Fishing at Belmont Pier, California Credit: John Cubit, NOAA

Most ecosystem services (with the exception of provisioning services like food, fuel, and timber) are not commonly traded in economic markets; as a result, there is not a market price to use as a measure of their value. While it is possible to use a market price to determine how much a loaf of bread (an item bought and sold commonly) is worth, there is no such readily available metric for the value of most ecosystem goods and services. Given the absence of a market price for many of the ecosystem services provided by nature, economists have developed "non-market" techniques to estimate their missing values for use in conducting natural resource damage assessments, cost-benefit analyses, or other evaluations.

Service-to-Service Scaling

According to regulations governing the damage assessment process, service-to-service scaling is the preferred approach for determining the required amount of compensatory restoration following an injury. In this approach, the services lost from natural resource injury are equated to the services gained from restoration. Using the critical assumption that the services lost from the injury are of the same type and value as those restored through a compensatory project, no direct valuation of the injured resources or restored resources occurs.

For example, "X" acres of marsh restoration (with its associated ecosystem services) would be required to compensate for a loss in marsh services from an oil spill. In effect, this is the most direct form of addressing ecosystem service losses. Habitat equivalency analysis (HEA) and the similar, resource-specific, resource equivalency analysis (REA) are both examples of the service-to-service scaling approaches that could be used for determining the amount of restoration required (or "X" in the marsh example mentioned above). The different levels of service flows that come from different marsh habitats as well as the duration of the injury mean that we cannot assume that restoration of 5 acres of one marsh will adequately compensate for injury to 5 acres of another marsh. Instead, HEA must be used to determine the compensatory restoration requirement.

To find out more details about HEA and scaling, click here for a link to technical papers and publications.

When the critical service-to-service equivalency assumption is not valid because of uncertainty about whether the value of services gained from restoration equals the value of services lost from the injury or an inability to assess the difference in value, DARRP relies on the Value-to-Value and/or Value-to-Cost approaches described below.

Fishing pier at St. Petersburg beach following restoration

Value-to-Value and Value-to-Cost Approaches

Value-to-value scaling entails equating the monetary value of natural resource services lost from an injury with the monetary value of restoration project(s) that would compensate for those lost services. In other words, the value of the services provided by the restoration project should equal the value of the interim losses. Related to this approach, value-to-cost only requires estimation of the value of the interim losses of natural resource services. That value, or dollar amount, is then spent on appropriate compensatory restoration projects. The value-to-cost approach is typically used when the cost and/or feasibility of developing and executing a primary study for valuing restoration benefits is prohibitive and not viewed as cost-effective.

For example, imagine that 10,000 recreational fishing trips valued at $40 per fishing trip are lost as the result of an oil spill. This is a total monetary loss of $400,000. An economic model generated at the site indicates that a boat ramp would generate 7000 recreational fishing trips valued at $40 per fishing trip and a fishing pier would generate 4,000 recreational fishing trips valued at $30 per fishing trip. Those two projects would provide a benefit of $400,000 and could be appropriate compensation for the loss to the recreational fishing population. This example is the value-to-value approach and does not consider the cost of the projects themselves. The Lavaca Bay case provides a real-world example of this approach.

On the other hand, imagine that we have the same estimated loss ($400,000), but no economic model predicting the benefits from restoration at the site. Trustees could then use the value-to-cost approach, ensuring that the total cost of restoration projects matches the estimated damages of $400,000. This approach explicitly considers the cost of the necessary restoration projects. The Athos I case provides a real-world example of this approach.

Revealed Preference and Stated Preference Methods

Fisher on Port Lavaca pier

Revealed preference and stated preference techniques are two economic methods used to value environmental goods and services. Both techniques create the missing market demand curve (i.e., the relationship between the demand for the environmental good and its cost to the consumer) and thereby identify the value for ecosystem services. Each method has its own strengths and weaknesses. Both enable economists to obtain a value that is then used in value-to-value and value-to-cost approaches for estimating the required compensation.

Revealed preference techniques use the behavior "revealed" by individuals in their day-to-day actions and decisions about how they use natural resources, typically dealing with recreational use. Travel cost models, a type of revealed preference approach, are the most common approaches for estimating the value of recreational use. These models evolved from single-site models to multiple-site models and random utility models that evaluate how individuals choose between different recreation sites. Such models are valuable since they track actual behavior of individual users. A limitation of these models, however, is the reliance on use of the resource, thereby ignoring the economic values associated with a resource in the absence of any demonstrated use. For example, a state park may provide an economic benefit to residents who never travel to the park; their economic value for the park would not be captured in a revealed preference method. These are termed passive use values and include existence value (e.g., simply valuing that a resource exists in a certain state even if one never plans to use it) and bequest value (e.g., the value from being able to bequest a resource in a certain state to future generations).

Stated preference techniques elicit values by directly asking people to "state" what their preferences are. Examples of these techniques include stated choice, contingent valuation and conjoint analysis. The hypothetical nature of the questions, the sensitivity of values to survey design, and potential difficulty in identifying an appropriate payment vehicle are some of the challenges inherent in the stated preference models. One benefit of using stated preference techniques is the possibility of assessing a broader range of economic value by including the passive use values for natural resources and services. In addition, stated preference techniques can estimate the value of hypothetical injuries or restoration scenarios for planning purposes. A stated preference technique, for example, could value the loss resulting from mercury contamination of a lake even if the contamination is not occurring at present, but might occur under a future development scenario.

While multiple studies have focused on stated preference and revealed preference techniques in isolation, research has also focused on combining these two approaches to take advantage of their strengths while attempting to mitigate their weaknesses. Although there are benefits to such an approach, caution is needed to ensure that the data obtained from combined stated preference and revealed preference surveys are compatible.

Benefit Transfer

Often, rather than conducting an economic study using the methods described above at the injured site, economists use benefit transfer to estimate the value of services provided by an ecosystem, both in its natural and impacted states. Benefit transfer uses a value or model developed from a primary valuation study at one location (the study site where the revealed preference or stated preference technique was initially applied) and transfers that value or model to a different location (the policy site where the injury has occurred or is occurring).

This approach is generally less costly than conducting a site-specific economic valuation study, but does not have the specificity of a study designed especially for the injured site. Researchers must carefully evaluate and consider the similarities and differences between the original study site and injured sites to ensure that the benefit transfer approach is appropriate. Adjusting values or functions transferred from the study site based on demographic information at the injured site can further refine the analysis. For example, if the study site is in one state and the injured site is another state, economists may adjust the value from the original study site to account for differences in income between the two states before applying it to the injured site.

Economic valuation of natural resources continues to be an ongoing area of research. Click here for relevant research studies and a regularly updated list of select papers describing the use of revealed and stated preference methods to value resources for which NOAA is a trustee (e.g., fish, coastal habitats, marine mammals, endangered and threatened marine species).

Studies such as those linked to above are also useful in providing economic values for recreational activities that can be applied in natural resource damage assessments.