Agriculture Reference
In-Depth Information
Principles for Economic Valuation
A challenge to making sound measurements of nonmarket economic values is to
capture the kinds of relationships that exist in markets. Markets are settings where
people make choices about buying and selling. Market prices have three key
traits: first, they are determined “at the margin.” Put differently, prices are linked
to quantities, so what a consumer is willing to pay depends on how much that
person has already consumed. The price that a consumer and producer agree on is
based on how badly the consumer wishes to buy a little more and what it would
cost the producer to make that little more (above what each already has bought
and produced, respectively). Second, there are limits to what choices are feasible.
Consumer purchases are limited by budgets, and producer sales are limited by the
productive resources and technology at hand. Third, both producers and consum-
ers have substitutes and complements available to them. They tend to choose the
most feasible alternative (not necessarily an extrapolation of current practice). So
a farmer whose melon vines bear few fruit due to poor pollination may opt to rent
honeybee hives rather than invest in habitat restoration for native pollinators. Some
celebrated attempts at placing economic values on ecosystem services have extrap-
olated values to levels that violate these principles (Costanza et al. 1997), resulting
in estimates that have been criticized for not being economically credible (Pearce
1998, Bockstael et al. 2000).
Economic valuation of ecosystem services uses methods that attempt to cap-
ture the effects of relevant markets. Those markets may be real or imagined. The
relevant market for an ecosystem service varies with the scale over which people
experience that ecosystem service. The nutrient cycling service of a soil microbial
community may be fully captured at the farm field scale, whereas the climate regu-
lation service rendered by the same microbial community (e.g., uptake of atmo-
spheric methane) is realized only at the scale of global climate. For ecosystem
services from agriculture, this scale effect means that farmers may care about cer-
tain services that directly benefit the farm, while viewing others as external to their
management decisions (see focus group results in Swinton et al. 2015, Chapter 13
in this volume).
Depending on how consumers and producers experience an ecosystem service,
there are many different methods to estimate its value (Freeman 2003, Shiferaw
et al. 2005). The methods used for agricultural ecosystem services focus on val-
ues that people obtain from
use
of the services. Nonuse values—from existence
of an ecosystem, the opportunity to pass it on intact to the next generation, or
the possibility of discovering unknown benefits from it—are assumed to matter
little in agricultural ecosystems. Research on economic valuation of agricultural
ecosystem services in KBS LTER-related cropping systems can be divided into
two strands. Revealed preference methods capture values revealed by existing
markets. Production input, profitability trade-off, and stated preference methods
estimate the value of changes to the status quo, such as changing current farmer
cropping systems to include ecologically recommended practices.
