The Economic Value of Water and Ecosystem Preservation
The Economic Value of Water and Ecosystem Preservation
The Economic Value of Water and Ecosystem Preservation
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Consumer surplus is a monetary measure calculated as the difference in<br />
what a consumer is willing to pay for a given good <strong>and</strong> the price they actually<br />
have to pay (Pearce, 1994). <strong>Economic</strong> theory typically assumes a negative<br />
dem<strong>and</strong> relationship between price <strong>and</strong> quantity, which simply means that at<br />
lower prices people are willing to buy more units <strong>of</strong> a given product. This is<br />
represented graphically by a downward sloping dem<strong>and</strong> curve in Figure 4-1.<br />
However, individuals normally face a single unit (market) price which is<br />
unaffected for different levels <strong>of</strong> consumption. This creates a condition where the<br />
price actually paid is less than the price the consumer is willing to pay for<br />
quantities less than Q* as illustrated in Figure 4-1. <strong>The</strong> total <strong>of</strong> these differences<br />
are the consumer’s surplus as it is the additional benefit received from a given<br />
level <strong>of</strong> consumption but not actually paid for (the shaded area in Figure 4-1).<br />
Figure 4-1. Typical Dem<strong>and</strong> Curve with Negative Relationship between<br />
Price <strong>and</strong> Quantity<br />
Price<br />
Q*<br />
Consumer Surplus<br />
For the Travel Cost Method, the market price for ecotourism is equated to the<br />
actual travel costs borne by the consumer. A dem<strong>and</strong> curve is calculated from<br />
survey data which estimates a relationship between price <strong>and</strong> quantity, where<br />
quantity is the number <strong>of</strong> trips taken. Finally, the consumer surplus is calculated<br />
as the area below the dem<strong>and</strong> curve <strong>and</strong> above the market price. This consumer<br />
surplus is then attributed to the (non-market) ecosystem services supporting the<br />
tourism experience. That is, on average the consumer surplus is the value <strong>of</strong> the<br />
economic benefit that ecotourists receive from the ecosystem services<br />
supporting ecotourism. <strong>The</strong> measure answers the question over what the current<br />
value <strong>of</strong> inflows are in support <strong>of</strong> ecotourism.<br />
<strong>The</strong> study also uses a production function approach to estimate the value <strong>of</strong><br />
freshwater inflows on the ecotourism sector. A production function approach<br />
considers freshwater inflows as an input to the production <strong>of</strong> ecotourism. This<br />
34<br />
Price<br />
Dem<strong>and</strong><br />
Quantity dem<strong>and</strong>ed
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