Transcript ARIES and valuation

Economic valuations and benefit
transfer in ARIES
Joshua Farley
Community Development and Applied Economics
Gund Institute for Ecological Economics
University of Vermont
Function of values and valuation
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A feedback signal, generally quantitative,
that can help achieve a particular goal or
goals
Need to define goals before deciding
correct approach to valuation
Conventional economic goals
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Efficient allocation
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Rising MC= diminishing MB
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Maximize net present monetary value
Market price = marginal value = MC = MB
Determined by intersection of supply and
demand
Demand = preferences weighted by
purchasing power
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One dollar, one vote. Plutocratic
Economic Surplus
Price = marginal value
Consumer surplus
S
3.00
2.50
2.00
1.50
1.00
Producer
surplus
.50
0
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2
3
4
5
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7
D
8
9
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Quantity
Economic surplus = consumer surplus + producer surplus
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Valuation
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Estimate market price of non-market ES
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Approximate marginal benefit for existing
supply
Provides feedback signal to decision makers’
efforts to supply amounts that maximize
monetary values
Major concerns
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Is maximizing monetary value appropriate
goal?
Incommensurability
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How much for your daughter?
Marginal valuation, ecological and
economic thresholds, uncertainty and
ignorance
Ignores future generations
Ecological economics goals
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Desirable scale
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Just distribution
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How much natural capital should be allocated
towards economic production, how much should
be left intact to generate ecosystem services?
Accounts for future generations
Who is entitled to natural capital and economic
production?
Allocation of shared inheritance should not be
determined by existing purchasing power
Efficient allocation
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Maximize ratio of economic services gained
ES services lost
ARIES approach
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Quantitative estimates of flows of known
valuable services from ecosystem to
beneficiaries
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Value of non-rival ES = sum of marginal values
across all beneficiaries
Value of rival ES = highest marginal value to
single beneficiary
Not all in same units. Addresses
incommensurability
Accounts for spatial distribution of different
services
ARIES approach
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User can choose weights for different
services
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User can choose weights for different
beneficiaries
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Imposes commensurability, but transparent
Just distribution
Monetary values one option
Sustainable Scale: Critical
Natural Capital
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Components of natural capital that are
essential to human survival and for which
there are no adequate substitutes
Small changes in quantity lead to large
changes in value
Serious challenge for benefits transfer
Ecological or economic threshold
The Demand Curve for Natural Capital
Region 1
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E.g. forests in Vermont
Far from threshold, slow rate of change, errors
less important
Price can determine conservation needs
Benefits transfer less risky
Monetary
predictors
Ecological or economic threshold
The Demand Curve for Natural Capital
Region II
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E.g. Puget Sound
Estimated price sensitive to small quantity
changes and small errors
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Biophysical predictors of value more robust
Knowledge of thresholds and other ecological
criteria may be more relevant than price
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Benefits transfer highly questionable
Can we transfer knowledge of thresholds?
Scale should determine price
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Prices adjust to conservation constraints much more
rapidly than ecosystems adjust to prices.
Ecological or economic threshold
The Demand Curve for Natural Capital
Biophysical predictors, focus on conservation
Desirable scale
Price
Region III
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E.g. Madagascar
Finance more important than valuation
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Should focus on supply curve, not demand
curve
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Willingess to pay is critical, but poor measure of
actual values
Supply curve downward sloping
What is most cost effective way to restore critical
natural capital?
ARIES can trace flows of damages and
benefits, help combine polluter pays
principle, beneficiary pays principle
Ecological or economic threshold
The Demand Curve for Natural Capital
Biophysical predictors, focus
on restoration, finance
Monetary
Values
Ecological or economic threshold
The Demand Curve for Natural Capital
Scale determines price
Finance more important
than valuation