Non-market environmental commodities – what else?

The debate continues on finding appropriate units of biodiversity and ecosystem services to which value can be assigned.

The value can be monetary but not necessarily. In fact, many policy instruments that aim to incorporate ecosystem services or biodiversity into cost-benefit analyses do not require that landscapes, ecosystems or species be assigned a price tag. The recent EU directive on environmental liability (2004/35/EC) or the US Oil Pollution Act are example where impacts on ecosystems are compensated for by restoring equivalent resources (biodiversity) and services rather than “paying what they are worth”. Nevertheless, monetary valuation techniques such as contingent valuation are still very much in use.

In the context of contingent valuation, as well as in the case of like-for-like compensation required under directive 2004/35/EC, finding appropriate “non-market environmental commodities” that can be valued, substituted or replaced is all the hype.

James Boyd and Alan Krupnick of Resources for the Future recently published a discussion paper on the subject:

A virtue of market commodities (if you’re an analyst) is that markets not only yield prices, they define units of consumption. A grocery store is full of cans, boxes, loaves, and bunches. The number of these units bought yields a set of quantity measures to which prices can be attached.

A key challenge faced by nonmarket economists is clarification of the nonmarket commodities that yield utility. Nature presents us with many possible units to choose from.

Should we use the units governments monitor? Should we use units used in economic studies? The ones used by ecologists? Should we use what laypeople tell us matters most to them?

In the paper, Boyd and Krupnick explore the non-market environmental commodities to which monetary values are attached and offer a set of principles to guide the selection of such commodities. Their analysis is based on the “ecological production theory” that was introduced by Boyd and Banzhaf in 2006 (pdf). What else?

Can ecosystems be decomposed into commodities? Should they?

Can ecosystems be decomposed into commodities? Should they?

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