Valuation of Biodiversity Benefits (OECD)

linkages usually lead to diverse components, functions or processes, and thus services, being affected.Alternatively, the affected component may deliver several services. One example is the removal oftree cover on slopes to create pasture. This may directly affect tree cover alone. However, services asdiverse as aesthetics, recreation, soil conservation, flood control and habitat, will all change as a result.This paper explores the issues raised by this multidimensional nature of biodiversity policieswhen evaluating these policies. Most of the empirical basis for the discussion comes fromcontingent-valuation studies of biological resources in the context of rural amenities (for a review seeSantos, 1998). However, the general arguments and methods apply to most policymaking contexts,independently of the particular resources, types of services and valuation techniques used. Thediscussion is conducted with an eye on the policy relevance of the reported methodological advances.The basic questions are (1) what can we learn from the reported research about policyrecommendations based on standard valuation studies of biodiversity policies; and (2) how can weimprove the methods used in these studies.The basic problem addressed here, substitution effects between multiple policy impacts onbiological resources, is first analysed in Section 2. Section 3 reviews empirical evidence on themagnitude of substitution effects and the implied independent-valuation-and-summation (IVS) bias.Section 4 derives implications for valuation studies of multidimensional biodiversity policies; Section5, implications for benefit aggregation in policy evaluation; and Section 6, implications for theselection of optimal policy mixes, namely for prioritising action lines when designing biodiversitystrategies.Substitution effects in the valuation of multiple-service changes I: theoryBiodiversity policies typically affect multiple services of living resources at the same time.Are people’s values for each service dependent on the levels of the other services that are alsochanging? Theoretical reasons and empirical evidence discussed below lead us to believe that this isvery often the case. And, if this is so, it has important practical consequences for:(1) valid implementation of non-market valuation techniques to measure WTP for theservices of biological resources affected by policy;(2) valid benefit aggregation across multiple services, as it is usually required for policyevaluation;(3) valid cost-benefit procedures used to select the best policy mix for biodiversityconservation.If these issues are not adequately addressed, the results of policy analysis will be biased and,depending on the magnitude of the bias, there will be a non-trivial probability of recommending thewrong policy decision.So, let us return to the initial question: are people’s values for a service of a biologicalresource dependent on the levels of other such services? Economic theory provides a strong rationalefor an affirmative answer: substitution effects.Let us exemplify with a simple multi-site problem. Suppose that we want to value thebenefits of conserving the same ecosystem, say deciduous woodland, in two areas located close toeach other and visited by the same population. Very likely, each individual visitor perceives the twowoods as close substitutes. Thus, suppose that a conservation scheme for wood A alone is considered,with woodland disappearing from area B. Suppose an individual is asked how much is he prepared topay for wood A and that his answer is US$ 10. Probably, because the areas are similar, he would also81