Valuation of ecosystem services from rural landscapes using agricultural land prices

Agricultural lands, primarily managed for crops and livestock production, provide various ecosystem services (ES) to people. In theory, the economic value of the service flows that can be captured privately is capitalized into land prices. This study proposes an integrative framework to characterize the ecosystem services associated with agricultural lands. Using that framework, we demonstrate how hedonic analysis of agricultural land prices can be used to estimate the private values of land-based ES. The model is estimated with data from southwestern Michigan, USA. Results suggest that ES values are associated with lakes, rivers, wetlands, forests and conservation lands in rural landscapes. Ecosystem services that support direct use values, such as recreational and aesthetic services, are likely to be perceived by land owners and capitalized in land prices. Some regulating services that provide indirect use values may be partially capitalized in a land parcel's relationship to natural resources and landscapes. Other ES from the land parcel and its surroundings are unlikely to be capitalized due to lack of private incentives, unawareness, or small perceived value. The private ES values measured in this study highlight opportunities to design cost-effective public policies that factor in the value of private benefits from agricultural lands.     

Evaluating wind-following and ecosystem services for hydroelectric dams in PJM

Hydropower can provide inexpensive, flexible fill-in power to compensate for intermittent renewable generation. Policies for hydropower dams maintain multiple services beyond electric generation, including environmental protection, flood control and recreation. We model the decision of a hydroelectric generator to shift some of its power production capacity away from the day-ahead energy market into a “wind-following” service to smooth the intermittent production of wind turbines. Offering such a service imposes both private and social opportunity costs. Since fluctuations in wind energy output are not perfectly correlated with day-ahead energy prices, a wind-following service will necessarily affect generator revenues. Seasonal wind patterns produce conflicts with the goal of managing rivers for “ecosystem services”—the maintenance or enhancement of downstream ecosystems. We illustrate our decision model using the Kerr Dam in PJM’s territory in North Carolina. We simulate the operation of Kerr Dam over a three-year period that features hydrologic variability from normal water years to extreme drought conditions. We use an optimization framework to estimate reservation prices for Kerr Dam offering wind-following services in the PJM market. Wind-following may be profitable for Kerr Dam at low capacity levels during some time periods if ecosystems services are neglected and if side payments, or reserves-type payments, are provided. Wind-following with ecosystem services yields revenue losses that typically cannot be recovered with reserves market payments. Water release patterns are inconsistent with ecosystem-services goals when Kerr Dam dedicates significant capacity to wind-following, particularly in drought years.     

The quantification and valuation of ecosystem services

This paper explores differences between economic and ecological criteria for identifying, measuring, and evaluating ecosystem services. It argues that economic stakeholders (user groups) generally do well in identifying these services and assigning prices to them. These prices arise spontaneously in—and serve to coordinate—market activity related to the environment. The relevant ecological information which markets gather and apply tends to be dispersed, contingent, particular, local, transitory, and embedded in institutions and practices. Ecologists and other scientists, in contrast, often seek to understand how ecosystems work and which populations and processes provide ecosystem services. The knowledge science seeks, unlike the information markets gather, tends to be centralized, collaborative, collective, and consensus-based; science pursues concepts and principles that are timeless and general rather than ephemeral and site-specific. The paper contrasts the dispersed and decentralized information organized by markets with the collective and centralized knowledge characteristic of science. The paper argues that the conceptual distance between market-based and science-based methods of assembling information and applying knowledge defeats efforts to determine the “value” of ecosystem services in any integrated sense.     

Bioeconomic diversity dynamics of a marine ecosystem

This paper models the bio-economic diversity dynamics of a marine ecosystem made up by its entire commercial fish species and, from the fitted model, obtains a quantitative measure of its resilience to disturbance in terms of recovery time after a shock. Such shocks might be produced by both, downturns in catches and/or prices related to changing regulatory and environmental conditions. To that end, monthly time series of bio-economic diversity indices will be used and the framework of a mixed cyclical ARFIMA joint with a GARCH type heteroscedaticity model will be explored to analyse the dynamic properties of such indices and, based on the estimated impulse response functions (IRF) to measure the effects and duration of a unitary random shock or disturbance. One of our findings is that bio-economic diversity is a mean-reverting process with an estimated recovery time between 7 and 10 years.     

Intertemporal choice of marine ecosystem exploitation

Exploitation of the marine ecosystem brings with it an intertemporal choice: there is a choice of catching the fish today, or restrain from fishing with the option of an increase in the benefit from future harvest. In a marine ecosystem under common pool management regime the contribution margin from catching the fish belongs to the fisher, while the benefit from the investment of leaving the fish in the sea will be shared in the common pool. The intertemporal choice therefore creates a driver for short sighted use of the ecosystem. The intertemporal balance of the exploitation is analyzed by applying capital theory to a size-based ecosystem model. The model reveals a need for intertemporal balance with respect to both fish size and harvest volume. The management therefore is, at an ecosystem level, to set target and regulate not only harvest volume but also size.     

A dynamic approach to PES pricing and finance for interlinked ecosystem services: Watershed conservation and groundwater management

A theory of payment for ecosystem services (PES) pricing consistent with dynamic efficiency and sustainable income requires optimized shadow prices. Since ecosystem services are generally interdependent, this requires joint optimization across multiple resource stocks. We develop such a theory in the context of watershed conservation and groundwater extraction. The optimal program can be implemented with a decentralized system of ecosystem payments to private watershed landowners, financed by efficiency prices of groundwater set by a public utility. The theory is extended to cases where land is publicly owned, conservation instruments exhibit non-convexities on private land, or the size of a conservation project is exogenous. In these cases, conservation investment can be financed from benefit taxation of groundwater consumers. While volumetric conservation surcharges induce inefficient water use, a dynamic lump-sum tax finances investment without distorting incentives. Since the optimal level of conservation is generated as long as payments are correct at the margin, any surplus can be returned to consumers through appropriate block pricing. The present value gain in consumer surplus generated by the conservation-induced reduction in groundwater scarcity serves as a lower bound to the benefits of conservation without explicit measurement of other benefits such as recreation, biodiversity, and cultural values.     

How to Get There From Here: Ecological and Economic Dynamics of Ecosystem Service Provision

Using a bioeconomic model of a coral reef-mangrove-seagrass system, we analyze the dynamic path of incentives to achieve an efficient transition to the steady state levels of fish biomass and mangrove habitat conservation. Our model nests different types of species habitat dependency and allows for changes in the extent of habitat to affect the growth rate and the long-run fish level. We solve the two-control, two-state non-linear optimal control problem numerically and compute the input efficiency frontier characterizing the tradeoff between mangrove habitat and fish population. After identifying the optimal locus on the frontier, we determine the optimal transition path to the frontier from a set of initial conditions to illustrate the necessary investments. Finally, we demonstrate how dynamic conservation incentives (payments for ecosystem services) for a particular habitat with multiple services are interdependent, change over time, and can be greater than contemporaneous fishing profits when the ecosystem is degraded.     

Interspecies Management and Land Use Strategies to Protect Endangered Species

We consider an ecosystem management problem where managers can use habitat creation and predator removal to conserve an endangered species. Predator removal may become particularly important in the face of habitat loss, and ecosystem management strategies that ignore the influence of habitat are likely to be inefficient. Using a bioeconomic model, we show that the marginal impact of prey habitat on predators is a key factor in determining the substitutability or complementarity of habitat and removal controls. Applying the model to the case of the endangered Atlantic-Gaspésie Woodland Caribou (rangifer tarandus caribou), we find that the first-best strategy involves extensive caribou habitat protection and a large predator cull initially, and then substituting habitat investments for predator removal as both populations begin to recover, suggesting that habitat protection and predator removal are effectively substitute controls.     

Defining and classifying ecosystem services for decision making

The concept of ecosystems services has become an important model for linking the functioning of ecosystems to human welfare. Understanding this link is critical for a wide-range of decision-making contexts. While there have been several attempts to come up with a classification scheme for ecosystem services, there has not been an agreed upon, meaningful and consistent definition for ecosystem services. In this paper we offer a definition of ecosystem services that is likely to be operational for ecosystem service research and several classification schemes. We argue that any attempt at classifying ecosystem services should be based on both the characteristics of the ecosystems of interest and a decision context for which the concept of ecosystem services is being mobilized. Because of this there is not one classification scheme that will be adequate for the many contexts in which ecosystem service research may be utilized. We discuss several examples of how classification schemes will be a function of both ecosystem and ecosystem service characteristics and the decision-making context.     

Towards a consistent approach for ecosystem accounting

In spite of an increasing interest in environmental economic accounting, there is still very limited experience with the integration of ecosystem services and ecosystem capital in national accounts. This paper identifies four key methodological challenges in developing ecosystem accounts: the definition of ecosystem services in the context of accounting, their allocation to institutional sectors; the treatment of degradation and rehabilitation, and valuing ecosystem services consistent with SNA principles. We analyze the different perspectives taken on these challenges and present a number of proposals to deal with the challenges in developing ecosystem accounts. These proposals comprise several novel aspects, including (i) presenting an accounting approach that recognizes that most ecosystems are strongly influenced by people and that ecosystem services depend on natural processes as well as human ecosystem management; and, (ii) recording ecosystem services as either contributions of a private land owner or as generated by a sector ’Ecosystems’ depending on the type of ecosystem service. We also present a consistent approach for recording degradation, and for applying monetary valuation approaches in the context of accounting.     

Deliberative valuation without prices: A multiattribute prioritization for watershed ecosystem management

Watershed ecosystems are characterized by multiple attributes which are difficult to collapse into single money-metric. Attribute ranking without prices and group deliberation can be used to process information about these complex systems. We develop this approach and use it with a stakeholder group to classify attributes in subwatersheds for restoration. We examine the relationship between individual valuation and valuation arrived from deliberation and information exchange by the group. While group consensus values tended toward an average of individual responses, significant differences existed between mean values and consensus values for some attributes, emphasizing the role of ecosystem attribute information and deliberation.     

Spatial discounting of ecosystem services

The impact of conservation efforts targeted at preserving ecosystem services largely depend on the welfare implications associated with spatial variations in the provision of ecosystem services. While there is ample empirical evidence of spatial discounting or decay of the valuation of ecosystem services, there are still few underpinnings based on welfare economic theory. We establish a theory of spatial discounting that closely follows the concept of time discounting pertaining to climate change, and show spatial discount rates in the consumption, ecosystem service, and willingness to pay (WTP) numeraires. We consider the role of key parameters such as pure rate of spatial preference, consumption change, ecosystem services change, population density, and elasticity of marginal utility. We find that the spatial discount rate of WTP for ecosystem services that frequently appears in the empirical literature is the difference between the ecosystem service discount rate and consumption discount rate, where the ecosystem service discount rate includes both physical distance decay and welfare effects. Finally, we use numerical simulations to illustrate how the three different spatial discount rates vary with the spatial distance from the source of ecosystem services and with consumption patterns, implying many more possible spatial variations of WTP.     

Conserving biodiversity with tradable permits under changing conservation costs and habitat restoration time lags

Tradable permits are a common environmental policy instrument that has recently been applied also to the conservation of biodiversity. Biodiversity conservation differs in many respects to the classical applications of tradable permits like emissions control. One particularity is that, even if the permit system maintains a constant total amount of species habitat, habitat turnover (the destruction of a habitat and restoration elsewhere) affects the ecosystem. Another particularity is that the restoration of habitats often takes much time, leading to time lags between the initiation of restoration activities and the time when restored habitat is available for trading. We use an agent-based model of a tradable permit market to study the influence of heterogeneous and dynamic conservation costs and habitat restoration time lags on key variables of the market, such as the costs incurred to the market participants and the amount of habitat turnover. Our results show that there may be trade-offs between these key variables. We also find that restoration time lags can lead to fluctuations in permit prices that reduce the efficiency of the permit market. We conclude that temporal lags deserve a careful analysis when implementing tradable permit systems for the preservation of natural habitats and biodiversity.     

An Analytical Foundation of the Ratio-Dependent Predator-Prey Model

Synopsis In this paper we present a micro ecosystem model whose basic entities are representative prey and predator organisms which behave as if they maximize their net offspring under constraints. In the short-run periods, prices (scarcity indicators) coordinate and determine all biomass transactions and net offspring which directly translates into population growth and thus constitutes the dynamics of the predator-prey relations. For a specific parametric version, our model offers a theoretical foundation of the ratio-dependent predator-prey model with Michaelis-Menten type functional response.     

Trade and the governance of ecosystem services

We work with a basic general equilibrium model of an economy with an industrial good and a rural good. Industrial good production results in pollution that affects the provision of ecosystem services and thereby the production of the rural good. The assignment of ecosystem rights to the industrial polluters or to the rural pollutees results in differential transaction costs that affect production possibilities between the two goods. Ecosystem rights are assigned to maximize social welfare. Over time, technological change and differences in income superiority affect the choice of the assignment of rights. Opening to trade affects the choice of the assignment of ecosystem rights depending on the nature of technological change, but the relative income superiority of goods no longer affects the assignment of ecosystem rights in a small economy. Thus, among other findings, we demonstrate that the phenomena known as the environmental Kuznets curve does not hold for the protection of ecosystem services in production, or production externalities generally, because trade separates consumption from production.     

Definitions and progress of ecosystem health and ecological security

1. Introduction Development of human industrial civilization and predatory exploitation of natural resources have in- duced tremendous changes of ecological environment. In recent years, territorial and global environmental problems have increased, such as greenhouse effect, depletion of ozone, global warming, water scarcity, water pollution, acid rain, decrease of biodiversity, soil erosion desertification etc. These changes seriously intimidate the health and security of ecosystems, and dist…     

The value of ecosystem services provided by the U.S. National Wildlife Refuge System in the contiguous U.S.

Studies that demonstrate the economic value of the ecosystem services provided by public conservation lands can contribute to a more accurate appraisal of the benefit of these lands. The objective of this study was to estimate the economic value, in real (2004) dollars, of the ecosystem services provided by the U.S. National Wildlife Refuge System (Refuge System) in the contiguous U.S. In order to estimate this value, we determined the ecosystems present on the Refuge System in the contiguous 48 states, the proportion in which they are represented, and the dollar value of services provided by each. We used land cover classes as an approximation of ecosystems present in the Refuge System. In a geographic information system (GIS), we combined land cover geospatial data with a map of the Refuge System boundaries to calculate the number of acres for each refuge and land cover class within the Refuge System. We transferred values for the following ecosystem services: climate and atmospheric gas regulation; disturbance prevention; freshwater regulation and supply; waste assimilation and nutrient regulation; and habitat provision. We conducted a central tendency value transfer by transferring averaged values taken from primarily original site studies to the Refuge System based on the ecoregion in which each study site and refuge was located and the ecoregion's relative net primary productivity (NPP). NPP is a parameter used to quantify the net carbon absorption rate by living plants, and has been shown to be correlated with spatially fungible ecosystem services. The methodologies used in the site studies included direct market valuation, indirect market valuation and contingent valuation. We estimated the total value of ecosystem services provided by the Refuge System in the contiguous U.S. to be approximately $26.9 billion/year. This estimate is a first cut attempt to demonstrate that the value of the Refuge System likely exceeds the value derived purely from recreational activities. Due to limitations of current understanding, methods and data, there is a potentially large margin of error associated with the estimate.     

Equilibrium under price controls with endogenous transactions costs

In this paper we present an equilibrium model for an exchange economy with fixed prices and endogenously determined search or transactions costs. Given the fixed prices, endogenously determined equilibrium buying and selling prices (which include transactions costs) result. These costs occur on either the demand or supply side of each market, but not both. We see an eventual application of this approach to an evaluation of welfare costs of either economy-wide wage and price controls, or sector-specific price controls such as energy. In the final section we present some simple numerical examples which illustrate the approach.     

The value of ecosystem services provided by the U.S. National Wildlife Refuge System in the contiguous U.S.

Studies that demonstrate the economic value of the ecosystem services provided by public conservation lands can contribute to a more accurate appraisal of the benefit of these lands. The objective of this study was to estimate the economic value, in real (2004) dollars, of the ecosystem services provided by the U.S. National Wildlife Refuge System (Refuge System) in the contiguous U.S. In order to estimate this value, we determined the ecosystems present on the Refuge System in the contiguous 48 states, the proportion in which they are represented, and the dollar value of services provided by each. We used land cover classes as an approximation of ecosystems present in the Refuge System. In a geographic information system (GIS), we combined land cover geospatial data with a map of the Refuge System boundaries to calculate the number of acres for each refuge and land cover class within the Refuge System. We transferred values for the following ecosystem services: climate and atmospheric gas regulation; disturbance prevention; freshwater regulation and supply; waste assimilation and nutrient regulation; and habitat provision. We conducted a central tendency value transfer by transferring averaged values taken from primarily original site studies to the Refuge System based on the ecoregion in which each study site and refuge was located and the ecoregion's relative net primary productivity (NPP). NPP is a parameter used to quantify the net carbon absorption rate by living plants, and has been shown to be correlated with spatially fungible ecosystem services. The methodologies used in the site studies included direct market valuation, indirect market valuation and contingent valuation. We estimated the total value of ecosystem services provided by the Refuge System in the contiguous U.S. to be approximately $26.9 billion/year. This estimate is a first cut attempt to demonstrate that the value of the Refuge System likely exceeds the value derived purely from recreational activities. Due to limitations of current understanding, methods and data, there is a potentially large margin of error associated with the estimate.