valuing environmental functions: tropical wetlands

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Valuing Environmental Functions: Tropical WetlandsAuthor(s): Edward B. BarbierSource: Land Economics, Vol. 70, No. 2 (May, 1994), pp. 155-173Published by: University of Wisconsin PressStable URL: http://www.jstor.org/stable/3146319 .

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Valuing Environmental Functions: Tropical Wetlands

Edward B. Barbier

ABSTRACT. Recent studies have suggested that tropical wetland systems may have a crucial economic role to play in development. The following paper provides an overview of these benefits, using the general framework of cost- benefit analysis as the methodological approach to assessing wetland values. An analysis of trade-offs between conserving or converting tropical wetlands demonstrates that taking into account the opportunity cost of wetland loss leads to a lower level of conversion than would otherwise be the case. Finally, the paper discusses the extensions and limitations of the production function approach as applied to valuing nonmarketed wetland benefits. (JEL Q20)

I. INTRODUCTION

Since 1900, over half of the world's wetlands may have disappeared. The United States alone has lost an estimated 54 percent (87 million hectares) of its original wetlands, of which 87 percent has been lost to agricultural development, 8 percent to urban development and 5 percent to other conversions (Maltby 1986). The total area and status of tropical wetlands are still un- known, but the available evidence suggests that the pattern of wetland conversion in developing countries may be similar to that of the United States-and perhaps pro- ceeding at even a faster rate in some regions.

Natural wetlands perform many important functions for humankind-prevention of storm damage, flood and water flow control, support of fisheries, nutrient and waste absorption and so forth. Wetlands can also be used for recreation and water transport, and their diverse resources can be directly exploited for fishing, agriculture, wildlife products, wood products and water supply. When properly measured, the total economic value of a wetland's ecological functions, its services and its resources may exceed the economic gains of converting the area to an alternative use. Some economic studies have valued the benefits of temper-

ate wetlands (see Turner 1991; Turner and Jones 1991; Farber and Costanza 1987). But to date, little analysis of tropical wetland benefits has been undertaken. Yet recent studies across the developing regions of the world have suggested that tropical wetland systems-whether inland freshwater systems or coastal, mangrove systems-may have a crucial role to play in economic development (Barbier 1993).

In particular, economic analysis of the environmental functions of tropical wetlands-the support and protection they provide for economic activity and property-is underdeveloped. A major problem is the lack of scientific data on ecological relationships and functions in developing countries. However, recent advances in the methodology for valuing nonmarketed environmental goods and services suggest that in many instances the data requirements for valuing environmental functions may not be too overwhelming. The production function approach to valuation may be especially promising as an approach to valuing certain environmental functions of tropical wetlands.

The following paper discusses the valuation of environmental functions of tropical wetlands, focusing in particular on their regulatory ecological functions in support or protection of economic activities. The valuation problem is illustrated through the use of a basic model indicating the costs and benefits of converting or diverting wet-

Professor, Department of Environmental Econom- ics and Environmental Management, University of York, United Kingdom.

This article was taken from a paper presented to the Biodiversity Programme Workshop, The Beijer In- stitute for Ecological Economics of the Swedish Royal Academy of Sciences, Stockholm, 29-31 July 1992. The author is grateful to Carl Folke, Karl-GGran Miler, and Charles Perrings and to the comments provided by two anonymous referees. All errors and omissions are, of course, solely those of the author.

Land Economics e May 1994 e 70(2): 155-73



156 Land Economics May 1994

land resources to an alternative use. The model indicates that failure to consider the foregone net benefits of in situ use of wetland resources can lead to an underestimation of the costs of alternative uses of these resources and their excessive appropriation from the wetlands. Given that many of the direct and indirect uses of wetland resources are nonmarketed, estimation of their value may be best approximated through the production function approach. Potential applications of this approach in the simple case of a single-use system are examined, along with the potential modifi- cations and problems encountered. The full valuation problem of a multiple-use system presents further difficulties, which are also discussed. The paper concludes by high- lighting the additional steps required to develop analytical techniques and applications which may have wider relevance to many valuation problems in developing countries.

II. VALUATION APPROACHES AND METHODOLOGY-AN OVERVIEW

"Valuing" a wetland essentially means valuing the characteristics of a system. Any system, whether natural or human-made, can be characterized by three concepts: stocks, flows, and the organization of these stocks and flows. These three system characteristics have parallel concepts in both ecology--structural components, environmental functions and diversity; and economics-assets, services and attributes. Table 1 summarizes the linkages between these basic system characteristics and their ecological and economic counterparts.

In ecology, a distinction is usually made between the regulatory environmental functions of an ecosystem (e.g., nutrient cycles, microclimatic functions, energy flows, etc.) and its structural components (e.g., biomass, abiotic matter, species of flora and fauna, etc.). This distinction is useful from an economic perspective, as it corresponds to the standard categories of resource stocks or assets (i.e., the structural components) vs. environmental flows

or services (i.e., the ecological functions). In addition, ecosystems as a whole often have certain attributes (biological diversity, cultural uniqueness/heritage) that have economic value either because they induce certain economic uses or because they are valued in themselves.

It is therefore helpful to distinguish between:

(a) direct use values (e.g., the values derived from direct use or interaction with a wetland's resources and services);

(b) indirect use values (the indirect support and protection provided to economic activity and property by the wetland's natural functions, or regulatory "environmental" services); and

(c) nonuse values (the values derived neither from current direct or indirect use of the wetland).'

'A special category of value is option value, which arises because an individual may be uncertain about his or her future demand for a resource and/or its availability as a wetland in the future. There is a general consensus in the economics literature that option values are not a separate form of value but represent a difference between ex ante and ex post valuation (Smith 1983; Freeman 1984). If an individual is uncertain about the future value of a wetland but believes it may be high or that current exploitation and conversion may be irreversible, then there may be quasi- option value derived from delaying the development activities. Quasi-option value is simply the expected value of the information derived from delaying exploitation and conversion of the wetland today. Again, there is a consensus that quasi-option value is not a separate component of benefit but involves the analyst properly accounting for the implications of gaining additional information (Fisher and Hanemann 1987). In contrast, however, there are individuals who do not currently make use of tropical wetlands but nevertheless wish to see them preserved "in their own right." Such an "intrinsic" value is often referred to as existence value. It is a form of nonuse value that is extremely difficult to measure, as existence values involve subjective valuations by individuals unrelated to either their own or others' use, whether current or future. An important subset of nonuse or preservation values is bequest value, which results from individuals placing a high value on the conservation of tropical



70(2) Barbier: Valuing Environmental Functions 157

TABLE 1

GENERAL, ECOLOGICAL AND ECONOMIC SYSTEM CHARACTERISTICS

General System Ecological System Economic System Characteristics Characteristics Characteristics

Stocks Structural components Assets

Flows Environmental functions Services

Organization Biological and cultural diversity Attributes

Source: Adapted from Aylward and Barbier (1992).

Thus the total economic value of a tropical wetland system may comprise all three types of values-use (direct and indirect), option, and existence values. The standard techniques available for measuring the various economic values of wetlands are sum- marized in Figure 1.2

The use and nonuse values of temperate wetlands, which exist largely in developed countries, may differ significantly from those of tropical wetlands, which occur mainly in the developing world. For example, many tropical wetlands are being directly exploited, often through nonmarket, "informal" economic activity, to support human livelihoods, e.g., through fishing, hunting, fuelwood extraction, and so on, whereas recreation/tourist use may often be limited. In contrast, direct exploitation to support livelihoods-except perhaps commercial fishing or forestry in some ar- eas-may be small for most temperate wetlands, but their recreational value is often significant. Valuation of the noncommercial direct use of wetlands by local populations is often critical in determining the economic value of tropical wetlands to developing countries. The failure to take this value into account is often a major factor behind policy decisions that lead to overexploitation or excessive degradation of tropical wetland systems.

Direct uses of the wetlands would therefore include both consumptive uses of its resources (e.g., livestock grazing, fuelwood collection, forestry activities, agriculture, water use, hunting and fishing) and noncon- sumptive uses of wetland "services" (e.g., recreation, tourism, in situ research and ed- ucation, navigation along water courses).

Direct uses of wetlands could involve both commercial and noncommercial activities, with some of the latter activities often being important for the subsistence needs of local populations. Commercial uses may be important for both domestic and international markets. In general, the value of marketed products (and services) of wetlands is eas-

wetlands for future generations to use. Bequest values may be particularly high among the local populations currently using a wetland, in that they would like to see the wetland and their way of life that has evolved in conjunction with it passed on to their heirs and future generations in general.

2Note that in Figure 1, option and quasi-option values are indicated with a dotted line, since these values are not strictly a separate component of total economic value in the sense that direct and indirect use values can be separated from existence value. More- over, in most cases, the preferred approach for incorporating option values in the cost-benefit analysis would be to develop well-specified models of individual choice, through reasoning about how marginal util- ities of income differ in the various contingency states (Freeman 1984). Similarly, quasi-option value can be calculated by an analysis of the conditional value of information in the decision problem (Fisher and Hane- mann 1987). Such approaches are particularly valid in the case of uncertainty surrounding "decrements" in natural environments, e.g., the losses in value that might occur if a tropical wetland is converted to an alternative use. In contrast, Brookshire, Eubanks and Randall (1983) have argued that in cases of "supply- side uncertainty" surrounding "increments" in natural environments, e.g., a project to protect wetlands might provide additional future values such as recreation, contingent valuation methods (CVM) might be employed. However, Freeman (1985) has argued that this scenario is only one of four possible patterns of supply uncertainty, and has cautioned against the use of CVM in cases where either the project can only reduce but not eliminate supply uncertainty or where there is a positive probability of supply even without the project.




Total Economic Value

I I Use Values Nonuse Values

Direct Use Indirect Use Option, Existence, Values Values Quasi-option Bequest

(Functional Values Values Values) I CVM

ICM Outputs Benefits CVI - fish - flood CVM - fuelwood control - recreation - storm - transport protection - meat, etc. - external

support, etc.

Market Damage costs analysis; avoided; TCM; CVM; Preventive Hedonic expenditures; prices; Value of changes "Public" in productivity; prices; [Relocation costs]; [IOC]; [Replacement costs] [IS]; [Replacement costs]

FIGURE 1 VALUING WETLAND BENEFITS

Notes: ICM = individual choice models CVI = conditional value of information

CVM = contingent valuation method TCM = travel cost method IOC = indirect opportunity cost approach

IS = indirect substitute approach [ ] = valuation methodology to be used with care

Source: Adapted from Barbier (1989a).

ier to measure than the value of noncommercial and subsistence direct uses. As noted above, this is one reason why policymakers often fail to consider subsistence and informal uses of tropical wetlands in many development decisions.

Various regulatory ecological functions of tropical wetlands may also have important indirect use values. Their values derive from supporting or protecting economic activities that have directly measurable values. For example, the groundwater re-

charge function of floodplain wetlands may have indirect use value through its replen- ishment of aquifer systems that supply water for domestic use and agriculture. The storm prevention function of mangrove swamps may also have indirect use value through the protection afforded coastal property and economic activity. The biological diversity of a wetland ecosystem may also have an important role in maintaining regulatory functions, e.g., changes in species diversity may affect how well




support and protective services function, and in some cases, even their availability. The indirect use value of an environmental function is related to the change in the value of production or consumption of the activity or property that it is protecting or supporting. However, as this contribution is nonmarketed, financially unrewarded and only indirectly connected to economic activities, these indirect use values may be difficult to value (Aylward and Barbier 1992). Although few valuation studies of key environmental functions in tropical wetlands have been conducted, the available evidence suggests that the economic value of regulatory environmental functions may be highly significant (Adams and Hollis 1988; Barbier 1989a and 1993; Bar- bier, Adams, and Kimmage 1991; Lal and Dixon 1990; Ruitenbeek 1992; Twilley 1991; Yafiez-Arancibia and Day 1988).

Despite the range of benefits provided by tropical wetlands, they are currently under threat from a number of sources. In many cases, the loss of wetland resources, functions and even entire systems may be justi- fied. To make consistent choices between wetland conservation, preservation and development options-or between a decision to halt, modify or continue with an activity that is inflicting damage on a wetland-- requires the application of a consistent economic appraisal methodology for evaluating the alternative options. At the heart of the appraisal methodology is the determina- tion of the various costs and benefits associated with each option. Critical to this assessment of costs and benefits is the choice of appropriate valuation techniques, as indicated in Figure 1 and discussed above.

Barbier (1993) suggests essentially three broad categories of assessment, with each category corresponding to each major type of policy decision concerning wetland use that generally needs evaluating:3

(a) impact analysis-an assessment of the damages inflicted on the wetland from a specific environmental impact (e.g., oil spills);

(b) partial valuation-an assessment of alternative resource allocations or

project options involving wetland systems or resources (e.g., whether to divert water from the wetlands for other uses, or to convert/develop part of the wetlands at the expense of other uses); and,

(c) total valuation-an assessment of the total economic value of the wetland system (e.g., for national income accounting or to determine its worth as a protected area).

Under the first approach, assessing a specific environmental impact involves valuing the changes in the wetland resulting from that impact. For example, assume that discharges of oil are regularly polluting an estuarine wetland, affecting both fish production and water quality in the wetlands. The costs of this activity are the losses in wetland values arising from damage to the ecosystem and its resources. These damages would amount to the losses in net production benefits (i.e., the economic benefits of production less the costs) from the impacts of the oil spills on the fishery plus the losses in net environmental benefits in terms of poorer quality water supplies for wetland and neighboring settlements, as well as for general ecosystem function- ing. Thus, by assessing and valuing these losses, we would arrive at an estimate of the net production and environmental benefits of the wetlands, NBW, that are affected by the oil spills. The total cost of this impact, C', in terms of damage to the wetland are these foregone net benefits:

C' = NBW. [1]

Dixon and Hufschmidt (1986) and Dixon et al. (1988) provide case studies of applying this particular approach in the overall context of economic appraisal of environmental impacts. For example, in the analysis of the cost-effectiveness of various options for disposing of wastewater from a geothermal power plant on the island of

3In what follows, it is assumed that all costs and benefits are discounted at some positive rate into present value terms.




Leyte in the Philippines, it was necessary to decide which means of wastewater dis- posal from the plant would protect the environment in the most cost-effective manner. For some of the options, the costs of the environmental impacts in terms of lost marine fishery and rice production were quan- tified. Other environmental costs, such as energy loss, lost riverine fishery production, human health effects and amenity impacts, were not possible to quantify. For example, the analysis showed that the quantifiable environmental costs of releas- ing untreated waste into the Bao River or into the Mahiao River were quite high, accounting for 41 percent and 35 percent of total measurable costs of these options, respectively. Both options may also seriously contaminate the marine ecosystem with un- known and unquantifiable effects.

An impact analysis was also conducted to examine the downstream effects of logging-induced sedimentation on the marine environment of Bacuit Bay, Palawan, the Philippines (Hodgson and Dixon 1988).4 The analysis indicated that continued logging of the Bacuit Bay watershed would result in a reduction in gross revenues of more than US$ 40 million from tourism and marine fisheries over a ten-year period. The present value of these lost earnings ex- ceeded US$ 11 million. The major impact was on coral cover and diversity, which have an important indirect use value in supporting marine fisheries. Increased sedimentation of coastal waters reduces both coral cover and diversity, eventually caus- ing a marked fall in fish biomass. Loss of pristine coral reefs and clear water also af- fects tourism, which is largely from an international clientele.

The second assessment approach, i.e., partial valuation of wetland benefits, may be required when one or more development options may lead to alteration or conversion of wetland systems. That is, choices involving diversion, allocation or conversion of wetland resources should compare the opportunity costs of the proposed options in terms of the subsequent loss in wetland benefits. For example, assume that there is an upstream irrigation project on a

river that is providing water for agriculture. If this project diverts water from a wetland downstream, then any resulting loss in wetland benefits must be included as part of the overall costs of the project. Given direct benefits (e.g., irrigation water for farming), BD, and direct costs (e.g., costs of constructing the dam, irrigation channels, etc.), C', then the direct net benefits of the project are:

NBD = BD - CD. [2]

However, by diverting water that would otherwise flow into the downstream wetlands, the development project may result in losses to floodplain agriculture and other primary production activities, less groundwater recharge and other external impacts. Given these reductions in the net production and environmental benefits, NBW, of the wetlands, then the true net benefits of the development project (NB') are NBD - NBW. The development project can therefore only be acceptable if:

NBP = NBD - NBw > 0. [3]

If the foregone wetland benefits are significant, then the failure to assess the loss of wetland benefits will clearly lead to an overestimation of NB'. This is tantamount to assuming that there is no opportunity cost of diverting floodwater from the wetlands, which is rarely the case. Moreover, it may not be necessary to measure all affected wetland benefits-for example, if one or two impacts prove to be sufficiently large to render the development project un- economical. In any case, it is not necessary to measure all wetland benefits but only those benefits which are affected by the development project-which is why this approach is called a "partial valuation."

A partial valuation was conducted to assess the economic importance of the Hadejia-Jama'are wetlands, and thus the opportunity cost to Nigeria of its loss, by

4See Aylward and Barbier (1992) for a critical review.




estimating some of the key direct use values the floodplain provides to local populations through crop production, fuelwood and fishing (Barbier, Adams, and Kimmage 1991).5 The economic analysis indicates that these benefits are substantial on both a per hectare basis and a water input basis-i.e., the minimum and maximum amount of floodwater required to sustain them. This proves to be the case even when the agricultural benefits were adjusted to take into account the unsustainability of much pump-irrigated wheat production within the wetlands. As indicated in Table 2, the present value of the aggregate stream of agricultural, fishing and fuelwood benefits were estimated to be around N850 to N1280 per ha, or around N240 to N370 per 103m3 (with "maximum" flood inputs).6

The economic importance of the wetlands suggests that the benefits it provides cannot be excluded as an opportunity cost of any scheme that diverts water away from the floodplain system. When compared to the net economic benefits of the Kano River Project, the economic returns to the floodplain appear much more favorable (see Table 2). This is particularly the case when the relative returns to the Project in terms of water input use is compared to that of the floodplain system. The result should cause some concern, given that the existing and planned water developments along the Ha- dejia-Jama'are river system, such as the Kano River Project, will continue diverting water from the floodplain.

As the name implies, the final assessment approach involving total valuation of a wetland system requires an appraisal of all the net benefits of a wetland system. If the objective of the total valuation is to measure, say, the economic contribution of the wetlands to the welfare of society as part of a resource accounting exercise, then the objective should be to value as many of the net production and environmental benefits, NBW, of the wetlands as possible. An- other objective requiring total valuation would be the need to determine whether or not the wetlands should become a protected area with restricted or controlled use. The total net wetland benefits would

therefore have to exceed the direct costs, C", of setting up the protected area (including any costs of relocating or compensating existing users) plus the net benefits foregone, NBA, of alternative uses of the wetlands:

NBW> CP + NBA. [4]

Ruitenbeek (1989) has followed this approach in determining the economic value of Korup National Park in Cameroon, where the alternative use would be logging of the forest area.7 Ruitenbeek (1992) uses a similar approach in evaluating the trade- offs between different forestry options in a mangrove system in Bintuni Bay, Irian Jaya, Indonesia-although in this example the comparison is between the total economic value of a wetlands preserved through a cutting ban and the total economic value generated by various forestry development options ranging from partial, selective cutting to clear-cutting.8

An important feature of the analysis is that it explicitly incorporates the linkages between mangrove conversion, offshore fishery productivity, traditional uses and the imputed benefits of erosion control and biodiversity maintenance functions. To the extent that these linkages exist, some of these direct and indirect uses become mu- tually exclusive with more intensive mangrove exploitation through forestry options. The "optimal" forest management option will therefore depend on the strength of the environmental linkages. The results indicate that the clear-cut option is optimal only if no environmental linkages exist-a highly unrealistic assumption. At the other

5 See Barbier, Adams and Kimmage (1991) for further details on the analytical approach of the study, including the difficulties encountered, and Barbier (1993) for a retrospective review. Both papers also discuss possible alternative approaches to valuing the groundwater recharge function of the floodplain.

6In 1989/90 prices, 7.5 Nigerian Naira (N) = US$ 1. 7See Aylward and Barbier (1992) for a critical

review. 8The "production function" methodology of the

Bintuni Bay case study is discussed in more detail later in the paper. For a critical review, see Barbier (1993).




TABLE 2 COMPARISON OF PRESENT VALUE NET ECONOMIC BENEFITS

KANO RIVER PROJECT PHASE I AND HADEJIA-JAMA'ARE FLOODPLAIN, NIGERIA

(N7.5 = US$ 1, 1989/90) Per Hectarea (8%, 50 yrs) (8%, 30 yrs) (12%, 50 yrs) (12%, 30 yrs) HJF (N/ha) 1,276 1,176 872 846 KRP (N/ha) 233 214 158 153

Per Water Useb HJF (N/103m3) 366 337 250 242 KRP (N/10'm3) 0.3 0.3 0.2 0.2

Notes: aBased on a total production area of 730,000 ha for Hadejia-Jama'are floodplain (HJF) and a total crop cultivated area of 19,107 ha in 1985/86 for the Kano River Project Phase I (KRP).

bAssumes an annual average river flow into Hadejia-Jama'are floodplain (HJF) of 2,549 Mm3 and an annual water use of 15,000 m3 per ha for the Kano River Project Phase I (KRP).

Source: Barbier, Adams and Kimmage (1991).

extreme, a cutting ban is only optimal if the linkages are very strong, i.e., mangrove alteration and conversion would lead to im- mediate and linear impacts throughout the ecosystem. Even if weak interactions exist, an 80 percent selective cutting policy with replanting is preferable to clear-cutting. However, given the considerable uncertainty over the dynamics of the mangrove ecosystem, and the fact that alteration and conversion may be irreversible and exhibit high economic costs, the analysis concludes that there is little economic advan- tage to cutting significant amounts (e.g., more than 25 percent) of the mangrove area.

III. THE VALUE OF ALTERNATIVE TROPICAL WETLAND USES-A MORE

FORMAL ANALYSIS9

A simple model can be invoked to indicate more formally the need for consistent choice in decisions to convert tropical wetlands, or to allocate their resources (e.g., water) to other uses, when such decisions involve the loss of wetland benefits. As the previous sections indicate that many con- flicts in tropical countries are over wetland resource use values-i.e., whether to convert or exploit wetland resources to alternative productive uses or to maintain current direct and indirect uses of tropical wetlands-the following model will focus on this choice of alternative wetland use.

At any time, t, scarce tropical wetland resources can be represented as a stock, S(t). Which resources are to be represented by S will of course depend on the allocation problem. For example, if a coastal mangrove is being converted to shrimp ponds or irrigated rice production, then S could represent the total stock of land area within the mangrove system. Alternatively, if the mangrove forest itself is valued, e.g., for woodchip production, then S could be either the stock of mangrove biomass or forest area. Finally, in cases where the water flowing into the wetland is being reallo- cated, e.g., floodplain water diverted by upstream developments for irrigation and in- dustrial use, then S might represent the total volume of water stored in the wetlands.

Equally, the amount of wetland resources converted (or diverted) from the wetlands in any time period, D(t), can also be defined depending on the nature of the conversion (or diversion) activity.0o To sim-

9The analysis of the following section benefitted greatly from discussions held with Karl-G6ran Miler and Carl Folke at the Beijer Institute of Ecological Economics, Royal Swedish Academy of Sciences, in preparation of a project proposal on mangrove valuation. Based on these discussions, Mailer (1992) has also extended a production function model to incorporate mangrove valuation.

'0In what follows, notation is simplified by omitting the argument of time-dependent variables, by repre- senting a derivative of a function by a prime, by em-




plify matters, it is assumed that the conversion/diversion activity leads to an irreversible loss in the wetland resource, S, which is essentially nonrenewable:

S = -D. [5]

Thus, by virtue of [5], the analysis can focus on the costs and benefits of productive activities that lead to wetland loss."

Two production activities are assumed to be competing for wetland resources. One activity combines resources extracted from the wetlands, D, with other inputs, Z, to produce a commodity, Y. The other activity either directly uses the remaining stock of resources, S, or is indirectly supported or protected by the wetland resources. The various direct and indirect use values of tropical wetlands were discussed in detail in previous sections and are outlined in Fig- ure 1. The stock of wetland resources, S, can therefore be considered one input in the production function of the activity, which along with other inputs, X, produce a commodity Q.'2

If the production functions for Q and Y are assumed to be increasing, strictly con- cave, twice differentiable and linearly ho- mogeneous, and if their units are normalized so that X and Z are equal to 1, then:

Q = F(S, 1) = f(S), f' > 0, f" < 0, [6]

Y = G(D, 1) = g(D), g' > 0, g" < 0. [7]

Thus, the tropical wetlands country is assumed to maximize the present value of future welfare, W:

Max W = {U(Q, Y) - C}e-•tdt, [8] D o

subject to [5], [6], and [7], and

C = c(D, S), co > 0, CS > 0, CDD ss O, css 0, [9]

S(0) = So and lim S(t) 0. [10]

The control variable of the problem is

D, and 8 is the social rate of discount. The "utility" function, U, essentially represents aggregate gross consumer surplus, and is assumed to have the standard properties with respect to its partial derivatives, U'(-) > 0, U"(.) 5 0 and U'(-) -~+ o as D, S -+ 0.13 Equation [9] represents the aggregate direct costs to the country of produc-

ploying numbered subscripts to indicate partial derivatives of a function, and by denoting the time derivative of a variable by a dot.

1"This is an obvious simplification in some problems of wetland resource conversion or diversion. For example, mangroves and other wetland forests do re- generate, and even the total land area of some wetland systems has been known to grow in size as more sedi- ment (and water) is "trapped" by the system. Thus for some wetland resource allocation problems, a more realistic formulation of Equation [1] would be:

S = g(S) - D, [1]'

where g represents the rate of natural growth, or accu- mulation, of the wetland resource, with gs > 0 and gss < 0. Alternatively, as noted in the previous section, wetland systems and resources may be indirectly affected by the environmental impacts of neighboring activities, such as oil spills and other forms of pollu- tion. Equation [1] could therefore be written in the form of a damage function:

S = -h(D), [1]"

where hD > 0 and hDD < 0. 12 See, for example, the following section and Miiler

(1991) for a discussion as to why this formulation may be appropriate for capturing the major use values of wetland resources. As the next section will discuss, including the stock of resources, S, explicitly as an argument in the production function for Q is particularly appropriate for the indirect use values of wetland environmental regulatory functions.

13For example, it is conceivable the U takes the form:

U(Q, Y) = fB(Q)dQ + B2(Y)dYdY

where BI(Q) = Pi = d'1(Q) and B2(Y) = P2 d-' (Y) are the inverse demand functions for Q and Y determining their prices p, and P2, respectively, if dl(Q) and di(Q) < 0. It follows that U'(Q) = pi > 0 and U'(Y) = P2 > 0. Note that the objective function [8] would also result if U is a quasi-linear utility function, i.e., if it is linear in some good m (e.g., "money") which serves as the numeraire and is assigned the price 1, such that U = U(Q, Y) + m. For proof, see Varian (1984).




ing Q and Y, using the (normalized) inputs of S and D.14 Equation [10] contains the initial and terminal boundary conditions.

The current value Hamiltonian of the above optimal control problem is:

H = U(f(S), g(D)) - c(S, D) - XD, [11]

where h is the costate variable of the shadow price of the "unextracted" wetland resource.

Assuming an interior solution, the maximum principle yields the following conditions:

X> Uyg' - CD, [12]

S= x - (UQf' - CS), [13]

where aUlaQ = UQ and a UlaY = Uy. Equation [12] reflects the nonnegativity constraint D

- 0. If D > 0, then the shadow

price of the "unextracted" wetland resource must equal the difference between the value of the marginal product of the resource appropriated to produce Y and the marginal costs of this production. How- ever, if K exceeds the net value marginal product of the appropriated resource, then conversion of wetland resources is not worth it and D = 0.'5 Equation [13] indicates the optimal rate of increase in the value of the (unextracted) wetland resource. Assuming D > 0, [13] can be rewrit- ten as:

/X = 8 - (UQf' - cs)/(Urg'

- CD). [14]

Thus, the rate of change in the shadow price of the tropical wetland, K, is determined not only by the social rate of discount, 8, as is the case in standard nonrenewable resource problems, but also by an additional factor indicating the relative social value of in situ wetland resources (UQf' - cs)/(Urg' - CD). In other words, 8 represents the opportunity cost of "holding onto" wetland resources today-as op- posed to appropriating them for current production of Y-whereas (UQf' - cs)/

(Urg' - cD) represents the social gains

from "holding onto" wetland resources in

terms of their relative direct and/or indirect use values. Note that the right-hand side of [14] can be positive, negative or equal to zero. If i/K < 0, then the optimal rate of extraction should increase over time; however, i/K > 0 implies that b < 0.16

Essentially, condition [14] confirms the arguments in the previous section: if policymakers fail to take into account the "opportunity" costs of wetland loss in terms of foregone direct and indirect use values, then they are misrepresenting the true social value of tropical wetlands. The failure to consider the foregone net benefits of in situ use of wetland resources can lead to an underestimation of the costs of alternative uses of these resources and their excessive extraction from the wetlands. The latter point will be illustrated explicitly in a mo- ment. First consider the case where the net

14For example, C may take the form c(D, S) = c(D) + c(S). It is conceivable that c(D) = wD, where w, is the average cost of "extracting" or "converting" a unit of wetland resource D to produce commodity Y. It is also possible that c(S) = w2S is the costs of "maintaining" or "utilizing" the remaining stock of wetland resource, S for activity f(S). However, if this latter activity only indirectly uses the resource S, then there may be no direct costs of utilization or maintenance and c(S) is effectively zero. In either instance, as the next section discusses, the correct approach to valuing the net welfare contribution of S is through the production function approach applied to the (non- normalized) production of Q = F(X, S).

"SHowever, it follows from the standard economic theory of exhaustible resources that Y can still be pro- duced if D is not essential to its production (Dasgupta and Heal 1974, 1979). Note also that conditions [12] and [13] depend on the assumption that S(t) > 0 in finite time. This assumption can be revoked in cases where D is not essential to producing Y, and either S is not essential to producing Q or Q can be perfectly substituted by another commodity (e.g., Y) in social utility, W.

16If it is assumed as before that U(Q, Y) is addi- tively separable, and additionally that Y = g(D) is constant over all periods, then totally differentiating [12] with respect to time yields X = (Uyr(g')2 +

Urg" - coD)D.

Thus when X is negative in expressions [13] and [14] then D > 0. If positive, then D < 0. However, note that D > 0 is infeasible over an infinite time horizon as wetland resources are fixed and must eventually be exhausted. Nevertheless, D(t) is not neces- sarily monotonic over the planning horizon; e.g., depletion could conceivably increase in earlier and de- crease in later periods.




benefits of in situ wetland resource use are ignored.

If tropical wetlands are viewed only as a source of resources that essentially have no economic value unless they are converted or diverted to a "productive" activity, then the planning problem as represented by [5]-[10] effectively reduces to the even sim- pler problem of nonrenewable resource extraction. As the previous sections of the paper have indicated, this is precisely the view of tropical wetlands that is often taken in policy and investment decisions that determine the allocation of wetland resources. The Hamiltonian [11] therefore be- comes:

H = U(g(D)) - c(D) - XD. [15]

Assuming D > 0 and S > 0 in finite time and an interior solution, the standard first-order conditions for optimal nonrenewable resource extraction result:

1 = Urg' - CD, [16]

, =

8• or X(t) = koe8', [17]

where X0 = X(t). Condition [16] has the same interpretation as [12] for D > 0. Com- parison of [17] and [14] confirm the difference between the standard nonrenewable extraction problem and the problem where the foregone net benefits of in situ wetland resources are an opportunity cost to appropriating these resources for an alternative productive use.

Following Dasgupta and Heal (1979), the extraction path D(t) can be characterized as a demand for wetland resources that is inversely related to its price, X(t). Assum- ing this demand is isoelastic, then:

D(t) = x(t)-11/~, [18]

where a > 0. Substituting [17] into [18] yields:

D(t)= Xo-1ie-Sti*. [19]

However, the condition that D is essential

to production of Y such that D > 0 over finite time also implies that:

f D(t)dt = So or

(a/I8)Xho =

So0.

[20]

Utilizing [17]-[20], optimal paths for D and X can be determined:

D*(t) = [MSo/a]e- t/a, [21]

X*(t) = [iSo/la]-es'. [22]

Thus, if the initial level of wetland resource appropriation is set at the optimal level 8So/a, D(t) will decline thereafter at the rate 8/a. The value of "unextracted" resources will begin at [S0o/a]-a and rise at the rate B.

Similar optimal paths can also be con- structed for the original wetlands problem. To facilitate comparison with the paths just derived for the "myopic" wetlands problem, assume that K > 0 in the first-order conditions of the original model. Returning to [13] and integrating yields:

X(t) = Xoe ' - f(UQfs - cs)dt. [23]

The second term on the right-hand side of [23] represents the cumulative stream of net benefits from in situ wetland resources over time. Effectively, this term is the undiscounted asset value of "conserved," or "unappropriated," wetland resources at time t. Defining q(t) = f(UQfs - cs)dt and substituting [23] into [18] yields:

D(t) = X•oI-

e-t/a _ - i/a [24]

Letting q(t) = p0oeSt, where 3 > 0,17 then

o D(t)dt =

(a/I)ho-1/ +

(alp)9•-/la.

[25]

'7This expression assumes that the (undiscounted) asset value of wetland resources through production activity Q = f(S) will increase with time over its initial period value. The presumption is that UQfs - CS > 0 over time, which is a reasonable assumption provided that the activity, Q, is "sustainable"-i.e., it does not




It is possible for expression [25] to be greater than or equal to So. Assuming first that the entire stock of wetland resources is appropriated in the long run, then [25] suggests that:

Xg* = [8So/at]-V - (al/P) o < X'. [26]

From [23] and [24], the optimal paths for D and X can therefore be determined as:

D(t)** = [(8Sola) - ((alP)po)-l/)]e-Pt/' - P (a < D(t)*, [27]

k(t)** = [(0So/a)-a

- (oalP)po]est - < k(t)*. [28]

Taking into account the asset value of "unappropriated" wetland resources has the effect of shifting down both the optimal path of resource extraction, D(t), and that of the shadow price, X(t). The difference in the two extraction paths [24] and [27] is:

A(t) = D(t)* - D(t)** =

((a/P)9•)-l/ae-Pt/a + (p-l/a, [29]

where dAldt < 0. Thus as shown in Figure 2, the two paths eventually will converge in the long run.

In the second case, where some of the stock of wetland resources remain even in the long run, then:

fD(t)dt + R = S0, [30]

where R is the remaining long-run stock of wetland resources. Defining D(t) as the new extraction path for wetland resources, it follows that:

D) = [(8/at(So - R)) - ((al/P)o)-l/]e-P/t/ - -1/ < D(t)** < D(t)*. [31]

In sum, the above analysis has demon- strated formally that, when the loss of wetland benefits is taken into account in decisions to convert tropical wetlands, a lower level of wetland conversion will result than would be the case if these wetland benefits

are ignored. In other words, policymakers should be absolutely certain that the opportunity cost of wetland resource conversion and appropriation is zero before embarking on investment and policy decisions that are based on this assumption and lead to irreversible wetland loss.

If the opportunity cost of wetland loss is not zero, then the wetland benefits foregone must be explicitly accounted for in development decisions. This again raises the issue as to what is the best method for valuing these benefits, given that the economic contribution of wetland resources-particularly their environmental functions-is often nonmarketed.

IV. VALUATION OF WETLAND ENVIRONMENTAL FUNCTIONS: THE PRODUCTION FUNCTION APPROACH

The preceding analysis noted the importance of wetland resources for production by including them explicitly in the production function for Q. The assumption was that wetland resources were being either directly used in production as inputs or indirectly used in the sense that the environmental functions of wetland resources were supporting or protecting economic activity. Earlier sections have noted the important economic contribution of many wetland indirect use values, such as support of fisheries, groundwater recharge, flood and water flow control, prevention of storm damage, and so forth. The results of the previous analysis would suggest that decisions con-

itself lead to degradation of the wetland resource base, S. For instance, some direct uses of wetland resources, such as harvesting for fuelwood and timber or certain farming systems, may prove to be "unsus- tainable" with time. As discussed by Barbier (1989a, 1993), it is important that any calculation of the future stream of net benefits from these activities takes into account their "unsustainability"; otherwise, the asset value of wetland resources as reflected in the economic value of these activities will be overestimated. For example, the analysis of agricultural benefits in the Hadejia-Jama'are floodplain of Nigeria took into account the impact on land degradation of pump- irrigated wheat production within the wetlands that could arise within three to four years (Barbier, Adams and Kimmage 1991).




DO*

D,**

D(t)*

D(ttim**

time

FIGURE 2 OPTIMAL EXTRACTION PATHS FOR WETLAND RESOURCES

cerning wetland conversion and resource use do require proper valuation of the environmental functions of tropical wetlands where these functions are instrumental in supporting or protecting economic activity.

One promising method is to employ the production function approach,'8 as implied by equation [6] above, to capture the indirect use value of regulatory ecological functions:

Q = F(Xi... Xk, S), [32]

where Fs > 0, Fss < 0. For example, a common ecological function of mangroves is support of offshore fisheries by serving as both a spawning ground and a nursery for fry (see, for example, Yafiez-Arancibia and Day 1988). The area of mangroves in a coastal region, S, may therefore have a direct influence on the catch of mangrove- dependent species, Q, which is independent from the standard inputs of a commercial fishery, Xi ... Xk. Including mangrove area as a determinant of fish catch may therefore "capture" some element of the economic

contribution of this important ecological support function.

'8Another term for this method is the household production function approach, which is a more appropriate term for applications based on the derived demand by households for environmental quality (Smith 1991). In such applications, F can be thought of as a "household" production function that appears directly in the household utility function:

U = U(F(Xi. . Xk, S), Y),

where Y is a vector of other goods and services for which both prices and quantities are known. Thus by explicitly incorporating nonmarketed environmental functions in the modelling of individuals' preferences, household expenditures on private goods can be related to the derived demand for environmental functions. Some well-known techniques in applied environmental economics-such as travel cost, recreation demand and averting behavior models-are based on this approach. However, applications at the household level in developing countries may be limited given the detailed data requirements for household patterns of expenditures, time allocations, commodity prices and wage rates, along with measures of levels of environmental quality experienced by the same households (Smith 1991).




Applying the production function approach to the various indirect use values of tropical wetlands may prove a useful method of estimating these nonmarketed- but often significant-economic values. However, it is extremely important that the relationship between the environmental regulatory function of the tropical wetlands and the economic activity it protects or supports is well understood.

Mialer (1991) distinguishes between applications of the production function approach. When production, Q, is measurable, and either there is a market price for this output or one can be imputed, then determining the marginal value of the resource is relatively straightforward. If Q cannot be measured directly, then either a marketed substitute has to be found, or possible complementarity or substitutability between S and one or more of the other (marketed) inputs, Xi . . . Xk, has to be specified explicitly. Although all these applications require detailed knowledge of the physical effects on production of changes in the wetland resource, S, and its environmental functions, applications that assume complementarity or substitutability between the resource and other inputs are particularly stringent on the information required on physical relationships in production. Clearly, cooperation is required between economists, ecologists and other researchers to determine the precise nature of these relationships.

Applications of the production function approach may be most straightforward in the case of single use systems-i.e., wetland systems in which the predominant economic value is a single regulatory function or a group of ecological functions providing support or protection for an economic activity in concert. For example, Ellis and Fisher (1987) use this approach to model explicitly the environmental function of Gulf Coast wetlands in support of the commercial blue crab fishery. Taking the sum of consumers' and producers' surpluses as the measure of economic value, they hy- pothesize that an increase in wetland area increases the abundance of crabs and thus lowers the cost of catch. The value of the

wetlands' support for the fishery-which in this case is equivalent to the value of increments to wetland area-can then be imputed from the resulting changes in consumers' and producers' surplus.

In the Ellis and Fisher model, equation [32] above assumes the specific Cobb- Douglas form:

Q = AXaSb, [33]

where Q is the quantity of crab catch in pounds, X is catch effort measured by traps set and S is area of wetlands. The corresponding cost function is:

C = WA-liaS-b/aQl/a, [34]

where W is the unit cost of effort and S is determined exogenously. Assuming an isoelastic demand for crabs and either private ownership or optimal public management (i.e., price equals marginal cost in both cases), Ellis and Fisher solve the two- equation model for the incremental value of the wetlands' support function.

However, using the Ellis and Fisher model for the blue crab fishery, Freeman (1991) has made the important additional point that the values imputed to the wetlands are influenced by the market conditions and regulatory policies that determine the conditions of access and rate of utilization of the fishery. For example, under open access, rents in the fishery would be dissipated, and price would be equated to average and not marginal costs. As a conse- quence, producer surplus is zero and only consumer surplus determines the value of increased wetland area. When the demand for crabs is inelastic, the social value of an increase in area is higher under open access than under optimal regulation, whereas the wetlands are more valuable under optimal regulation when demand is elastic. This result stems from the role of price changes in allocating welfare gains between producers and consumers: in the case of optimal regu- lations, part of the consumers' gain is a transfer from producer surplus, whereas under open access and zero producer surplus, any reduction in the price of fish asso-




ciated with the average cost curve shifting down (in response to an increase in wetland area) results in a gain in consumer surplus and increased wetland value." These different impacts of market conditions and regulatory policies for the production function approach to valuing wetlands are an important consideration in the application of this approach to tropical wetlands in many developing regions, where open access and imperfect markets for resources are common.

In the case of multiple use systems-i.e., wetland systems in which a regulatory function may support or protect many different economic activities, or which may have more than one regulatory ecological function of important economic value- applications of the production function approach may be slightly more problematic. In particular, assumptions concerning the ecological relationships among these various multiple uses must be carefully con- structed.

For example, an important feature of the analysis of the mangrove wetlands of Bin- tuni Bay, Irian Jaya, Indonesia was that it attempted to incorporate explicitly the possible ecological linkages between indirect and direct use values (Ruitenbeek 1992). Specifically, the mangroves may support many economic activities within the wetlands, such as commercial shrimp fishing, commercial sago production and traditional household production from hunting, fishing, gathering and cottage industry; they may also have indirect use value through controlling erosion and sedimentation, which protects agricultural production in the region; and they have an indirect role in supporting biodiversity. To the extent that the ecological linkages in terms of support or protection of these activities are strong, then the opportunity cost of forestry options that lead to the depletion or degradation of the mangroves will be high. Thus, as discussed above, the "optimal" forest management option-whether clear-cutting, selective cutting or complete preservation-depends critically on the strength of the ecological linkages.

In the absence of any ecological data

on these linkages, Ruitenbeek developed several different scenarios based on different linkage assumptions. This essentially amounted to specifying more precisely the relationship between Q and S in the production function [32] for each productive activity at time t, Qit:

Qit/Qio = (STI/So)a, [35]

where S, is the area of remaining undis- turbed mangroves at time t, a and 7 are impact intensity and delay parameters respectively, Qio = Qit,(t = 0) and So = S,(t = 0). For example, for fishery-mangrove linkages, a moderate linkage of a = 0.5 and 7 = 5 would imply that shrimp output var- ies with the square root of mangrove area (e.g., a 50 percent reduction in mangrove area would result in a 30 percent fall in shrimp production), and there would be a delay of five years before the impact takes effect. If no ecological linkages are present, i.e., there is no indirect use value of mangroves in terms of supporting shrimp fishing, then a = 0. At the other extreme, very strong linkages imply that the impacts of mangrove removal are linear and immedi- ate, i.e., a = 1 and 7 = 0. As discussed above, the analysis concluded that the assumption of no environmental linkages is unrealistic for most economic activities in the wetlands. Moreover, given the uncertainty over these linkages and the high costs associated with irreversible loss if environmental linkages prove to be significant, then only modest selective cutting (e.g., 25 percent or less) of the mangrove area was recommended.

Two major difficulties in specifying ecological-economic relationships for the application of the production function ap-

'9Freeman (1991) also calculates the social value of the marginal product of wetland area, which is given by:

VMPs = bPQ/S,

where P is the price of crabs. As optimal regulation should lead to a higher price than open access, an inelastic demand means that VMPs is higher under optimal regulation.




proach to estimating indirect use values in multiple use tropical wetland systems are the problems of "double-counting" and "trade-offs" between various direct and indirect use values (Aylward and Barbier 1992). The problem arises when analysts at- tempt to "aggregate" the total economic value (TEV) of the wetlands from the different use value subcomponents.

Aylward and Barbier provide an example of both on-site and off-site double- counting in terms of the nutrient retention function of a coastal wetland. Coastal wetlands often absorb organic nutrients from sewage and other waste emitted into water- ways further upstream. Suppose that the nutrients held by the wetland are indirectly supporting both shrimp production within the wetland area and the growth of fish fry that supply an offshore fishery. If the full value of the shrimp production is already accounted for as a direct use value of the wetland's resources, adding in the share of the nutrient retention service as an indirect value and aggregating to obtain TEV would double-count this indirect use. In other words, the value of shrimp production already "captures" the value-added contribution of nutrient retention. If instead one wanted to explicitly account for the value- added contribution to shrimp production of the nutrient retention function, then the direct value of the shrimp must be decreased to account for the return in value now attached to the nutrient retention service.

Similarly, if the fish fry supported through nutrients retained in the wetland eventually migrate to an offshore fishery, then the indirect contribution during the fry's stay in the wetland is included as an off-site component of the service's value. That is, the nutrient retention function of the wetland produces an "external" benefit in terms of supporting an offshore fishery. Again, care must be taken to adjust the value of harvested fish in any companion analysis of the adjoining fishery to avoid misrepresenting the total economic value of the wetland and the fishery taken together.

Trade-offs between two or more indirect use values of a given ecosystem may also occur. For example, as discussed above,

the Hadejia-Jama'are floodplain in North- ern Nigeria supports a number of important agricultural, forestry and fishing activities within the wetland area. The floodplain also contributes to the recharge of groundwater, which is in turn drawn off by numerous small village wells throughout the region for domestic use and agricultural activities. However, concerns have recently been ex- pressed about the excessive water use of pump-irrigated wheat production within the floodplain (Barbier, Adams and Kimmage 1991). Increasing use of the floodplain water to support this activity may mean less water available for natural groundwater recharge-and thus for village wells outside the floodplain. If there are trade-offs between the two environmental support functions, then adding the full value of the wetland's contribution to pump-irrigated wheat production within the floodplain to the full value of groundwater recharge of wells in neighboring regions would overestimate the total benefit of these two environmental functions.

In sum, the problems posed by double- counting and possible trade-offs need to be sorted out in any measurement of the indirect use values of environmental regulatory functions in multiple use tropical wetland systems. While it is necessary to disaggre- gate the goods, services and attributes of an ecosystem for valuation purposes, any complementarity and substitutability of these services must be accounted for in ar- riving at either total indirect use or total use values. Otherwise these values may be grossly overstated.

Finally, a major difficulty that any interdisciplinary effort to improve economic valuation of ecological functions must over- come is reconciling the different "world- views" of economics and ecology. Despite the apparent unifying methodology over system concepts implied by Table 1, fundamental disagreements do arise between economists and ecologists over what these concepts actually entail and how they relate to the ecosystem as a whole, especially in a dynamic context of ecological change. For example, Common and Perrings (1992) have argued that disagreements over the in-




terpretation of economic and ecological "sustainability" have hindered cooperation between the two disciplines on the decision rules concerning economic use of ecosystem goods and services. Bridging these conceptual differences is fundamental to progress in economic valuation of ecological functions, which is best accomplished through more applied interdisciplinary research on such problems.

V. CONCLUSIONS

Increasingly, tropical wetlands are seen to perform many important ecological regulatory functions that protect or support economic activity. Valuing this indirect use value may be important to decisions concerning wetland conversion and the diversion of wetland resources to other uses. When the economic value of environmental functions are significant, less "extract'on" of wetland resources appears to be more optimal than in the case where the opportunity cost of extraction is zero.

Consistent choice in the allocation of wetland resources therefore requires care- ful analysis of the economic values provided by tropical wetlands, in particular the indirect use values of environmental regulatory functions. Because the economic services of these functions are generally nonmarketed, special valuation techniques may need to be employed to assess their economic contribution. Although the production function approach is promising, care must be taken to specify correctly the ecological-economic relationships determining the role of wetland environmental functions in production, the regulatory policies and market conditions that influence the value of this production and the problems of double-counting and possible trade-offs encountered when the indirect use values of multiple use systems are ana- lyzed.

However, there are certain ecosystem valuation issues that are problematic for a cost-benefit framework to address without adequate guidance from policymakers.20 One is the possibility that human activities can lead to changes in ecosystems with un-

certain and irreversible consequences. As discussed previously, economic concepts such as option and quasi-option value can be incorporated into the cost-benefit analysis to allow for certain contingencies arising from environmental losses. However, economists have increasingly recognized that valuation of whole-scale ecosystem changes must explicitly or implicitly make judgements involving intergenerational eq- uity, with implications for the choice of discount rate and/or the valuation methodologies chosen.21 When these changes may potentially endanger key species, or even whole ecosystems, then some recent economic thinking has advocated the more precautionary approach of respect for "safe minimum standards" and "ecological threshold effects," particularly where there is reason to believe that the social costs of species loss or system collapse may be high.22 It is conceivable that a cost-benefit framework involving marginal valuations is only relevant when development decisions influencing environmental losses operate within the bounds established by "safe minimum standard" and "ecological threshold" criteria. Nevertheless, any approach that puts the requirements of an ecological-economic system above those of the individual again requires an ethical judgement about the role and rights of present and future generations-a judgement that is beyond the scope of the analyst alone to make.

Addressing such major issues requires not only guidance from policymakers, but

2?There is always the danger, however, that this guidance may be dominated by special-interest groups. For an interesting review of how the methodology of appraisal of natural resource projects can become a public "bargaining" process, and not always for the worse, see Henry (1989).

21For the general issues involved in economic appraisal, see Krutilla and Fisher (1985) and Porter (1982). For issues related to the specific concerns of developing countries, see Markandya and Pearce (1988).

22On "safe minimum standards" and endangered species, see Bishop (1978), Ready and Bishop (1991), and Tisdell (1990). On the implications of ecological threshold effects for economic development, see Bar- bier (1989b) and Perrings and Pearce (1992).




also close cooperation between economists and ecologists to determine the policy- relevant analytical framework and the decision choices open to society. There is clearly a strong case to be made for more interdisciplinary research to bridge the gap between ecological and economic views of the world. As this paper has sought to

dem. onstrate, such cooperation has already be- gun to make a worthwhile contribution to developing a more complete cost-benefit analysis, particularly with regard to valuation of important ecological regulatory functions that protect or support economic activity.

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valuing environmental functions: tropical wetlands

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