Total economic value in coastal management practice
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Definition of Total Economic Value (TEV):
Total economic value represents the monetary equivalent of the benefits provided by an environmental resource or area. It includes direct and indirect use values, option values and non-use values such as existence and bequest values.
This is the common definition for Total Economic Value (TEV), other definitions can be discussed in the article
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This article addresses the question of what monetary equivalent value can be attributed to coastal zones. This question is increasingly important as intensive use affects the goods and services coastal zones can provide to society in the short and long term. The term 'services' is used here in the broad sense of contributions to human welfare and well-being. These include direct economic benefits (e.g. ports, waterways, tourism), conditions for benefits elsewhere (e.g. natural protection of the hinterland, nursery grounds for marine fish stocks, water and soil purification), opportunities for future use and non-material benefits such as landscape beauty and spiritual experience. A key consideration in valuation is that coastal zones are a scarce resource, with limited availability and competing uses.
Economic value should not be confused with the intrinsic value of nature. Intrinsic value refers to the worth attributed to natural systems, species and ecosystems independently of their usefulness to humans. Economic valuation, by contrast, concerns their contribution to human welfare, expressed in monetary equivalents. The concept of Total Economic Value (TEV) provides a framework for identifying and estimating these benefits, including benefits that are not reflected in market prices[1].
Contents
Coastal zone as a public resource
The coastal zone is largely public property regulated by local, regional or national authorities. These authorities can grant use permits, levy taxes and charge fees for particular uses. Parts of the coastal zone are so-called 'common-pool resources', for example beaches that are freely accessible but where overcrowding can limit recreational benefits. Other parts may be allocated for use by industry, real estate, agriculture and other users on an exclusive basis. Privately owned parts of the coastal zone are not considered here; private property is generally significant mainly beyond the direct physical influence of the sea.
Determining the total economic value of the coastal zone is far from straightforward. Important complicating factors are:
- Many coastal goods and services cannot be marketed, for example the flood protection provided by natural coastal dunes.
- Net benefits from coastal use should account for externalities: costs or benefits imposed on other users. These costs can be considerable because many coastal goods and services are limited resources.
Correcting market failure
Views differ on the services provided by coastal zones and how these should be valued. Understanding these differences is important for reaching consensus on coastal management. Similar questions arise in the management of all publicly owned natural systems and resources and are a major subject of environmental economics[2].
A core concept in environmental economics is market failure, which occurs when markets do not reflect the full social costs or benefits of a good. Free-market mechanisms therefore do not guarantee an allocation of coastal resources that maximizes social welfare. An important cause is externalities. Negative externalities include the social costs of degrading the capacity of natural systems and resources to provide goods and services, such as through degraded water quality, depletion of fish stocks, coastal erosion or loss of biodiversity. These costs can extend beyond local stakeholders, both geographically and to future generations. Because wider society and future generations cannot negotiate these costs with direct users, government intervention is often necessary.
Coastal goods and services available as common resources can be distinguished according to whether their use is rival. By definition, public goods are non-rival: use by one person does not reduce the benefit available to others. Common-pool resources are rival: use by one person reduces what remains available to others. Unregulated access to common-pool resources can therefore lead to overexploitation, commonly referred to as the 'tragedy of the commons'.
An unobstructed sea view is an example of a public good. Enjoying the view does not prevent others from enjoying it too. However, if a sea panorama attracts a large noisy crowd, the enjoyment will be less: congestion makes enjoyment rival. Use of public goods, as opposed to common-pool resources, typically does not impose major negative externalities on other users.
Because of market failure and overexploitation, coastal authorities must regulate uses of the coastal zone to promote an allocation that maximizes social welfare. This requires knowledge of the total economic value of potentially provided coastal services, including use and non-use values.
Values to be considered
Total economic value includes more than opportunities for economic development; goods and services without direct economic benefits can be equally important. Different coastal zone functions can therefore be distinguished[3][4]:
- Regulation functions: the capacity of natural and seminatural coastal ecosystems to support and regulate natural processes, providing, for example, healthy water and soil and natural protection against flooding.
- Habitat functions: contributions to coastal biodiversity and resilience, including nursery functions.
- Production functions: provision of goods for human consumption and use, such as seafood, biomass, pharmaceuticals, fuel and construction materials.
- Carrier functions: provision of space and a suitable physical environment for human activities, such as recreation, habitation, agriculture, industry, harbors, navigation and other infrastructure.
- Information functions: contributions to human health and well-being by providing opportunities for reflection, spiritual enrichment, cognitive development, recreation and aesthetic experience.
These coastal functions provide economic and other benefits, but their use can also entail negative externalities — the 'hidden' social costs of economic development — which need to be estimated as well.
Components of total economic value
The TEV framework distinguishes use values, option values and non-use values.
Use values represent benefits derived from the present use of environmental resources. Direct use values arise from activities such as fishing, tourism and recreation. Indirect use values arise from services such as natural flood protection, water purification and nursery functions supporting fisheries.
Option value represents the value individuals attach to preserving opportunities for possible future use of a resource, even if they do not currently use it. It reflects willingness to pay to keep these opportunities available under uncertainty about future needs or preferences[5]. Option value is commonly classified as a use value because it concerns possible future use.
Non-use values represent benefits that individuals derive from the preservation of environmental resources independently of their own use. They include:
- Existence value: the value attached to knowing that an environmental asset, species or ecosystem continues to exist.
- Bequest value: the value attached to preserving environmental resources for future generations.
- Altruistic value: the value attached to the benefits that other people derive from an environmental resource.
These distinctions help identify benefits that would otherwise be overlooked. However, the categories are not always independent, and care is needed to avoid double counting.
Quasi-option value differs from option value. It refers to the potential welfare gain from postponing an irreversible decision when new information about its consequences may become available. For example, delaying the conversion of a coastal wetland may allow time to obtain information about its ecological functions and the consequences of development. Quasi-option value therefore concerns the benefit of retaining flexibility and learning before making an irreversible commitment, rather than an additional category of willingness to pay for the environmental resource itself[6].
The classification of coastal functions proposed by De Groot et al. (2002) describes the different ways in which coastal ecosystems contribute to human welfare. These functions provide the basis for identifying direct and indirect use values and opportunities for future use. Non-use values, however, are generally associated with the preservation of ecosystems, species or landscapes as a whole and cannot readily be attributed to individual functions. Quasi-option value concerns the potential benefit of obtaining additional information before making an irreversible decision and is therefore better regarded as a consideration in decision-making than as a separate component of TEV. Since different value categories can overlap, their estimated monetary values cannot necessarily be added without double counting.
Estimating the total economic value
There are basically two approaches for estimating the monetary value of the goods and services provided by the coastal zone: a cost-based approach and a demand-based approach.
Cost-based approach
The cost-based approach uses market costs as proxies for the monetary value of goods and services. Market prices can provide information about production functions supplying traded goods such as seafood, although economic value should be based on net benefits rather than gross revenues.
Some regulation functions can be valued from theoretical replacement costs, for example the cost of artificial coastal defense replacing natural flood protection. The same applies to carrier functions, such as beach nourishment for recreation. Replacement cost is a meaningful proxy only if the replacement provides an equivalent service, is the least-cost alternative and would actually be undertaken if the natural service were lost. Where no direct replacement is available, avoided costs such as health-care costs or flood damage can provide a proxy. Habitat functions such as ecosystem productivity can sometimes be valued through the resulting production of consumer goods.
The total value of the production function is generally limited by the carrying capacity of the coastal ecosystem. When the carrying capacity is exceeded, overexploitation degrades the resource on which production depends and can ultimately cause the production function to collapse, while imposing negative externalities on other coastal functions and users.
Demand-based approach
The demand-based approach estimates the monetary benefits that individuals derive from coastal goods and services, including services that cannot be adequately valued by market prices or cost-based methods. Their value can be inferred from people's choices, trade-offs and willingness to pay within their budget constraints. Several methods are described in related Coastal Wiki articles:
- Travel cost valuation estimates the recreational value of a coastal destination from the costs incurred by visitors and any additional amount they would be willing to pay for the visit. See Travel cost method.
- Hedonic valuation estimates the economic value of environmental characteristics that affect market prices, for example the added value of a sea view to the price of real estate. See Hedonic Evaluation Approach and Values of amenities in coastal zones.
- Contingent valuation estimates how much people would be willing to pay to maintain a coastal feature, such as a natural coastal landscape or biodiversity, or would be willing to accept as compensation for its loss. See Contingent Valuation Method.
Stated-preference methods such as contingent valuation can also estimate non-use values, including existence and bequest values. See Non-use value: bequest value and existence value.
Limitations of the total economic value concept
Resource allocation must respect mutually exclusive uses, and total economic value must account for externalities. The total economic value estimated according to the above framework represents the potential economic value under a given allocation of coastal resources among their different functions. The actual economic value can be lower when the allocated resources are not optimally used.
Coastal functions that are non-rival and not affected by their users are less directly relevant to decisions about competing uses of coastal space, although their benefits may still be substantial.
Expressing all relevant values in monetary units is challenging, especially for non-use values and ecological functions whose benefits are indirect, uncertain or realized over long periods. Valuation estimates can therefore have considerable uncertainty. In addition, monetary values based on willingness to pay depend partly on people's income and preferences and do not necessarily reflect the ecological importance of a resource.
An important limitation is that coastal ecosystems are complex and may undergo substantial, sometimes irreversible changes when critical thresholds are exceeded. The consequences of degradation cannot always be predicted or expressed adequately in monetary terms. This has motivated the use of concepts such as ecological resilience and strong sustainability in resource management[7][8]. These concepts emphasize maintaining essential ecosystem structures, functions and capacities to provide benefits to future generations, even when those benefits cannot be reliably quantified.
Coastal management decisions should therefore not rely on total economic value alone. Monetary cost-benefit analysis can be complemented by non-monetary decision-support methods such as Multicriteria techniques. Combining monetary and non-monetary methods is generally preferable to relying on either alone, particularly when decisions involve ecological thresholds, irreversible changes or competing societal objectives.
Related articles
- Travel cost method
- Contingent Valuation Method
- Hedonic Evaluation Approach
- Value Transfer
- Socio-economic evaluation
- Non-use value: bequest value and existence value
- Values of amenities in coastal zones
- Economic valuation of goods and services of the UK coastal and marine ecosystem
- Multifunctionality and Valuation in coastal zones: concepts, approaches, tools and case studies
- Multifunctionality and Valuation in coastal zones: introduction
- Multicriteria techniques
References
- ↑ Costanza, R. 2000. Social goals and the valuation of ecosystem services. Ecosystems 3: 4-10
- ↑ Anderson, D. 2019. Environmental Economics and Natural Resource Management. Routledge, New York
- ↑ De Groot, R.S. 1992. Functions of Nature: Evaluation of Nature in Environmental Planning, Management and Decision Making. Wolters-Noordhoff, Groningen, The Netherlands. 315 pp.
- ↑ De Groot, R.S., Wilson, M.A. and Boumans, R.M.J. 2002. A typology for the classification, description, and valuation of ecosystem functions, goods, and services. Ecological Economics 41: 393-408
- ↑ Weisbrod, B.A. 1964. Collective-consumption services of individual-consumption goods. Quarterly Journal of Economics 78: 471-477
- ↑ Freeman, A.M. 1993. The Measurement of Environmental and Resource Values: Theory and Methods. Resources for the Future, Washington, DC
- ↑ Barbier, E.B., Burgess, J.C. and Folke, C. 1994. Paradise Lost? The Ecological Economics of Biodiversity. Earthscan, London
- ↑ Howarth, R.B. 1997. Sustainability as opportunity. Land Economics 73: 569-579
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