Economists value the environment placing a monetary value on the basis of perceived ‘goods‘ and ’bads‘ arising from changes in environmental quality or resource availability. The rationale for the economic valuation of natural resources is that they somehow impact on the utility (or well-being) of individuals, and that these individuals can identify a satisfactory trade-off between quantities of money and the environmental goods and bads they want. The objective is to find ways to measure the wide range of effects of environmental change on a single monetary scale. Money is used as the measuring stick to evaluate, although imperfectly, the extent to which individual utility is affected. This approach necessitates applying a monetary value to goods that do not have a market value, in an attempt to extend the utilitarian principle of the free market into environmental decision-making. The economic valuation approach makes several important assumptions, including commensurability of values, and assumes a compensatory approach in the evaluation of environmental changes, corresponding to a weak sustainability approach.
The total economic value (TEV) of a resource indicates the total value of the resource in so far as it affects human welfare and integrates two broad categories of values: use values, associated with the direct contact with the natural resource in some way, and non-use values, corresponding to the value derived from a resource, either directly or indirectly, but that does not depend on the use of that resource. A full taxonomy of such economic values can be found in any economic valuation handbook (e.g. Dixon and Pagiola, 1998), including values categories such as option value, bequest value and existence value.
Dixon, J., Pagiola, S. (1998). Economic analysis and environmental assessment. Environmental assessment sourcebook update, 23.
This glossary entry is based on a contribution by Rui Santos
EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos