Ecosystem service

Ecosystem valuation

Ecosystem valuation is a widely used tool in determining the impact of human activities on an environmental system, by assigning an economic value to an ecosystem or its ecosystem services.

Value of ecosystem services

The simplest form of ecosystem valuation for economists is to hold that an ecosystem has a value equivalent to its ecological yield valued as it would be on commodity markets: for the value of water, wood, fish or game, that is purified or nurseried or generated or harboured in that ecosystem. Thus, a price can be put on the natural capital of an ecosystem based on the price of natural resources it yields each year.

More complex arguments in ecosystem valuation regard environmental ethics and deep ecology. Economists and some ecologists concentrate upon nature's services and the assignment of values in a service economy to all that Nature does "for humans". Studies compiled by ecologist Robert Costanza in the 1990s argued strongly that even just considering the most basic seventeen of these services, the combined value of the ecosystems of the earth was worth more (US$33T) each year than the whole human exchange economy (US$25T) at that time (1995). Other studies have focused on the marginal value of ecosystem changes, which can be used in cost-benefit analysis of environmental policies.

In Natural Capitalism, 1999, Paul Hawken, Amory Lovins and Hunter Lovins advanced an argument to assign the value of Earth in current currency. See value of Earth article for that and other examples of this extreme case of ecosystem valuation - biosphere valuation.

Economists assign several types of values to ecosystems:

  • direct use value attributed to direct utilisation of ecosystem services;
  • indirect use value attributed to indirect utilisation of ecosystem services, through the positive externalities that ecosystems provide;
  • option value attributed to preserving the option to utilise ecosystem services in the future;
  • existence value attributed to the pure existence of an ecosystem
  • altruistic value based on the welfare the ecosystem may give other people
  • bequest value based on the welfare the ecosystem may give future generations

Methods to place a monetary value on ecosystem services where there are no market prices include "stated preference" methods and "revealed preference" methods. Stated preference methods, such as the contingent valuation method ask people for their willingness to pay for a certain ecosystem (service). Revealed preference methods, such as hedonic pricing and the travel cost method, use a relation with a market good or service to estimate the willingness-to-pay for the service.

Is valuation economics, or ecology?

Such valuation, and that of the effectiveness of various environmental health measures that affect the value of life and quality of life, are usually thought to be part of economics. Natural capital and individual capital are studied ecology as living systems, however, this does not extend to the economics of valuation by which they are related:

Considering "valuation" as an "economic not ecological issue" reflects the way these fields divide of the activities of humans versus non-humans in "making a living". When humans go out to get food or homes, that is studied in "economics", but when non-humans do it, that is "ecology", though it is clear that there are motivations, methods and certainly bodily needs in common.

Since animals do not put explicit prices on ecosystems they use, but do behave as if they are valuable, e.g. by defending turf or access to water, it is mostly a matter of definition whether ecology should include valuation as an issue. It may be anthropocentric to do so, since "valuation" more clearly refers to a human perception rather than being an "objective" attribute of the system perceived. Ecology itself is also human perception, and such related concepts as a food chain are constructed by humans to help them understand ecosystems. In many cases by those who hold that markets and pricing exist independently of any individual human observers and "users", and especially those who deem markets to be "out of control", ecosystem valuation is considered a (marginal, ignored) part of economics. Others argue that natural capital is an economic concept that is at least as viable as financial capital, which itself is determined on subjective valuation. Some even suggest that valuation of ecosystem services is more cogent than financial valuation, as the ecosystem would continue after the collapse of the economy, while the inverse is not valid.

Some versions of conflict theory focus on the role of resource scarcity in sparking or propagating human conflicts - in effect holding that the resources or ecosystems they fight over are being held so valuable that they are worth considerable risk of harm to control. This is at least a relative notion of value and value at risk applied to ecosystem.


  • Daily, Gretchen 1997. Nature's Services. Island Press, Washington D.C., USA.
  • Hanley, Nick and Clive L. Spash (1993). Cost-benefit analysis and the environment. Edward Elgar, Cheltenham.
  • Pearce, David W. and R. Kerry Turner, 1990. Economics of natural resources and the environment. BPCC Wheatsons Ltd., Exeter, UK. 378 pp.

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