Valuation of Biodiversity Benefits (OECD)

Use of the Trade-off Weighted Index in Valuing BiodiversityAs indicated above, the key to developing the trade-off weighted index is to appropriatelyspecify the choice sets that provide the survey data used to estimate the preference function. This canbe done is several ways.The most general method of developing a biodiversity index would be to include biodiversityas a component of overall environmental quality. For example, characteristics of the choice sets couldinclude levels of different types of pollution, quantity and quality measures of characteristics related tomajor ecosystem types (estuaries, wetlands, forests, etc.) and quantity and quality measures ofcharacteristics related to biodiversity. Then the social consequences of a reduction in biodiversity or arisk of a reduction in biodiversity can be measured as the impact of the change in these biodiversitycharacteristics on the environmental index.A difficulty associated with both this method and the measurement of the value ofbiodiversity in general is that ecosystem health and biodiversity are jointly produced, and bothcontribute to social welfare. A biodiverse system, ceteris paribus, is a healthier, more stable systemthat provides a greater flow of ecological services. At the same time, a healthier, more productive andmore stable ecosystem provides greater protection of biodiversity. Since both greater environmentalquality and greater biodiversity both contribute to social welfare, and since both are functions of eachother, it may not be possible to completely attribute changes in social welfare to one factor or theother.An alternative approach would be to develop a set of choice sets describing alternative statesof the world, where only biodiversity characteristics change between choice sets. This would allow themeasurement of an index of biodiversity. However, it is not clear that such a choice experiment couldbe successfully implemented within a survey population of ordinary citizens, as the ordinary citizensmight not be able to successfully evaluate alternative sets of biodiversity variables. Such a choiceexperiment and development of a separate index of biodiversity might be better implemented with asurvey population consisting solely of experts.A third approach is to define choice sets which include not only biodiversity andenvironmental variables, but other variables associated with the quality of life, such as regionaleconomic variables (changes in per capita income, quality of education, transportation increases,changes in crime rates, and so on). Then, the index would express trade-offs among all these factors,which affect the quality of life.A final approach would be to include a price associated with the environmental orbiodiversity resources in the choice set. Under these circumstances, a Hicksian measure of value canbe associated with a change in the level of biodiversity (or other environmental variable). Thiswillingness to pay based choice method will be discussed in Section 5.Application to Biodiversity in the Clinch River, USAWe are in the process of implementing the index approach to measuring the importance ofbiodiversity resources in the Clinch River (Virginia and Tennessee, USA) under funding from aco-operative agreement with the US Environmental Protection Agency program that is developingmethods for integrating ecological economics and ecological risk assessment. Two other projects arebeing implemented by other universities on the Middle Platte River (University of Nebraska) and BigDarby Creek (Miami (Ohio) University). The Middle Platte River project is using a game theoretical105