the future are discounted almost to insignificance.

6. Table 6.3: Hypothetical Example of Risk Analysis
Scenario
Net Benefit
Probability
Expected Value
Low precipitation
+ $5 million
0.27
+ 1,350,000
Average precipitation
+ $10 million
0.49
+ 4,900,000
High precipitation
+ $20 million
0.23
+ 4,600,000
Extremely high precipitation
– $100 million
0.01
– 1,000,000
Total expected value
+ 9,850,000
Expected value takes into account the probabilities of different possible outcomes.

7. Table 6.4: Potential Costs and Benefits Associated with Dam Construction Proposal
Potential Benefits
1. Construction costs
1. Flood control
2. Operations and maintenance costs
2. Recreation
3. Environmental damages
3. Hydropower supply
4. Risk of dam failure
Costs of dam construction include construction and operations, as well as environmental and potential catastrophic costs. Benefits can include flood control, hydropower, and recreation.

8. Table 6.5: Annual Present Value of Costs and Benefits of Dam Construction Proposal (in Millions), Selected Years
Costs
Benefits
Year
Construction
Operations
Environmental
Dam Failure
Recreation
Hydropower
Flood Control
50.00
0.00 1
47.62 2
45.35 3
6.91
8.64
0.43
12.96
4.32
7.77 4
6.58
8.23
0.41
12.34
4.11
7.40 5
6.27
7.84
0.39
11.75
3.92
7.05 … 49
0.73
0.92
0.05
1.37
0.46
0.82 50
0.70
0.87
0.04
1.31
0.44
0.78 51
0.66
0.83
1.25
0.42
0.75 52
0.63
0.79
1.19
0.40
0.71
Total Present Value
142.97
132.47
165.59
8.28
248.38
82.79
149.03
Costs and benefits for future years need to be discounted to calculate total present value.

9. Area (millions of hectares) Annual value (1994 $ billions)
Table 6.6: The Global Value of Ecosystem Services
Biome (ecosystem)
Area (millions of hectares)
Annual value (1994 $ billions)
Open ocean
33,220
8,381
Estuaries
180
4,110
Seagrass/algae beds
200
3,801
Coral reefs 62
375
Shelf
2,660
4,283
Tropical forest
1,900
3,813
Temperate/boreal forest
2,955
894
Grass/rangelands
3,898
906
Tidal marsh/mangroves
165
1,648
Swamps/floodplains
3,231
Lakes/rivers
1,700
Desert
1,925
NA1
Tundra
743
Ice/rock
1,640
Cropland
1,400
128
Urban
332
Total
51,645
33,268
Values for the total global ecosystem are somewhat speculative, but add to $33 trillion in total.

10. Figure A6.1: Total Cost Demand Curve Example
Results of a travel cost study can be used to construct a demand curve and obtain an estimate of total consumer surplus.

11. Figure A6.2: Contingent Valuation Question Formats
Open-Ended Format:
What is the maximum amount you would be willing to pay annually, as a tax surcharge, to fund a wetlands protection program?
Payment Card Format:
Which of the amounts below most closely indicates your maximum willingness to pay annually, as a tax surcharge, for a wetlands protection program? Please circle your answer.
$5 $40 $80 $200 $750
$10 $50 $100 $300 $1000
$20 $60 $125 $400 $1500
$30 $75 $150 $500 $2000
Single-Bounded Format:
Would you be willing to pay $75 annually, as a tax surcharge, to fund a wetlands protection program?
Yes No
Unsure
Double-Bounded Format:
If respondent answers “Yes,” then ask:
“Would you be willing to pay $150?”
If respondent answers “No,” then ask:
“Would you be willing to pay $40?”
Multiple-Bounded Format:
For each dollar amount below, indicate whether you would be willing to pay that amount annually, as a tax surcharge, to fund a wetlands protection program?
$5 Yes No Unsure
$10 Yes No Unsure
$25 Yes No Unsure
$50 Yes No Unsure
$75 Yes No Unsure
$100 Yes No Unsure
$200 Yes No Unsure
$300 Yes No Unsure
$500 Yes No Unsure
$1000 Yes No Unsure
Different formats are possible for contingent valuation surveys.