Valuation of Biodiversity Benefits (OECD)

included in cost-benefit analysis or other forms of economic or ecological risk assessment. This is whythe field of environmental economics has experienced only limited success in measuring the value ofbiodiversity, and this problem reinforces the need for the contribution to be made by the OECD“Workshop on Benefit Valuation of Biodiversity Resources.”How Do We Address the Fundamental Valuation Problem?The obvious solution to addressing the fundamental valuation problem is to develop bettervaluation techniques, but this is not an easy task. Since many researchers continue to explore thedevelopment of contingent valuation, we focus on an alternative method, which we believe has muchgreater potential. We suggest an alternative method, which performs an indexing function rather than amonetary valuation function. However, the index-based method will still measure social preferencesand allow economic analysis of alternative levels of biodiversity. Rather than looking for dollarmeasures of changes in social welfare, it provides an indicator of how biodiversity impacts socialwelfare. In addition, we also discuss another set of conjoint analysis based methods which can be usedto derive monetary estimates of the value of biodiversity.Indices as a Measure of the Societal Importance of Environmental ResourcesIn the environmental economics literature, most research has focused on developing dollarmeasures of value, rather than some other indicator of social welfare. However, an “indicator”approach may be more consistent with ecological risk assessment than a valuation approach, and mayprovide a better assessment of the impacts of changes in biodiversity on social welfare.Figure 6.1 illustrates the relationships among four different aspects of the quality of life andsocial welfare and helps focus the discussion on the importance of indicators. These aspects of thequality of life include the health of the economy, the health of the population, and the health of theenvironment. Although there are many other important influences on social welfare, this proposaldiagrams only these four factors, in an effort to focus on the direct and indirect impacts of theenvironment on social welfare. Direct impacts are depicted by the thick solid arrow and representenvironmental resources (or services flowing from environmental resources) that appear as individualarguments in an individual’s utility function. 20In contrast, environmental quality also indirectlyimpacts social welfare through its effects on the economy, health of the population, and social justice.20If one were looking at this problem in a household production function approach, then theseenvironmental resources and services would be inputs to the production of a final service flow.98