something. In fact, the economic view of value actually includes many components that have no commercial or market basis (Freeman, 1993a; Krutilla, 1967), such as the value that individuals place on the beauty of a natural landscape or the existence of a species that has no commercial value. Thus, although economic valuation does not include all sources of value that have been identified or that are potentially important, it encompasses a very broad array of values. In addition, it provides a systematic way in which those values can be factored into environmental policy choices. This chapter provides an overview of economic valuation and the role it can play in improving environmental decision-making. The purpose is first to identify the values that are, and those that are not, captured by the economic approach to valuation and then to discuss how a quantification of these values can contribute to better environmental decision-making.
The chapter is divided into two main sections. The first discusses the role of economic valuation in the policy process and addresses the different meanings and sources of value in this context. The role and importance of quantifying values are discussed next, followed by a discussion of how information about values can be used in policy decisions. Finally, the importance of “framing” the valuation question appropriately is discussed, since the way in which a valuation exercise is defined can have a significant impact on the results that emerge from it.
Given this overview, the following section provides a more detailed examination of economic valuation. The section begins with a description of the “total economic value” framework, from which it is clear that economic valuation includes a wide array of values—many (in some cases most) of which are unrelated to any market or commercial value. This is followed by a discussion of quantifying value using a monetary metric. Two monetary metrics are described, willingness to pay (WTP) and willingness to accept (WTA), and the implications of using one versus the other are discussed. Finally, a discussion of discounting follows because many environmental policy impacts extend over long durations and it is important to incorporate the timing of these impacts into any valuation analysis. Discounting is the approach most commonly used in economic analysis to capture the timing of benefits and costs. The important distinction between discounting as a means of weighing the utility of future generations differently from that of present generations (utility discounting) and discounting as a means of weighing consumption (through benefits and costs) differently at different times (consumption discounting) is highlighted. The chapter closes with a summary of its conclusions and recommendations.
The broad overview of economic valuation provided in this chapter is followed in subsequent chapters by more detailed discussions of the types of ecosystem services that can be valued, the economic methods that can currently be used to quantify those values, and the role of professional judgment and uncertainty in ecosystem valuation.