Economic valuation
|
Approach to value |
Worldviews | Types of values | Scale | Conflict | Skills & effort |
|---|---|---|---|---|---|
| Economic value is based on individual preferences which can be aggregaated | Individual perceptions and worldviews | Anthropocentric (mostly instrumental) | Individual to global | No specifications | Specialized technical knowledge Costs & effort can variate according to the methodology |
Economic valuation is founded in the theory of welfare economics. A defining principle is that the economic value is based on individual preferences, reflecting their individual needs, perceptions and worldviews, as well as on the scarcities imposed by nature. An exclusive use of standard economic approaches may be incompatible with some worldviews. For example, living-well in balance and harmony with Mother Earth recognizes Mother Earth as sacred and a living being that cannot be commodified.
Economic methods span a wide range of scales in space and social organization, both with respect to the valuation itself and the values that are expressed. Non-market-based valuation starts at the individual or household level. While market-based valuation in open economies goes up to the global scale, as world markets determine prices.
With respect to temporal scales, economic valuation often focuses on the planning horizon of the individuals included in the valuation study. These planning horizons differ with the particular value considered, but most often they span a few years up to a few decades. Depending on data availability, market-based valuation techniques may additionally make use of historical information going back up to countries in the past.
The degree of active participation of stakeholders differs across economic methods. Most economic methods derive aggregate social values from individual preferences. This aggregation reflects the broader social context and deserves particular attention, as it determines the outcome of economic valuation to a large extent.
Generally, these methods can be divided into two main categories: market oriented and non-market oriented valuation techniques. Market-oriented valuation techniques rely on market prices that capture values at the point of exchange and are useful for quantifying factor incomes, damage costs and replacement costs. They are dependent on the current distribution of income. Prices can also be used in a production function approach to assess an indirect value of nature for producing goods and services that have market value.
Non-market-oriented valuation techniques can be applied to value ecosystem services that are not traded on markets and can be classified into revealed preference methods or stated preferences methods. They can be classified into revealed preference or stated preference methods depending on the basis of the information used for the assessment of these values.
Economic valuation is restricted to anthropocentric types of values. The Total Economic Value Framework conceptualizes economic values as either ‘use values’ or ‘non-use values’. Use values consist of direct consumptive (e.g. food), direct non-consumptive (e.g. recreation), and indirect (e.g. pollination) uses. Non-use values consist of bequest (for future generations), altruist (for other people), and existence (satisfaction of knowing something exists) values. In situations of uncertainty option value arise when decisions have irreversible consequences, it allows for the possibility of valuing the option of the future use of a given ecosystem. Often, but not necessarily, economic values are expressed using monetary units of measurement. From an instrumental viewpoint, the value of an ecosystem should also account for the system’s capacity to maintain ecosystem service values in the face of variability and disturbance. This is the so-called insurance value and it is closely related to the ecosystem’s resilience and self-organizing capacity.