The basic concepts that economists use to measure such gains and losses are economic values measured as a monetary payment or a monetary compensation. The essence of this approach is to estimate values as subtractions from or additions to income that leave people equally economically satisfied with or without a change in the services provided by an aquatic ecosystem. For example, suppose a lake was contaminated with polychlorinated biphenyls (PCBs) discharged by a nearby factory. In such a case, the logical valuation concept is an estimate of the monetary compensation that is required to bring the affected people back to the same level of satisfaction they enjoyed prior to the contamination event. Such a measure of value, when aggregated over all affected people, could be used to assign a damage payment to the factory responsible for the pollution. Funds collected from the polluter would not typically be paid directly to the affected people, but would be used for restoration projects that would return services to the lake.
Another type of application would be a project to enhance a freshwater wetland to improve sportfishing opportunities. In this example, one group of people consists of the direct beneficiaries, people who fish recreationally. Valuation would be used to estimate the “maximum” that anglers would pay for this improvement in fishing. Although no money would actually be collected from the anglers, each angler’s expression of his or her maximum willingness to pay represents how much the angler is prepared to compensate the rest of society for the increased individual enjoyment gained from the improved recreational fishing. Maximum willingness to pay is aggregated for all anglers who benefit to determine whether the benefits of the wetland project exceed the costs, which facilitates an assessment of whether public funds should be spent on the project.
These two examples provided several insights:
Values arise from the preferences of individual people; thus, values are estimated for individuals or households and then aggregated to obtain the values that society places on changes in aquatic ecosystems.
Valuation methods are used to estimate the gains or losses that people may experience as a result of changes in aquatic ecosystems in order to inform policy discussions and decisions.
Different types of changes in aquatic ecosystems affect different groups of people, which, as discussed in more detail below, may influence the choice of valuation methods used.
There are two basic concepts of value (noted elsewhere in this report), willingness to accept (WTA) (compensation) and willingness to pay (WTP).1
Whether WTA or WTP is conceptually the appropriate measure of value for changes in aquatic ecosystems depends on the presumed endowment of property rights. In the case of PCB contamination, the presumed property right of society was to a lake that is free of PCBs. This implies that the conceptually appropriate
For further discussion of measurements of WTP and WTA, see Chapter 2.