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Valuing ecosystem services in general equilibrium

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Author Info

  • Jared Carbone

    (University of Calgary)

  • V. Kerry Smith

Abstract

We explore the consequences of treating the multiple, non-market benefits associated with improvements in ecosystem health and the market economy from which damage to these ecosystems stems as an integrated system. We find that willingness to pay measures of use-based ecosystem services are impacted by the changes in demand for complementary market goods. Demand for these goods shifts due to the introduction of pollution regulations that deliver improvements in ecosystem services. As a result, partial equilibrium estimates of these use values may be measured with substantial error if they fail to account for the general equilibrium adjustments caused by the regulation. We also find that the basic physical/biological connections between the resources underlying use and non-use values for ecosystems may have important implications for the measurement of these values.

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Bibliographic Info

Paper provided by Department of Economics, University of Calgary in its series Working Papers with number 2010-05.

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Date of creation: 17 Mar 2010
Date of revision: 17 Mar 2010
Handle: RePEc:clg:wpaper:2010-05

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Keywords: ecosystem services; general equilibrium; non-market valuation;

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References

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  1. Herriges, Joseph A. & Kling, Catherine L. & Phaneuf, Daniel J., 2004. "What's the Use? Welfare Estimates from Revealed Preference Models when Weak Complementarity Does Not Hold," Staff General Research Papers 1905, Iowa State University, Department of Economics.
  2. H. Spencer Banzhaf & Dallas Burtraw & David Evans & Alan Krupnick, 2006. "Valuation of Natural Resource Improvements in the Adirondacks," Land Economics, University of Wisconsin Press, vol. 82(3), pages 445-464.
  3. Finnoff, David & Tschirhart, John, 2003. "Harvesting in an eight-species ecosystem," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 589-611, May.
  4. Willig, Robert D., 1978. "Incremental consumer's surplus and hedonic price adjustment," Journal of Economic Theory, Elsevier, vol. 17(2), pages 227-253, April.
  5. David S. Bullock & Nicholas Minot, 2006. "On Measuring the Value of a Nonmarket Good Using Market Data," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(4), pages 961-973.
  6. Carbone, Jared C. & Smith, V. Kerry, 2008. "Evaluating policy interventions with general equilibrium externalities," Journal of Public Economics, Elsevier, vol. 92(5-6), pages 1254-1274, June.
  7. Perroni, C., 1992. "Homothetic Representation of Regular Non-Homothetic Preferences," Working Papers 91158, Wilfrid Laurier University, Department of Economics.
  8. Diamond, Peter A & Mirrlees, James A, 1973. "Aggregate Production with Consumption Externalities," The Quarterly Journal of Economics, MIT Press, vol. 87(1), pages 1-24, February.
  9. V. Kerry Smith, 2004. "Krutilla's Legacy: Twenty-First-Century Challenges for Environmental Economics," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1167-1178.
  10. McConnell, K. E., 1990. "Models for referendum data: The structure of discrete choice models for contingent valuation," Journal of Environmental Economics and Management, Elsevier, vol. 18(1), pages 19-34, January.
  11. Sandmo, Agnar, 1980. "Anomaly and Stability in the Theory of Externalities," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 799-807, June.
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Cited by:
  1. A. Ruijs & M. Kortelainen & A. Wossink & C.J.E. Schulp & R. Alkemade & Paul Madden, 2012. "Opportunity cost estimation of ecosystem services," The School of Economics Discussion Paper Series 1222, Economics, The University of Manchester.

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