Ann. N.Y. Acad. Sci. ISSN 0077-8923

ANNALS OF THE NEW YORK ACADEMY OF SCIENCES Issue: Ecological Economics Reviews

Ecosystem valuation A sequential decision support system and quality assessment issues

R. Kerry Turner, Sian Morse-Jones, and Brendan Fisher Centre for Social and Economic Research on the Global Environment, University of East Anglia, Norwich, United Kingdom Address for correspondence: Prof. Kerry Turner, CSERGE, School of Environmental Sciences, University of East Anglia, ZICER Building, Norwich, NR4 7TJ, UK. [email protected]

Understanding the economic value of nature and the services it provides to humanity has become increasingly important for local, national, and global policy and decision making. It has become obvious that quantifying and integrating these services into decision making will be crucial for sustainable development. Problems arise in that it is difficult to obtain meaningful values for the goods and services that ecosystems provide and for which there is no formal market. A wide range of ecosystem services fall into this category. Additional problems arise when economic methods are applied inappropriately and when the importance of ecosystem maintenance for human welfare is underestimated. In this article we identify a place for monetary valuation within the pluralistic approach supported by ecological economics and assess progress to date in the application of environmental valuation to ecosystem service provision. We first review definitions of ecosystem services in order to make an operational link to valuation methods. We then discuss the spatially explicit nature of ecosystem services provision and ben- efits capture. We highlight the importance of valuing marginal changes and the role for macroscale valuation, nonlinearities in service benefits, and the significance of nonconvexities (threshold effects). We also review guid- ance on valuation studies quality assurance, and discuss the problems inherent in the methodology as exposed by the findings of behavioral economics, as well as with benefits transfer—the most common way valuation studies are applied in the policy process. We argue for a sequential decision support system that can lead to a more inte- grated and rigorous approach to environmental valuation and biophysical measurement of ecosystem services. This system itself then needs to be encompassed within a more comprehensive multicriteria assessment dialogue and process.

Keywords: ecosystem services; ecosystem valuation; spatial explicitness; double counting; marginality; threshold effects; nonlinearities; ecosystem valuation techniques

pursued is also not one in which economic efficiency Introduction is given meta-ethical standing, but neither is it dis- A core principle of ecological economics is method- missedasirrelevantasenvironmentalgoodsandser- ological pluralism6 and the analysis presented below vices become increasingly scarce. Cost-benefit anal- takes that as axiomatic. Although the focus of atten- ysis suitably adjusted for equity concerns can, we tion is on monetary valuation methods and tech- would argue, still play an important (though often niques within an extended cost-benefit framework, not decisive) role in multicriteria assessment deci- this should not be interpreted as a plea for domi- sion support systems.6,7 Both the full commodifi- nance over other evaluation approaches. Rather the cation of the environment and the assignment of objectiveistoreviewprogresstodate,recognizelim- monetary values to all aspects of its complex itations, and indicate future prospects for the mon- functioning and existence is not a sound scien- etary valuation methodology. The line of argument tific or moral basis for sustainable environmental

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 79 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al. management and policy. Nevertheless, in real policy Ecosystem services contexts it is the case that tradeoffs are continually made between conservation and development op- Many definitions and classification schemes for tions and monetary valuation and opportunity cost ecosystem services exist.1,5,16,17 One of the most calculations can and do play a useful heuristic role widely cited is the Millennium Ecosystem Assess- within a set of constraints.8,9 The constraints set ment definition, which describes ecosystem services should encompass, among others, scientific uncer- as “the benefits that people obtain from ecosystems.” tainties surrounding complex ecosystems and tip- It classifies services into supporting, regulating, pro- ping point dangers and ethical concerns over hu- visioning, and cultural.Thisframeworkprovidesan man rights, interests and livelihoods (especially of excellent platform for moving toward a more oper- the poor), and nonhuman interests. ational classification system, which explicitly links Despite increasing recognition of the importance changes in ecosystem services to changes in human of ecosystems and biodiversity for human wel- welfare. By adapting and reorienting this defini- fare, they continue to decline at an unprecedented tion it can be better suited to the purpose at hand, rate.1,10–13 In many cases the losses are irreversible, with little loss of functionality. Wallace,18 for exam- posing a serious threat to sustainable development ple, has focused on land management, while Boyd and to human well-being in general.1,14 In view of and Banzhaf 19 and Maler et al.20 take national in- this, ecologists and economists have made consid- come accounting as their policy context. Boyd and erable effort to increase the understanding of the Banzhaf 19 use the definition that “final ecosystem importance of ecosystems in order that this is bet- services are components of nature, directly enjoyed, ter reflected in decisions which affect their main- consumed or used to yield human well-being.” Crit- tenance and services provision. Despite a dramatic ically, the authors highlight that “services” and “ben- increase in the number of studies aiming to value efits” are different, a “benefit” being something that ecosystem services, there appears to be “growing may be based on ecosystem service inputs, but is confusion amongst decision-makers, ecologists and not an ecosystem service itself. Moreover, services noneconomists about the validity and implications are considered to be ecological things or character- of ecosystem valuation” (p. 2).15 istics, rather than functions or processes (p. 620).19 The valuation of ecosystem services is a complex Building on this, Fisher and Turner21 proposed that process that is reliant on the availability of rele- “ecosystem services are the aspects of ecosystems vant and accurate biophysical data on ecosystem utilized (actively or passively) to produce human processes and functions, but also on the correct well-being” (p. 1167). Their definition of services and appropriate application of economic valua- differs from that of Boyd and Banzhaf 19 in that they tion techniques, alongside other valuation meth- consider processes or functions to be services as long ods. Not all studies meet these requirements. This as there are human beneficiaries. Also an intermedi- presents a challenge to policy makers looking to ate service is one that influences human well-being use the results of valuation studies but who may indirectly, whereas a final service contributes di- be less well equipped to distinguish between stud- rectly. Classification is context dependent—for ex- ies providing reasonably robust results, and those ample, clean water provision is a final service to which yield crude, and in some instances, unsound a person requiring drinking water, but it is an in- value estimates. In particular, this paper aims to termediate service to a recreational angler. Impor- provide clarification to practitioners on: (i) impor- tantly, a final service is often but not always the same tant considerations in ecosystem services identifi- as a benefit. For example, recreation is a benefit to cation and valuation; (ii) how the ecosystem valu- the recreational angler, but the final ecosystem ser- ation literature has dealt with these issues to date vice is the provision of the fish population. This and the limitations of the approach as exposed approach seeks to provide a transparent method for by behavioral economics findings; (iii) guidance identifying the aspects of ecosystem services which on how to assess the internal quality of valuation are of direct relevance to economic valuation, and studies; and (iv) on the appropriate use of bene- critically, to avoid the problem of double-counting. fits transfer. We focus first on ecosystem services Moreover, it was developed in order to meet the re- definitions. quirements of a real case study that is investigating

80 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues the value of ecosystem services provided by the East- ern Arc Mountains, Tanzania.22

Important considerations in economic valuation We now consider a number of issues highlighted by economists as critical to the appropriate economic valuation of ecosystem services, namely: spatial ex- plicitness, marginality and macrovalues, the double- counting trap, nonlinearities in benefits, and thresh- old effects. It is critically important to first and foremost clarify the level of understanding (or ignorance) Figure 1. Stylized supply and demand curves for ecosys- of underlying biophysical structure and processes tem services. through spatially explicit models of any given ecosystem service. This contextual analysis must then encompass appropriate socio-economic, po- substitutable up to a point, as the quantity avail- litical, and cultural parameters in order to properly able approaches zero (or some necessary minimum identify ecosystem services supply and demand side provision of ecosystem structure and processes) the beneficiaries. This scoping exercise also serves to demand curve approaches infinity. The area beneath highlight the “political economy” context and the the demand curve indicates the total economic value need to recognize a plurality of values that may not of the ecosystem service. However, as the curve is be strictly commensurable. not bounded on the horizontal axis, this area can At the operational level the valuation of ecosys- not be fully defined. Policy decisions related to nat- tem services is often required “at the margin.”a ural resources often involve tradeoffs, which occur This means focusing on relatively small, incremen- at the margin. This means examining the value of tal changes rather than large state changing im- 3,4,23–25 the “next unit” at some point along the marginal pacts. To illustrate why this is important we , benefit curve.24 26 However, given the scientific un- use Figure 1 which shows the marginal supply (cost) certainties that shroud ecosystem functioning, it is and marginal benefit (demand) curves for an essen- often difficult to discern whether a given change is tial ecosystem service.17 Theverticalaxismeasures “marginal” or not and when thresholds are being ap- economic value or price, and the horizontal axis proached or crossed.4 At the strategic level, a more measures the flow or quantity of ecosystem service. macroscale valuation may play an indicative role in The marginal supply curve is vertical because the decision making.27 It can contribute to the further supply of ecosystem services does not tend to in- development of indicators of human welfare and crease or decrease in relation to economic systems.17 sustainability.28 The objective would be to estimate The downward-sloping demand curve shows how the expenditure that would be required to purchase much individuals are willing to pay for an incre- available ecosystem services at their shadow prices. mental amount of ecosystem service. The shape in- Howarth and Farber27 argue that this approach is dicates that the more scarce the ecosystem service, analogous to the concept of gross domestic prod- the more an additional unit is valued (or, conversely, uct, which is the total value of market goods and the more of a service we have, the less we value an services evaluated via market prices. additional unit). Given ecosystem services are only Given ecosystem services cross scales, when de- ciding whether the “next unit” is meaningful in terms of marginal analysis it becomes important 29 aSpecifically, the focus on small-scale changes was to avoid to consider the scale of the policy decision. For large income effects (which may change the marginal util- example, at the local scale, the loss of an entire for- ity of income) and violations of the ceteris paribus assump- est on which livelihoods are dependent, may be so tion (changes in other prices).97 catastrophic as to render the change meaningless

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 81 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al.

(since lives would be so dramatically altered). A turbances, their supply may seem to be relatively more relevant change may be to consider the loss of unaffected by increasing perturbation, until they part of the forest. Conversely, at the global scale, the suddenly reach a point at which a dramatic system- loss of an entire forest may be “marginal”—at this changing response occurs—for example, in the ecol- scale it is not likely to be perceived as a catastrophic ogy of phosphorus-limited shallow lakes, which can loss for life support or international economic sys- flip suddenly from one state to another.24,33 Fur- tems. In practice, applying the concept to multiscale ther, in situations where nonlinearities occur, one systems may be confusing. As a guide, Fisher et al.29 can not make the assumption that marginal bene- recommend considering the “next unit” in terms of fit values are equally distributed. For example, the the geographic extent a policy decision could en- storm protection benefit of a unit increase in man- compass, for example, extending a forest within its grove habitat area may not be assumed to be con- national borders. stant for mangroves of all sizes due to nonlineari- Another widely recognized issue concerns the ties in wave attenuation.34 If a cost-benefit appraisal potential problem of double-counting.1,4,19,24,30,31 assumes linearity, but service provision is in fact This may occur where competing ecosystem services nonlinear, policy option outcomes may be unnec- are valued separately and the values aggregated; or, essarily polarized. Correspondingly, for ecosystem where an intermediate service is first valued sep- valuation to better inform policy decisions, nonlin- arately, but also subsequently through its contri- earities need to be clearly understood and reflected bution to a final service benefit. For example, the in both ecological and economic analysis. Threshold value of a forest ecosystem for clearance timber log- effects pose especially complex policy and analysis ging should not be added to the value of the same challenges. forest patch for recreational benefits since the for- The threshold effect refers to the point at which an mer will likely preclude the latter. Nor should the ecosystem may change abruptly into an alternative value of a pollination service, which is already em- steady state.35,36 For marginal analysis to hold true, bodied in the market price of a crop, be counted the “next unit” to be valued should not be capable separately unless the value of its input to the crop is of tipping the system over a functional threshold deducted. In essence, double-counting is a feature or “safe minimum standard” (SMS).4,29,37 From an of the complexity of ecosystem services and the dif- ecosystem valuation perspective, the SMS represents ficulty in understanding their multiple interactions. the minimum level of a well-functioning ecosystem Unfortunately, there are numerous cases where re- that is capable of producing a sustainable supply searchers have incorrectly summed values in order of service. Conceptually, looking at Figure 1, this to obtain aggregate estimates of ecosystem value (ev- means that marginal analysis should only be con- idence from Fisher et al.29). It is thus essential that ducted far away from the point at which the demand the analyst has a clear understanding of the vari- curve increases sharply to infinity. In practice, this ousoverlapsandfeedbacksbetweenserviceswhen requires knowledge of the location of the SMS zone. undertaking aggregation.24,31 Hein et al.32 suggest Of course, due to the considerable uncertainty sur- only including regulation services in valuations if rounding ecosystem function, this introduces com- “(i) they have an impact outside the ecosystem to plexity since it is often far from clear when a thresh- be valued; and/or (ii) if they provide a direct benefit old may be reached.24,38 Identifying this hazardous to people living in the area (i.e., not through sus- zone will require expert input from ecologists, risk taining or improving another service)” (p. 214). Al- analysts, and others. ternatively, the classification scheme recommended In situations of uncertainty and near thresholds, by Fisher and Turner21 helps to avoid the problem marginal analysis will not be appropriate; instead, by drawing a clear distinction between intermediate more precautionary approaches will be required, services, final services, and benefits, the latter being such as the SMS approach. This goes back to the ear- the focus of economic valuation. lier work of Ciriacy-Wantrup39 and, later, Bishop,40 The existence of nonlinearities in ecosystem ser- who put forth the argument that a project should be vices provision adds further complexity to their val- rejected if irreversible losses of nature could occur, uation and subsequent management. Because many unless the social costs of doing so were prohibitive. ecosystems typically respond nonlinearly to dis- In other words, putting conservation first, because

82 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues

Figure 2. Sequential decision support system. of functional transparency,38 needs to be balanced vices are context dependent in terms of their provi- against the costs of doing so. This cost-based as- sion and their associated benefits and costs. The im- sessment can be informed by a range of data and portance of this point is neatly illustrated by Naidoo values. and Ricketts42 in a cost-benefit analysis of three po- Ultimately, in the face of uncertainty and poten- tential equivalent conservation corridors in Mbara- tial irreversibility, decisions regarding ecosystems cayu Biosphere Reserve, Eastern Paraguay. One cor- will require ethical and political choices to be made ridor generated net benefits three times greater than and deliberately agreed. In the longer term, the so- the other corridors. The disparity was largely due lution would be to improve our understanding of to differences in opportunity costs as a result of ecosystem function so we can move toward more variability in spatial factors, such as land tenure, situations where we are dealing with risk rather slope, and soil type. For example, protected areas, than uncertainty. In the meantime, recent work by indigenous reserves, and areas with steeper slopes Lenton et al.41 proposes the use of early warning sys- generated significantly lower opportunity costs due tems which identify systems that are likely to cross to lower conversion rates. The benefits generated by “tipping points” (threshold effects) and are rele- two of the fiveb ecosystem services were also found vant to policy and accessed by humans (“tipping to differ significantly between corridors due to spa- elements”), historical data and predictive modeling tial variables. For example, bushmeat benefits varied (e.g., degenerative fingerprinting) may then be used from $0/ha to $18.50/ha mainly due to forest patch to locate tipping points. size, while carbon storage values varied according In summary, to be most useful for policy, services to forest type. Explicitly incorporating the spatial must be assessed within their appropriate spatial context into the cost-benefit analysis was critical in context and economic valuation should provide es- obtaining estimates of both the costs and benefits of timates of value (avoiding double counting) that ecosystem provision, and, crucially, in enabling con- can feed into decisions at the appropriate scale, and servation planners to identify the most economically which recognize possible nonlinearities and are well efficient location for the conservation corridors. within the bounds of SMS. Figure 2 summarizes In a different example, Luisetti et al.43 illustrate these sequential steps that we argue are the neces- the importance of spatial context in aggregating sary and sufficient elements in any ecosystem ser- benefits of new wetland creation on the east coast vices assessment that is a component within a more of England. The authors used a site-specific choice comprehensive decision support system. We now experiment survey to elicit ecosystem service values review selected examples to highlight why these is- from the regional population closest to the proposed sues are important and how the ecosystem valuation scheme. The good was described in terms of five at- literature has dealt with them to date (see Table 1). tributes: salt marsh area, number of bird species observable, distance from home, accessibility and Ecosystem services valuation in practice b Spatial explicitness Data limitations prevented the spatial analysis of timber harvesting and bioprospecting services, while existence The requirement for spatially explicit ecosystem val- values were deemed to be spatially homogenous at the uation is based on recognition that ecosystem ser- scale of analysis.

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 83 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al.

Table 1. Ecosystem services valuation techniques, limitations, quality indicators, and selected examples

Quality Technique Approach Limitations Checks/Indicators Selected Examples

Market Prices A simple accounting • Only applicable • Any price Nontimber forest procedure to value where market data distortions due to products and environmental available market timber goodsorservices • Market price may imperfections or goods;46,50 fish which are traded in not offer true policy failure nursery services markets (can also reflection of should be corrected of proposed be extended to marginal social • Assessment of managed other nonmarket costs and benefits market capacity realignment ecosystem service • Lower bound included scheme;43 river in benefits by estimates • Examination of stream flows for observing how • Sensitive to changes in real agricultural changes in functional form prices over time supply;111 provision affect the • Appropriate wetland prices or quantities functional form for productivity of other marketed demand curve function for goods) commercial fishing112 Production Involves tracing the • Data is often • Utilization of Forest-based Function (also impact of a lacking on change expert scientific pollination known as physical change in in service and knowledge of services for coffee dose–response the quantity or consequent impact ecosystem production;115 technique) quality of an on production functions wetland ecosystem service • Can not estimate • Explicit cause and groundwater along a series of nonuse values effect modeling recharge for pathways to (not just irrigated ascertain the correlation) agriculture;116 corresponding incorporating nursery and impact on human possible threshold breeding habitat welfare113 levels and function of discontinuities coastal • Modeling of whole wetlands;113 market (demand forest watershed and supply) protection including dynamic services for effects groundwater • Prices of all inputs recharge117 and outputs corrected for distortions • Absence of double-counting in studies on multiple use systems114

Continued.

84 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues

Table 1. Continued

Quality Technique Approach Limitations Checks/Indicators Selected Examples

Travel Cost Survey based • Applicable only in • Reasonable site Recreational benefits Method technique using afewcontexts definition, spatially from greater water (TCM) information on • Requires large explicit and coverage of deliveries to observed travel and amount of data entire area to be wetlands;118 time expenditures • Complex when affected91 recreational (a central trips are • Modeling of benefits from assumption is that multipurpose participation: inclusion hypothetical the benefit an • Can not estimate of nonvisitors as well as release of dams;119 individual receives nonuse values visitors recreational fishing from a particular • Site selection which in Brazilian site is worth at least reflects actual choice Pantanal120 and in as much as he or sets Stockholm she is willing to pay • Inclusion of Archipelago58 to visit it) site-specific data on services, lodging options and communication • Exclusion of indirect costs from travel cost variables and cost of equipment used one more than one occasion91 • Appropriate estimation of shadow price for time • Appropriate and relevant selection of environmental quality variable, ideally in quantitative terms. • Consideration of and appropriate adjustment for multipurpose trips • Model explanatory power and confidence intervals for environmental quality attribute and travel cost • More robust results may be achieved in studies which combine TCM and CVM or choice modeling

Continued.

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 85 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al.

Table 1. Continued

Quality Technique Approach Limitations Checks/Indicators Selected Examples

Hedonic Pricing Assumes the good of • Dependent on • Price data based on Recreational and (HP) interest may be large amount of individual aesthetic benefits implicitly traded via data transactions in of residential demand for a • Very sensitive to market rather than properties close to marketed good;in specification assessed values91 wetlands45 and most cases this will • Can not estimate • Consideration of lakes;124 value of be in the property nonuse values measurement error aquifer water market, e.g., scenic in price data and storage for beauty is often appropriate agricultural implicitly traded adjustment supply125 such that its value • Correct may be calculated specification of HP by the price function and differential availability of between two accurate data for all identical houses variables91,122 where one is • Appropriate and located in an area relevant selection of outstanding of environmental natural beauty and quality variable, the other is not121 ideally in quantitative terms • Appropriate functional form: linear models typically inadequate • Checks for multicollinearity and appropriate action106,122 • Correct definition of market extent—under- rather than overestimated122,123 • Model explanatory power and confidence intervals for environmental quality attribute

Continued.

86 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues

Table 1. Continued

Quality Technique Approach Limitations Checks/Indicators Selected Examples

Replacement Cost Estimates the value of • Tends to • Assessment of Seed dispersal a change in a overestimate extent to which service of natural nonmarket • Few studies verify man-made pollinators;126 ecosystem service conditions replacement and value of coastal by calculating the necessary for lost ecosystems protection and cost of replacing validity are substitutable stabilization by the lost or reduced • Can not estimate and any mangroves;127 service with a nonuse values significant yield increase manmade differences in attributable to substitute or with quantity and aphid predation restoration of the quality taken by natural ecosystem into account enemies;128 • Evidence that provision of chosen clean drinking replacement is water by Catskill least cost way of Watersheds129 replacing— otherwise overestimate • Evidence that public are willing to pay for replacement costs (not necessarily a full-blown stated preference (SP)) Defensive This approach • Issues relating to • Assessment of Coastal wetlands Expenditure considers the costs degree of degree of for hurricane Method and expenditures substitutability substitutability, protection;130 incurred in • Typically lower ideally goods will storm protection avoiding damages bound estimate be prefect services;113,131 of reduced • Difficulty of substitutes (or water environmental disentangling value very high degree purification functionality estimates when of benefits of forest joint products substitutability) watershed provided • Examination of protection;49 • Can not estimate perceived versus biogeochemical nonuse values objective level of function of protection estuary132 offered by substitute • Estimation of demand function

Continued.

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 87 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al.

Table 1. Continued

Quality Technique Approach Limitations Checks/Indicators Selected Examples

Contingent An SP technique • Time and cost in • Evidence of Flood protection, Valuation which elicits public designing and thorough and recreation and Method (CVM) preferences by implementing extensive pretesting habitat services of directly asking surveys of survey wetland;133 habitat people how much • Loss of nontrivial instrument: focus preservation for they would be information38 groups, cognitive threatened willing to pay (or • Noncompensatory interviews, and species134 accept) for a change decision strategies, pilot testing in the quantity or e.g., warm-glow, • Inclusion of quality of a given rights-based reminders of environmental good • Problem of budget constraints or service in a constructed, and substitutes hypothetical theoretically • Low rates of item market110 inconsistent nonresponse, preferences protests and • Various sources of outliers (high rates bias, e.g., may indicate hypothetical bias, weaknesses in strategic bias, scenario) insensitivity to • Model explanatory scope, framing and power, rejection of elicitation effects the null hypothesis that all coefficients on explanatory variables are equal to zero; and expected determinants of willingness to pay (WTP) are significant and correctly signed • Reasonable WTP estimates: WTP as proportion of income; consistency with other similar studies; and examination of confidence intervals • Assessment of tests incorporated for bias

Continued.

88 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues

Table 1. Continued

Quality Technique Approach Limitations Checks/Indicators Selected Examples

Choice Modeling An SP method which As for CVM, in Similar to CVM, Recreational, habitat elicits public addition: additionally: and wildlife preferences by • greater cognitive • All relevant preservation asking respondents burden may lead to attributes functions of new to choose their random errors and included, and wetland sites;43 preferred option difficulty in levels are rainforest habitat from a series of modeling meaningful preservation, and alternatives,each responses. • For estimates to recreation;137 described in terms • Potential bias, e.g., be welfare preservation of of its constituent inconsistency, consistent, a wetland habitat attributes and learning and baseline or and endangered levels fatigue effects opt-out option species138 • Missing attributes should be • Technical included unless in complexities in real-life a choice design and data can not be analysis avoided135 • Attributes (and any interactions with socio- demographic variables) are significant and correctly signed • Where applicable the independence of irrelevant alternatives assumption should be met92,136 • Confidence intervals for marginal WTP and overall welfare estimates • Assessment of tests incorporated for bias, e.g., inconsistency; survey satisficing; heuristics; dominant options and results assessed

Continued.

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 89 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al.

Table 1. Continued

Quality Technique Approach Limitations Checks/Indicators Selected Examples

Deliberative AhybridofSP • Time and cost • Use of small groups River water quality Monetary methods and issues • Selection process improvements;90 Valuation discursive • May lack of should ensure enhancements to techniques of representation due “society” is floodplain habitat political science: to small groups adequately and wildlife;85 small groups, • Subject to group represented improved river selected to norms, e.g., • Afairandopen ecology, water represent society, dominant structure/process quality and discuss and participants for deliberation regulation;88 wild deliberate • May not result in should be created good environmental monetary estimates (after Wilson and conservation;87 issues in an open • Possible bias due to Howarth82): (i) and improvements and fair recruitment each participant to habitat, water environment process, e.g., should be allowed quality and self-selection bias to participate in functions in discourse; (ii) each Tillamook Bay participant should estuary139 be allowed to place issues on the agenda; (iii) each should be allowed to introduce his or her own assessment of an ecosystem good or service; (iv) each should be allowed to express their own attitudes, needs and preferences for an ecosystem good or service; and (v) no speaker would be hindered by external compulsion or pressure • Use of experienced moderator/ facilitator

Sources: Refs. 11,91,106,114, and 122.

90 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues price. All attributes were found to be significant an accounting price of $200/hectare. In most cases, determinants of choice. Importantly, the distance the ecosystem valuation literature has focused on attribute was negatively signed, indicating that util- valuing the stock—for example, Peters et al.46 esti- ity declines as distance from the site increases— mate the value of nontimber forest product (NTFP) the so called “distance decay effect.” This meant services based on a stock inventory. Or, the actual that assuming a constant unit value across popu- service flow is valued—for example, Godoy et al.47 lations for a specified change in ecosystem service value actual NTFP service flows from a Central provision would have led to biased estimates. Cor- American rainforest, and Croitoru48 estimates an- respondingly, aggregate WTP was estimated using a nual flow of NTFP benefits for the Mediterranean spatially sensitive valuation function. This was op- region, while Adger et al.49 estimate the total eco- erationalized using distance bands at 8-, 15-, 23-, nomic value of Mexican forest services. In some and 32-mile intervals from the proposed site—WTP cases these analyses have been placed in a context was calculated by multiplying the mean household of “change” by drawing comparisons with alterna- WTP for each band by the total population within tive land use options. For example, Peters et al.46 the band. By incorporating the “distance decay” ef- and Bann50 compare commercial timber extraction fect, Luisetti et al.43 were able to sensitize aggregate and NTFP harvesting for forests in Amazon and benefits to the socio-economic context. Even so, as Cambodia, respectively. Yaron51 examines the total the authors point out, additional variations in ag- economic value of three service flows, sustainable gregate benefits would be expected if the proposed forest use, small-scale agriculture, and plantation wetland creation occurred in an altogether different agriculture—from forested lowland in the Mount location—for example, where the adjacent popula- Cameroon region—from the perspective of global, tion was larger, estimates would be higher; and in national, and local stakeholders. Kramer et al.52 areas with a greater number of available substitutes, use the production function method and remote benefits would be expected to be lower. In both ex- sensing to estimate the flood alleviation benefits to amples, a critical aspect of the valuation approach farmers from protecting upland forests in eastern was the use of a geographical information system Madagascar. The environmental change context was (GIS), which is emerging as a valuable tool in val- simulated by considering a policy proposal to estab- uation. It is anticipated that the incorporation of lish a national park. First, deforestation rates were spatial factors in ecosystem valuation is likely to be- estimated using remote sensing and then projected comeeasierandmorecommonplaceasaccessto into the future based on historical trend data. The GIS software and expertise increases. land use changes were then used to predict effects on flooding. The value of the predicted reduction in flooding brought about by the establishment of the Marginality Mantadia National Park was estimated in terms of Eliciting marginal values can be technically de- the value of reduced crop losses. Results indicated manding, and represents a challenge for nonmar- that the flood alleviation benefit of establishing the ket valuation in general, not just ecosystem valu- park is $127,700. ation. To date, few studies have undertaken true marginal analysis of ecosystem transitions.24,26,44 Double counting Mahan et al.,45 for example, produce marginal value estimates of the value of wetland amenities to prop- In a cost-benefit analysis of a U.K. coastal managed erties in Portland, Oregon. The results indicate that realignment policy, Turner et al.53 avoid the double- a property’s value increases by $24.39 per one-acre counting trap by treating the environmental bene- increase in the size of the nearest wetland. Maler fits provided by the creation of intertidal habitats as et al.20 explicitly undertake marginal analysis in es- a composite value. The authors used an estimate timating the accounting price for the habitat service of £621/ha/yr based on a recent meta-analysis.54 provided by a mangrove ecosystem to a shrimp pop- This value was assumed to incorporate the nutrient ulation. Their model evaluates changes to fisherman storage function (for nitrogen and particle-reactive well-being for a 10-hectare change in the stock of a phosphorus) on the basis that this provided an mangrove forest of 4000 hectares in size, obtaining intermediate service to the final benefit of enhanced

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 91 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al. amenity and recreational quality. Farber et al.55 sim- tion studies frequently do not have the resources to ilarly note the problem of including aesthetic ser- undertake complex biophysical modeling. Conse- vices and nutrient regulation in a case study of quently, the importance of threshold effects is often Plum Island coastal ecosystem. In another exam- acknowledged in the valuation literature but rarely ple, Anderson et al.56 explicitly address the double- explicitly incorporated.57 Soderqvist et al.58 apply counting trap by disregarding intermediate services the travel cost method to value the benefit of a big- in their benefits aggregation of the forest ecosystem ger fish catch to recreational fishers in the Stockholm service in the Brazilian Amazon. These examples Archipelago. The results indicate that doubling the are among a relatively small number in the valu- average spring catch per hour of Perch from 0.8 to ation literature which directly seek to address the 1.6 kg amounts to a WTP of 56 SEK per angler. While double-counting issue. on the surface this appears to be a small change, appropriate for marginal analysis, it is possible that Nonlinearities the cumulative effect of doubling fish catch per hour could result in flipping the recreational fishery into Barbier et al.34 have stressed that for some ecosys- an alternative state. Indeed, the authors note the tems, for example, coastal mangroves, salt marshes, need for further work in order to assess the potential and other marine ecosystems, the services provided effects (and costs) of measures that would improve change in a nonlinear way as habitat variables, such fishing conditions in the archipelago. In a different as size of area, alter. They claim that recognizing example, Hein59 explicitly incorporates threshold such nonlinearities opens up the choice set available effects in modeling the optimum eutrophication to policy makers. In the case of mangroves and the control for a shallow lake ecosystem. Information storm-buffering service they provide, it is argued on the supply of ecosystem services, the costs of eu- that the nonlinear supply of the buffering service trophication control measures, and the response of (i.e., reducing as successive landward zones of the the lake to reduced nutrient loading (including the mangrove forest are crossed) means that some man- threshold effect) was combined in one ecological- grove conversion (e.g., to provide space for shrimp economic model, to calculate the net benefit of eu- ponds) can be economically justified in cost-benefit trophication controls for the four biggest lakes in terms. The authors note that an “up to 20%” con- De Wieden wetland, Netherlands. Uncertainty re- version rule seems to be an emerging policy princi- garding the point at which a switch to a clear water ple. But such generalizations are dangerous because system occurs (the threshold) was incorporated via ecosystem services must be assessed in a spatially a sensitivity analysis. Threshold values were found explicit manner and with due regard for uncertain- to have a significant impact on the analysis. ties surrounding possible threshold effects. In the mangrove example, the shrimp-pond locations and the current degradation status of the mangrove for- Evaluating limitations and quality est are crucially important. If the shrimp ponds are in ecosystem valuation located on the seaward edge of the mangroves, they The standard assumption of mainstream will be prone to storm damage and lost productivity. economics—that people behave as rational self- If the mangrove has already experienced significant interested individuals—has been undermined degradation, it may be at or close to a threshold tip- (since the 1970s) by scientific findings derived ping point. Finally, mangroves (and other ecosys- from the work of behavioral and experimental tems) supply a range of interconnected services, the economists.60 The current financial crisis has value of which needs to be included in any economic served to vividly highlight the shortcomings of the benefit and loss account. orthodox economic approach to public, including environmental, policy. Contrary to the neoclassical Threshold effects axioms, behavioral economics study findings The challenge in incorporating threshold effects suggest that individuals do not possess consistent in ecosystem services valuation lies in our rela- preferences over all combinations of private and tively limited knowledge of ecosystem complexity public goods and that these preferences are not and interrelationships. Moreover, individual valua- reasonably stable across time and independent of

92 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues the contexts in which, and the mechanisms through imental economists have been testing the proposi- which, they are revealed. Rather, to a greater or lesser tion that “anomalies” (in their terms) can be re- extent, preferences are endogenous—they change duced by better survey/choice experiment designs, depending on personal experiences, social contacts or via suitable arrangements, such as repeated mar- and context, historical/cultural background, and kets and learning through experiences.64–66 Other the type of decision-making process. analysts view the behavioral evidence as support Behavioral economics work has shown that peo- for alternatively held preference theories. Thus, the ple are prone to systematic biases when making existence of “protest bids” in survey when respon- economic decisions. They can opt for a course of dentsrefusetomaketradeoffsbetweenanenviron- action that is not apparently beneficial to them- mental good/service and money may indicate the selves. They can value the same object more highly presence of lexicographic preferences often linked to if they own it; they are overly influenced by the first rights-based beliefs.67–70 Tversky and Kahneman71 option/suggestion in a list with which they are pre- have provided another angle called the “reference- sented, and they can be conditioned by contextual dependent” preference or “endowment” effect. This details regardless of their relevance. When individ- does seem to provide a plausible explanation for an- uals try to decide the value of something, they tend other “anomaly”—the willingness to accept (WTA) toward the valuations that everyone else comes up versus WTP disparity.72 Using this approach in cost- with—a sort of “herd mentality.”61 benefit analysis, Knetsch73 argues that WTA loss is Intertwined with the technical debate over val- two to four times more than otherwise commen- uation theory and methods is a dispute over surate gain WTP and that WTA is the appropriate more ethical matters concerning the “proper” ex- reference state for environmental losses. tent of markets (“commodification”) and related A wider question follows from the more spe- behavior into environmental domains. In addi- cific debate over valuation methods: What is the tion, where “isolated” individual preferences are appropriate “scope” of cost-benefit analysis? Issues the correct ethical basis for guiding social deci- related to incommensurability and incomparabil- sion rules, rather than collectively influenced “cit- ity now take center stage. The process of reduc- izen” preferences or more paternalistic collective ing environmental systems to a single or aggregated preferences imposed by the “executive” to meet monetary value has been criticized due to the loss the “needs” of a civilized society.8,62 The policy of “nontrivial” information on other important di- process can be steered by presenting people with mensions of value.38,74 It has also been argued that all the options but with one given a more fa- money is not a neutral scale of valuation with no vorable treatment to “nudge” the decision into a value per se, nor is it universally substitutable.75 So, predetermined “best social” outcome—“libertarian faced with a “large” environmental loss relative to paternalism.”63 Some nudges work because they the status quo, and assuming lexicographic prefer- provide information about how citizens more gen- ences or a reference-dependent effect, an individual erally behave in the same situation. may not be compensated by a sum of money. How- A sense of fairness and common purpose which ever, compensation may be acceptable on a “like prevails over selfishness is also a common finding for like” or “in-kind” or social capital substitute in behavioral experiments. Trust seems to be a vital basis.75–77 component of human interactions, including mar- Endogenous preference theories (i.e., involving ket transactions. Smarter cost-effective regulatory dependence on an individual’s personal history, col- controls will be required to, among other things, lective interaction with other citizens and social con- restore levels of trust in transactions and environ- text) together with endowment effects and “other mental policy. regarding” preferences seem to fit more comfort- SP valuation methods, contingent valuation, and ably into the prevailing and emerging environmen- choice experiments have been at the center of the tal policy agenda. Individuals may act to affect the debate over the applicability of economic valuation. welfare of others—they can make different deci- It seems incontrovertible that the behavioral eco- sions as citizens rather than consumers, in isolation nomics findings have at the very least restricted the or in a collective social context, and the process by scope of the rational economic model. Some exper- which decisions are made (e.g., is it fair?) may be

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 93 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al. influential.60,78,79 Preferences can be socially con- social values, which may be speculative, expressive, ditioned or conditioned by cultural transmission in or arbitrated (p. 696). In terms of outputs, the open line with prevailing norms and patterns.80,81 So, sur- and discursory nature of the technique generates vey methods that use citizen frames to elicit values a much deeper understanding of stakeholder atti- or more deliberative forms of evaluation do offer tudes toward policy options, which offers an avenue the promise of new policy-relevant information.82 for expressing noneconomic measures of value83 as In response to some of the criticisms as- well as monetary measures. Where monetary values sociated with standard economic valuation ap- are elicited the latter are thought to offer advan- proaches, a new set of deliberative approaches tages over standard SP methods by extending be- has emerged which combine SP methods with the yond personal welfare, to better reflect the goals of discourse-based techniques of political science.83 social equity and political legitimization. However, These methods involve small groups usually of be- as Spash84 points out, studies which seek to con- tween 5 and 20 individuals, who are selected to strain deliberative monetary valuation (DMV) to be represent “society” and are provided with informa- as close as possible to conventional SP—for exam- tion about a particular environmental policy ques- ple, by excluding responses motivated by “fairness” tion, which they are asked to discuss and formally due to possible strategic behavior,87 may lose some deliberate in an open and fair environment. By en- of the key benefits intended by the approach (i.e., gaging in group discussion, individuals are believed the inclusion of social values, rights, and equity). to be exposed to a much richer set of information, Finally, the method also has the added value of in- attitudes, and experiences, enabling a much better corporating stakeholder participation in the policy- understanding of the issue at hand. In comparison making process, which in itself may be regarded as with standard SP studies, the method allows more welfare enhancing.74 time for processing and assimilating information. While deliberative valuation methods hold much Spash84 describes the process as being a transfor- promise, many of the hypotheses surrounding their mative experience; as such, it moves away from the benefitshaveyettobefullytested.82 Anumberof standard economic assumption of preformed and limitations can be envisaged. First, (as with SP) the stable preferences, which have been questioned by method may be costly to implement and can take recent empirical evidence, to embrace preference a considerable amount of time—for example, in- construction as part of the process, and which may dividual citizen juries may take several days to de- lead to better-informed and more stable values and liberate. The use of small groups may make it dif- judgments.83,85 The deliberative component is also ficult to claim representation84 (where this is part thought to encourage individuals to extend beyond of the objective), and to apply the resulting values their own personal welfare so that the resulting val- to the wider population.89 There may also be addi- ues, judgments, and outcomes will reflect a more tional bias due to the recruitment process and pos- complete and socially equitable assessment of the sible self-selection.90 The deliberative process may issue at hand.82,86 This so-called moralizing pro- be subject to group norms—for example, domi- cess84 may enable better representation of invisible nant participants may unduly influence proceed- groups, such as future generations or nonhumans, ings/other individuals, others may express polarized which can be facilitated through the use of wit- views that do not truly reflect their beliefs, and shy ness evidence.83 In practice, the extent to which so- individuals or minority view holders may fail to cial values are represented depends on the specific fully participate.83,89 There is an implicit assump- approach and institutional context—some studies tion that all individuals will be able to effectively simply elicit individual WTP which has been in- communicate their opinions and beliefs, which may formed by group debate,87 while others ask indi- result in exclusion on the basis of poor educa- vidualsorgroupstorespondspecificallyinterms tion or poor verbal communication skills.84 Group of what is best for society.88 Studieshaveresulted discussion may not be the appropriate medium in a variety of distinct values. Spash84 provides a for eliciting attitudes and preferences for sensi- useful categorization differentiating between values tive issues despite attempts to create a free and associated with individuals, which may be exchange open environment. It has been found that groups values, charitable contributions or fair prices, and do not always pool their unshared information.82

94 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues

From a valuation perspective, there is still the at one place and time (the “study” site) to esti- opportunity for strategic behavior, and it is not mate the economic value of environmental goods necessarily the case that DMV will result in a mone- and services at another place and time (the “pol- tary value, either by design85 or because individuals icy” site).92,93 This is achieved either by transferring may still fail to tradeoff. Finally, results may be unin- an adjusted or unadjusted unit WTP value—for tentionally influenced by the moderator/facilitator. example, mean or median WTP—or by transfer- DMV is an emerging tool in ecosystem valuation, ring an entire valuation function that describes the but as of yet there is no clear guidance on how to relationship between WTP and explanatory vari- assess quality; however, lessons may be learned from ables. The key attraction of the technique is that the literature on the use of focus groups in valuation it reduces the need for original valuation studies, and on political discussion techniques. Some nec- thereby offering significant cost and time savings essary conditions can be envisaged. Small groups for any study seeking to estimate the value of a should be used, comprising at least two individu- nonmarket environmental good. However, the va- als and less than 20. The selection process should lidity of the technique itself remains open to ques- ensure that “society” is adequately represented. A tion, and in many cases the results have been far fair and openly structured procedure for delibera- from satisfactory. Given the spatially explicit char- tion should be implemented. Wilson and Howarth82 acteristics of ecosystem services the benefits transfer recommend: (i) each participant is allowed to par- tactic requires heavy scrutiny. ticipate in discourse; (ii) each participant is allowed The main limitations of the technique concern the to place issues on the agenda; (iii) each is to in- various errors which arise in its application, namely: troduce his or her own assessment of an ecosystem (i) measurement error; (ii) transfer error; and (iii) good or service; (iv) each is allowed to express their publication error.94 Measurement error arises due to own attitudes, needs, and preferences for an ecosys- errors in the primary studies typically due to prob- tem good or service; (v) no speaker is hindered by lems with survey design, unrepresentative sampling, external compulsion or pressure; and (vi) the goal poor application of econometric methods, low ex- of discourse would be to reach a consensus value planatory power of model, and so on. The quality among the participants. Finally, it is essential that of the primary study inevitably affects the accuracy an experienced moderator/facilitator is used. For of any subsequent value transfer.93–96 The second further guidance on DMV, see Spash.83 source of error occurs due to the process of gener- Given the limitations we have just reviewed and alization and is a reflection of the level of dissim- the on-going nature of elements of the debate over ilarity between the study and policy sites in terms valuation (and cost-benefit analysis), it is still the of the population, physical site characteristics, en- case that an array of economic valuation techniques vironmental resource, and welfare measures. It is of and results exist which are or may be used to value particular concern as sizeable transfer errors have ecosystem services. While these have been exten- been reported in the literature. For example, Bate- sively applied to the valuation of ecosystem service man et al.92 observe that errors are between 1–75% flows, they sometimes lack sufficient rigour.15 Cor- if outliers are excluded but are up to 450% if in- respondingly, prior to using the results of a val- cluded.d The acceptability of these error margins uation study, it is important to evaluate its in- depends very much on the purpose of the benefits ternal quality. In the appendix we describe some transfer study. A lack of policy site data on nonde- generic quality checks that may be applied and pro- mographic determinants of WTP, such as attitudes, vide more tailored guidance on how to assess valid- may compound the problem.97 The final source of ity and reliability with respect to specific valuation error relates to an apparent predilection for original techniques.91 valuation studies to focus on sites that are apriori Benefits transfer is an approach to valuation considered to be valuable. If this is the case then which uses information about benefitsc captured

dTransfer errors may be calculated from the following for- c Or costs, in which case the term “value” transfer is more mula106:Transfererror= [(transferred estimate − origi- appropriate. nal study estimate)/(original study estimate)]∗100.

Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. 95 Ecosystem valuation: a sequential decision support system and quality assessment issues Turner et al. the resulting benefits transfer can be expected to old effects. To quality assure the economic analy- be overestimates. In particular, Hoehn98 finds that, sis within this framework, the valuation techniques in the context of ecosystem services, original valu- themselves need to be appropriately chosen, con- ation studies are dominated by those focusing on figured, and applied; this requires consideration of ecosystems with higher profiles or more social ben- generic quality issues, such as the overall study de- efits. Additionally, the technique is limited by more sign, data quality and robustness of statistical anal- inherent problems, such as its lack of capability to ysis, and the validity and reliability of results and deal with unique resources and issues relating to aggregation procedures, as well as specific quality temporal stability. indicators related to the individual valuation tech- Although set procedures for benefits transfer do nique. Finally, benefits transfer procedures should not yet exist, some general guidance is available be treated with great caution despite their superfi- on the basic conditions necessary for valid trans- cial cost-effectiveness advantages from the policy- fer. Error seems to be minimized the more similar makers” perspective. Advances in GIS and related the sites are with respect to physical and market techniques may offer some prospects for improved characteristics.94 Although Ready et al.99 found no benefits transfer in a limited number of instances. significant difference in transfer error between the Overall, we conclude that there is a legitimate and transfer of unadjusted, adjusted, and the benefits meaningful role for regulated market transactions function, in general, accuracy seems to be higher and related human behavior in the environmental where benefits functions are used rather than trans- domain and that therefore cost-benefit analysis is ferring unit values.92 Accuracy is also found to be not ruled absolutely out of scope. For a critique of higher where transfer is based on a large sample this position see, among others, O”Neil,102 Burgess of original studies.92 Indeed, Johnston et al.100 find et al.,103 and Aldred.75 We also believe that a ty- that studies based on one or two original studies pology of environmental values based on “use” and are found to introduce substantial uncertainty and “nonuse/existence” value categories, more or less broader error bounds. Spash and Vatn97 recom- captures human related instrumental and intrin- mend greater account is taken of a wider range of ex- sic values of nature.104 Comparability and mone- planatory variables—for example, by placing more tary incommensurability problems are significant attention on adjusting for social and attitudinal vari- but not totally intractable, at least as far as “use” ables for market consistency. Although incorporat- and some but not all “nonuse” values are con- ing data on attitudes may necessitate the collection cerned. Other economic revealed preference valu- of primary data at the policy site, Brouwer101 ar- ation techniques can provide “pricing” value infor- gues that the additional cost may be justified by the mation on a number of environmental goods and increased validity of the results. services. What the behavioral economics (and re- lated disciplines) findings do require is a reappraisal Conclusions of the proposition that, since environmental public goodsoftendonothavemarketpricesandsoci- In this chapter we have discussed the necessary con- ety requires that their provision should be decided ditions for taking ecosystem valuation forward so by collective decision, it is legitimate to take into that it is commensurate with scientific information account individual preferences, values, or attitudes and the emerging findings from behavioral and ex- and guard against the dominance of special interest perimental economics, as well as being meaningful groups and/or special pleading.105 While it is the from a policy perspective. To achieve this we have case that the aggregation of individual preferences argued that it is useful to consider a sequential an- represents the collective choice outcome, it is far alytical process which encompasses: (i) the spatial less clear that the individual preferences themselves context of ecosystem service provision and benefi- are given and context independent. The opposite is ciaries; (ii) appropriate application of the concept often the case in the environmental policy context of marginal analysis; (iii) avoidance of the double- and preference formation and elicitation processes counting trap; (iv) as far as is feasible a compre- are key. Collective rather than individualistic social hensive understanding of the underlying biophysical arrangements for valuation seem to be the direc- relationships so that nonlinearities may be identi- tion in which the behavioral economics findings are fied; and (v) full consideration of possible thresh- pointing.

96 Ann. N.Y. Acad. Sci. 1185 (2010) 79–101 c 2010 New York Academy of Sciences. Turner et al. Ecosystem valuation: a sequential decision support system and quality assessment issues

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Box 1 Validity and Reliability of Estimates and Generic Quality Checks for Ecosystem Valua- Aggregation Issues tion Studies A decisive element in the evaluation of any val- Overall Study Design91 uation study is the extent to which the resulting First, when evaluating the quality of a valuation welfare estimates are considered valid and reliable. study, consideration should be given to the ade- Validity refers to the degree to which a study mea- quacy of the overall study design—that is, whether sures the intended quantity and reliability is the the study aims are reasonable and whether it mea- degree to which the estimates are stable and repro- sures what it intends to measure. For example: ducible.92,109 For example: • Has an appropriate valuation been used (e.g., • A simple “sanity check”: Do the results seem only SP methods can capture nonuse)? reasonable15? • Has the correct welfare measure been used • Expectations-based validity: Do the results taking into account property rights and the conform with theoretical expectations and nature of environmental change107? other empirical results110?Doestheecono- • Is the valued change realistic and relevant metric function indicate expected relation- (e.g., has a clear causal relationship been es- ships? tablished between the change in service and • Convergent validity: How do estimates com- well-being)? pare with those derived from other tech- • Are the study assumptions reasonable? niques? • Has the study been subject to external • Reliability: Does the estimated econometric review? model have satisfactory explanatory power (e.g., for CVM studies, does the model have an r2 greater than 0.15110)? Do test-re-test pro- Data and Statistical Analysis cedures indicate stability? An assessment should be made of the quality and • Has aggregation been appropriately con- appropriateness of the data used—this is often a ducted (e.g., adjustments for unrepresenta- key constraint in ecosystem services valuation15— tive samples) and is double-counting absent? and, of the analytical methods adopted. For example: Adapted from: Soderqvist and Soutukorva.91

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