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Economic valuation and the natural world


  • Pearce, David


Economic valuation is controversial largely because its purpose has not been clearly conveyed to non-economists. The purpose of valuation of the natural world is to elicit measures of human preferences for, or against, environmental change. As a procedure, it thus faces two immediate limitations. First, economic values are not the same as intrinsic values - values in things rather than values of things. Economic valuation makes no claim to measure intrinsic values, although through the concept of existence value it may be capable of capturing human perceptions of intrinsic value. Second, measuring preferences focuses on efficiency gains and losses from environmental change. It says little about the distribution of costs and benefits within a time period or between time periods. Within a time period, the use of efficiency gains and losses as a guide to policy or project evaluation assumes that the prevailing distribution of income is socially acceptable, since it is that distribution which weights the measures of willingness to pay. Between time periods, the use of another efficiency concept - the discount rate - biases the outcomes of evaluation in favor of the present, and against future, generations where future costs and benefits are both distant and significant. But economic valuation is useful in several contexts. Project and program appraisal cannot be comprehensive or adequate without it. National environmental policy priorities will be better informed if economic values are known with some degree of certainty. The entire objective of sustainable development almost certainly cannot be interpreted without some idea of the value of environmental services and assets. Empirical work on valuation remains limited, even in the developed world. It is fairly new in the developing world, although many project evaluations have used some form of indirect valuation. Its importance for the development process is that revealed economic values for environmental conservation and environmentally improving projects and policies have often been found to be large. Valuation demonstrates that there is an economic case for protecting the environment and can help improve decision making. In so doing, it could make public choices more cost-efficient, thus allowing limited public income to be optimally spent.

Suggested Citation

  • Pearce, David, 1992. "Economic valuation and the natural world," Policy Research Working Paper Series 988, The World Bank.
  • Handle: RePEc:wbk:wbrwps:988

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    References listed on IDEAS

    1. Bergstrom, John C. & Stoll, John R. & Titre, John P. & Wright, Vernon L., 1990. "Economic value of wetlands-based recreation," Ecological Economics, Elsevier, vol. 2(2), pages 129-147, June.
    2. Nordhaus, William D, 1991. "A Sketch of the Economics of the Greenhouse Effect," American Economic Review, American Economic Association, vol. 81(2), pages 146-150, May.
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    Cited by:

    1. Voxi Heinrich S. Amavilah, 2005. "The National Wealth of Selected Countries - A Descriptive Essay," Development and Comp Systems 0508007, University Library of Munich, Germany.
    2. García-Amado, Luis Rico & Pérez, Manuel Ruiz & Escutia, Felipe Reyes & García, Sara Barrasa & Mejía, Elsa Contreras, 2011. "Efficiency of Payments for Environmental Services: Equity and additionality in a case study from a Biosphere Reserve in Chiapas, Mexico," Ecological Economics, Elsevier, vol. 70(12), pages 2361-2368.
    3. repec:bla:devpol:v:12:y:1994:i:4:p:355-368 is not listed on IDEAS
    4. Nicola Lansdell & Lata Gangadharan, 2003. "Comparing Travel Cost Models And The Precision Of Their Consumer Surplus Estimates: Albert Park And Maroondah Reservoir," Australian Economic Papers, Wiley Blackwell, vol. 42(4), pages 399-417, December.
    5. Raffaello Gervigni, 1998. "Incremental Cost in the Convention on Biological Diversity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 11(2), pages 217-241, March.
    6. Alessandra Arcuri, 2005. "A Different Reason for “De-Coasing” Environmental Law and Economics," European Journal of Law and Economics, Springer, vol. 20(2), pages 225-246, September.
    7. repec:spr:envpol:v:20:y:2018:i:1:d:10.1007_s10018-017-0188-3 is not listed on IDEAS
    8. Catalino, Alejandro Herrera & Lizardo, Magdalena, 2004. "Agriculture, Environmental Services and Agro-Tourism in the Dominican Republic," eJADE: electronic Journal of Agricultural and Development Economics, Food and Agriculture Organization, Agricultural and Development Economics Division, vol. 1(1), pages 1-30.
    9. Easter, K. William & Archibald, Sandra O., 1998. "Benefit-Cost Analysis In U.S. Environmental Regulatory Decisions," Conference Papers 14475, University of Minnesota, Center for International Food and Agricultural Policy.


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