FIGURE 4-1 The economic value effects of increased wetland area on an optimally managed fishery. For optimally managed fishery a change in wetland area that serves as a breeding ground and nursery results in a shift in the marginal cost curve (MC) of the fishery. The welfare impact is the change in consumer and producer surplus (represented by area 0AB). SOURCE: Adapted from Freeman (1991).

of the other (marketed) inputs has to be explicitly specified. All of these applications require detailed knowledge of the physical effects on production of changes in the ecological service. However, applications that assume complementarity or substitutability between the service and other inputs are particularly stringent in terms of the information required on physical relationships in production. Clearly, cooperation is required between economists, ecologists, and other researchers to determine the precise nature of these relationships.

In addition, as pointed out by Freeman (1991), market conditions and regulatory policies for the marketed output will influence the values imputed to the environmental input. For instance, in the previous example of coastal wetlands supporting an offshore crab fishery, the fishery may be subject to open-access conditions. Under these conditions, profits in the fishery would be dissipated, and price would be equated to average and not marginal costs. As a consequence, producer values are zero and only consumer values determine the value of increased wetland area (see Figure 4-2).

A further issue is whether a static or dynamic model of the relationship between the ecological service and the economic activity is required. As discussed in Appendix B, this usually depends on whether or not it is more appropriate to characterize this relationship as affecting production of the economic activity over time. Figures 4-1 and 4-2 represent PF models that are essentially static. The value of changes in the environmental input is determined through producer and consumer value measures of any corresponding changes in the one-period market equilibrium for the output of crabs. In dynamic approaches, the ecologi-

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