Valuation of Biodiversity Benefits (OECD)

pay US$ 10 for wood B with no conservation of wood A. If the two woods are perfect substitutes, aprogramme jointly conserving woods A and B will also be valued at US$ 10. If conserving a singlewood costs US$ 8, then conserving either wood A or wood B in isolation is worthwhile, but jointlyconserving woods A and B is not. In cases where substitution is less severe, it may simply happen thatthe sum of benefits for each wood in isolation is larger than the joint benefit for the two woodstogether. If the two woods are perfect substitutes, the fact of one of them being conserved implies thatthere is no benefit at all from conserving the other. However, in general, if there is less-than-perfectsubstitution, we only know that the benefit of conserving one wood will depend on whether the otherwood is to be conserved.The same example could be extended to many other settings: we could ask whether people’sWTP for conserving the lynx depends on whether the tiger will also be conserved? or whether WTPfor conserving all threatened felines altogether is smaller than the sum of WTP for each speciesconsidered in isolation (i.e. if all others were to remain threatened)?Note that substitution effects between two services of biological resources has two sources[Santos (1998)]. First, both services may satisfy the same basic need; thus, they are substitutes inutility (as in the example of the two woods). Second, even if they are not substitutes in utility (as maybe the case with felines), at least they compete for the same budget. The WTP for one service isreduced after having paid for another service because income is now lower.There are two conclusions from the examples of substitution effects:1 the value for one service of biological resources is reduced if the level of a substituteservice is increased (the opposite occurs for services that are complements for eachother);2. the benefit of a policy providing two services that are substitutes for each other is smallerthan the sum of the benefits of providing each service in isolation.The first conclusion implies that, to value a change in one service level, the other servicesshould be held constant at levels that are known by the evaluator—they are a relevant part of thevaluation context. The second is related to a frequent bias when aggregating benefits across services:the independent valuation and summation (IVS) bias.The second conclusion also means that, for economics as well as for biology, the whole isdifferent from the sum of the parts. Therefore, assessing the welfare effects of multidimensionalchanges in biological resources is a task in which the complexity of value relationships compounds thecomplexity of the living world.Substitution effects in the valuation of multiple-service changes II: empirical evidence fromcontingent-valuation studiesWhat about the empirical evidence on the magnitude of substitution effects and the relatedaggregation (IVS) bias?Evidence discussed here comes from a contingent valuation (CV) study of the wildlife andlandscape-conservation benefits of the Pennine Dales Environmentally Sensitive Area (ESA) schemein the UK. This example was selected from a set of CV studies of substitution effects using similarmethods and achieving similar conclusions, which have been (or are still being) conducted in the UKand Portugal [see Santos (1997) and Santos (1998)].82