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Estimation of monetary value

Some marine ecosystem goods and services, such as fish and oil, have a market price. Their monetary value is relatively easily determined. But for many others market prices are not available. In these cases, the economic value has to be estimated. Depending on the needs for information and the valuation context a variety of environmental valuation methods can be applied. The methods are based on economic theory on the consumer behavior and the preferences of individuals.

The value of ecosystem goods & services can be assessed through a range of environmental valuation methods. Revealed preference methods utilize market data directly or indirectly, while stated preference methods elicit the preferences through hypothetical market scenarios. The methods exploit the neo-classical economic framework according to which the utility-maximizing individuals are willing to pay a certain amount of money for the environmental improvement, or, alternatively, to avoid the deterioration of the environment.

Ecosystem services with or without a market price
The applicability of any of these methods depends on the type of ecosystem service in question. For services that are traded at certain market prices, e.g. fish and marine-related recreational activities, direct market valuation may serve well along with indirect valuation methods (factor income, avoided cost and replacement cost methods, hedonic pricing and travel cost method).

For services not traded in the markets or holding “non-use” values that associate with more abstract issues, such as knowledge on the existence of marine ecosystem and species and an option for future generations to enjoy the goods and services that marine environmental provides, stated preference methods (contingent valuation and choice experiment) are the only ones applicable.

More information on the valuation methods are found in the column on the right.

 

Valuation methods

The choice of environmental valuation method is based on which ecosystem services and which type of values are of interest. Here, three different methods are described with Baltic Sea examples. Their applicability depends on 1) whether market data can be utilized for the analysis, 2) if the hypothetical markets through which the value is estimated must be constructed, or 3) if previous relevant valuation estimates are available.

 

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