Working with environmental economics I often find myself explaining the concept of Total Economic Value. The idea that a natural resource has value greater than the amount of timber in the forest, or the gate fees to the national park. Specifically, I tend to discuss Total Economic Value in terms of
- Direct use values, such as timber or recreation,
- Indirect use values, such as forested catchments providing high quality drinking water or erosion reduction
- Non-use values, such as the satisfaction of knowing some pandas still live in the wild despite not ever intending to go and see them, or of maintaining the option of future use and natural existence.
Some would argue that the intrinsic value of nature is perfectly obvious to everyone but economists, but I’m pleased to announce that even economists have acknowledged this for quite a long time. So long in fact, that most text books and even journal articles don’t bother to source where it came from. Determined to reference correctly for my forthcoming first academic journal article, I delved into the archives to get back to the original.
The paper that really cleared the path (possibly inappropriate metaphor) for modern environmental economics and TEV, was written in 1967 by John Krutilla at the Resources for the Future thinktank, set up to look at resource scarcity after WWII. In his most famous paper, Conservation Reconsidered, Krutilla changed the direction of conservation economics from a Malthusian focus on conserving natural commodities for which substitutes seemed to keep emerging, to the conservation of natural areas which probably can’t be replaced and which markets might under-provide. He said it better:
These conclusions suggest that on the one hand the traditional concerns of conservation economics – the husbanding of natural resource stocks for the use of future generations – may now be outmoded by advances in technology. On the other hand, the central issue seems to be the problem of providing for the present and future the amenities associated with unspoiled natural environments, for which the market fails to make adequate provision.
Krutilla foresaw the rise of nature tourism and recreation:
The more the present population is initiated into activities [in the outdoors] (eg., car camping), the better prepared the future population will be to participate in the more exacting activities. Given the phenomenal rise of car camping, if this activity will spawn a disproportionate number of future back-packers, canoe cruisers, cross-country skiers, etc, the greater will be the induced demand for wild, primitive, and wilderness-related opportunities for indulging such interests.
Indeed, when Krutilla was writing Mt Arapilies in Victoria had been climbed by rock climbers for only a couple of years. The classic route Bard (12) only 18 months earlier. Now on a busy weekend you’ll have to queue to get near it. Interestingly given Australia’s current debate on marine protected areas, Krutilla also discussed the need for marine conservation.
Krutilla didn’t actually use the term Total Economic Value, or even Existence Value, but Conservation Reconsidered is a must-read for students of environmental economics. Other references of Krutillas, and mine that I had a look at today include:
Ciriacy-Wantrup, 1952, Resources Conservation, Berkely
Boyle, K., & Bishop, R. (1985). Total Value of Wildlife Resources: Conceptual and Empirical Issues. AERE Workshop on Recreation Demand Modeling. The Association of Environmental and Resource Economists, Boulder, Colorado May17-18 1985. Retrieved from http://yosemite.epa.gov/ee/epa/eerm.nsf/vwAN/EE-0137.pdf/$file/EE-0137.pdf
Johansson, P. (1990). Valuing environmental damage. Oxford Review of Economic Policy, 6(1), 34-50.
Krutilla, J. (1967). Conservation Reconsidered. The American Economic Review, 57(4), 777-786. Retrieved from http://www.rff.org/rff/Events/upload/29660_1.pdf
Great post. I’ve just been undertaking some work for the Department of Conservation in NZ discussing the valuation of natural assets. I keep coming back to the concept of TEV as a foundation when discussing ‘value’. I find the distinction between TEV and ‘value’ interesting … there are some values that can’t be squeezed into the TEV framework and trying to communicate this (especially to scientists) is a challenge!
Thanks for commenting Matt. The other thing I’ve found with total economic value is that although we refer to it frequently, finding a good example of a paper that has actually calculated it is another matter. Valuations still tend to focus on the practical availability of direct-use values revealed through market transactions.
Another way of thinking about this is that we still tend to favour benefits received with a realised market value in the short term. I did a rough chart to try and illustrate the different dimensions to TEV a few years back when working on a report on the value of seals.
I’d be interested in your thoughts on this as I feel it’s something that is not always made explicitly in work on TEV.