Environmental valuation methods

How does the valuation technique affect the decision-making?

Inclusion of non-commercial value may affect the decision on the desirability of the policy and programmes, reflecting in part of the true "value" of the environment.

e.g., cost benefit analysis of an environment conservation programme

What are the non-commercial values?

There are many ways to categorize the "values" attached to the environment (environmental assets). Basically they are to identify benefits from the environment that are not properly reflected in the monetary valuation.

Existence value - the very existence of environmental assets are valuable. For example, existence of natural habitats of grizzly bears may be considered to be valuable, though people do not necessarily want an encounter with the bears in the wild.

Bequest value - the environmental assets may benefit future generations. For example, preserving a national park may benefit future generations, although not everybody of the present generation have an intention to visit the park.

Option value - one of the interpretations of option value is the assessment of value attached to an option that would be available in the future. For example, once biodiversity is lost at the expense of development, the possibility (option) of benefiting from it is gone forever.

Types of environmental valuation techniques

Environmental valuation techniques can be broadly classified into two categories: revealed preference (RP) approaches and stated (or expressed) preference (SP) approaches. Revealed preference approaches make use of individuals' behaviour in actual or simulated markets to infer the value of an environmental good or service. For example, the value of a wilderness area may be inferred by expenditures that recreationists incur to travel to the area. Stated preference methods attempt to elicit environmental values directly from respondents using survey techniques.

Examples of RP methods are the Hedonic Pricing Method (HPM), the Travel Cost Method (TCM), and Benefit-Transfer (BT) methods. Examples of SP methods include the Contingent Valuation Method (CVM) and Choice Modelling.