Economics, Environment, Natural resource management

221 – Valuing environmental intangibles, part 4: The upshot

In Part 2 I argued that information about environmental values is essential for making good decisions about how to spend the money in environmental programs. In Part 3 I discussed some of the criticisms that have been made of the main survey-based methods that economists use for this purpose. Part 4  is the “so what” part: considering all of that, what should we do?

The main criticisms of non-market valuation surveys that I think have substance are that, in some cases, the general public is not well enough informed to provide meaningful values, and that surveys are too expensive to be conducted for every environmental decision that has to be made.

The first point was emphasised by Drew Collins in his comment on Part 3. Later on I’ll talk about some alternative approaches that avoid this problem.

The high cost of non-market valuation surveys is a significant factor when considering how widely they can and should be used. This suggests that we should look at cheap ways to get at relatively approximate values.

The non-market valuation community has come up with “benefit transfer” as their cheap and cheerful option. The idea with benefit transfer is to find other non-market valuation studies for environmental benefits that are similar to the one you are interested in, and use or adapt those. It’s a sensible idea, as long as you can find suitable studies to transfer the values from. That is not necessarily easy. The number and diversity of situations from which values are needed is enormous, whereas the number of existing good-quality non-market valuation studies, while growing, is still relatively modest. Given this, in many cases there will be high uncertainty about how applicable the transferred values are. In general, transferred values are probably rough approximations. But that may be OK — rough approximations are definitely a lot better than nothing when prioritising environmental projects (Pannell, 2009). Indeed, once the high cost of getting more accurate values is considered, approximate information may actually be the best option in many cases.

Transferring benefits like this is not that different from transferring other types of information from one context to another, which happens all the time. For example, when evaluating an environmental project, we need information about the cause-and-effect relationships between management and outcomes, and about the level of compliance/cooperation we are likely to get from the community, and usually we rely on information from studies of other cases to make judgments about these things.

Benefit transfer is not the only way to get approximate non-market values. Another option is to ask a small panel of people to make subjective judgments about the importance or significance of the environmental benefits. (I’ll call these ‘deliberative’ approaches.) There are various versions of this. The approach is sometimes used in Multi-Criteria Analysis, as well as in a variety of related processes that involve providing information to a group of citizens and asking them to make judgments about particular issues (e.g. citizens’ panels, citizens’ juries, citizens’ councils, deliberative focus groups). A third approach is the one we developed for our environmental investment framework, INFFER, where environmental values are elicited from environmental managers using a table of well known environmental assets as examples and a scoring system that converts to dollar values. A fourth version is where the judgments are made by experts (as commonly happens). These deliberative approaches can range from quick and dirty through to quite elaborate and time consuming.

Often deliberative approaches result in environmental benefits being scored or ranked, rather than them being valued in dollar terms. That is sufficient for some decisions (e.g. a consistent scoring system is sufficient for prioritisation of projects when the budget is fixed) but not others (e.g. judgments about how big the budget should be). Deliberative approaches to elicit dollar values for assets are perhaps under-utilised, with the INFFER approach being a rare example.

The main disadvantage of this group of approaches is that the panel’s or experts’ judgments may not be representative of the broader community, and it’s hard to tell whether they are or not.

On the other hand, there are several advantages. The panel can include experts, and/or information can be provided to the panel members in much more depth than is ever possible in a survey. The process can involve discussion and debate, prompting people to think more deeply about the issues. And it is possible to generate values much more cheaply and rapidly relative to doing a survey. The extent of this last benefit depends on how the process is run.

I’m not saying these deliberative processes should always be preferred to non-market valuation surveys. I’d suggest that valuation surveys could be worth investing in where the environmental problem is particularly important, the environmental issues are well known to and well understood by the community, and the results of a survey could make a pivotal difference to whether a major project proceeds. Non-market surveys might also be attractive as a relatively independent approach, particularly where the debate has become partisan or dominated by special interest groups. Beyond this, it is helpful to have a variety of non-market valuation results on the shelf, to help inform benefit transfer, and perhaps to provide information to inform deliberative panels.

Where good quality valuation studies for similar problems are available, benefit transfer may provide a viable fallback option.

Where resources or time are too limited to do a fresh survey (i.e. usually), and benefit transfer is not suitable, or the valuation issue would benefit from a transparent, well-informed discussion and debate, one of the deliberative approaches might be the best option.

Further reading

Pannell, D.J. (2009). The cost of errors in prioritising projects, INFFER Working Paper 0903, University of Western Australia. Full paper (350K)

Pannell, D.J., Roberts, A.M., Park, G., Alexander, J., Curatolo, A. and Marsh, S. (2012). Integrated assessment of public investment in land-use change to protect environmental assets in Australia, Land Use Policy 29(2): 377-387. Journal web site ♦ IDEAS page for this paper