unpriced, the sum of the world's gross product underestimates world income. Furthermore, the actual value of the world's ecosystem services would increase through proper management if the resources were properly priced. A simple example will illustrate their argument: Because of overfishing, the North Atlantic fishery is now capable of contributing little to the world's gross product. With proper management (which might include putting a price or tax on each fish taken from the sea to discourage overfishing), the fishery would be restored, the sum of the world's gross product would go up, and our ability to pay a bribe to protect coastal shelves from alien destruction would increase.

The utility of the paper by Costanza and others (1997) is not in its estimates of the value of the world's ecosystem services, but rather that it initiated a visible discussion of the difficulties of estimating such values, whether on a global or on a more localized basis. As was pointed out in chapter 2, biological systems are complex. The debates over the Costanza paper point to the complexity and interactions of economic systems. These debates have contributed to a better public understanding of the difficulties in estimating economic values, especially in the absence of market-price information. As long as the value of most ecosystem services is not subjected to a market test, such debates will continue, and in the end they will advance understanding not only of the issues, but also of the values that are involved.

Summary

Economists have developed an array of tools for estimating values when the lack of ordinary markets precludes use of their favored measure, market-determined prices. These are powerful tools for informing decisions involving biodiversity. But they have limitations. Estimates of value based on them should be treated with careful attention to the assumptions that have been made in obtaining them. Support for their veracity can be indicated by the degree to which results obtained from various estimates converge. Particular care should be taken as the scale of the decisions for which estimates of value are made diverges from the normal scale of market processes. The economist's usual view of market decisions as being made at the margin—that is, for small changes in quantities and prices—is a key assumption for most estimates of value.

References

Adamowicz WL, Louviere J, Williams M. 1994. Combining revealed and stated preference methods for valuing environmental amenities. J Envir Econ Mgmt 26:271–92.

Arrow KJ, Solow R, Portney PR, Leamer EE, Radner R, Schuman J. 1993. Report of the NOAA panel on contingent valuation. Washington DC: GPO.

Arrow KJ, Cropper ML, Eads GC, Hahn RW, Lave LB, Noll RG, Portney PR, Russell M, Schmalensee R, Smith VK, Stavins RN. 1996. Is there a role for benefit-cost analysis in environmental, health, and safety regulation? Science 272(5259): 221–2.



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