What have economists learned about valuing nature? A review essay
Highlights
► The concept of value has been severely restricted to “chromatics” or value in exchange. ► Current debates about valuing biodiversity and climate change have uncovered flaws in the standard economic approach. ► Many shortcomings of the standard model arise from the assumption that human preferences are self-regarding. ► Science of ecosystem survey moved sketch on insight from behavioral economics, evolutionary psychology and social anthropology.
Section snippets
Introduction: a short history of economic value theory
Contemporary notions of economic value have deep roots in Western belief systems. Specifically, anthropocentric concepts of value are deeply rooted in the Helenic and Judeo-Christian tradition. In 1440, Cusanus (Nicholas of Cusa) reasoned that human will and judgment was God's way of establishing the value of the things he created. God created human preferences as a way of organizing the world as a system of values. Without human judgments, created things would be mere material goods, which in
Progress in valuing nature in neoclassical welfare models
The 1950s saw the beginning of renewable resource economics with the establishment of Resources for the Future and the work on fisheries by Gordon (1954). In the 1960s, spurred by the emerging environmental movement, the sub-discipline of environmental economics emerged, built on the foundations of welfare economics (Pearce and Turner, 1990). A major step in incorporating the environment into neoclassical welfare economics was to introduce the concept of natural capital—the extension of the
Applying welfare theory to environmental valuation: successes and limitations
Valuation exercises are typically part of cost benefit analysis (CBA)—the practical application of neoclassical welfare theory to public policy. In its neoclassical welfare form, CBA is based on identifying changes in consumer and producer surplus resulting from public policies. Justification for applying CBA is based on the Hicks–Kaldor compensation criterion or the Potential Pareto Improvement, in which a policy is justified if winners could compensate the losers and still be better off, even
Unresolved environmental valuation issues
As discussed above, the neoclassical approach to environmental valuation has come a long way toward accounting for the contribution of the natural world to human welfare. Nevertheless, recent debates about the economic valuation of biodiversity loss and climate change have exposed some serious shortcomings of the basic economic model. The basic economic model is essentially a financial investment model for an individual making a purely economic decision at a given point in time (Gowdy, 2004,
Truly social valuation: the next frontier in environmental valuation
There is a growing feeling among many economists that neoclassical welfare economics has reached its limit (Bowles and Gintis, 2000, Gowdy, 2004, Quiggin, 2010). Davis (2006) suggests that, since the 1980s, the dominance of neoclassical economics has been supplanted by competing approaches sharing little in common with each other or with neoclassical economics. Major alternative approaches include behavioral economics, non-linear complexity theory, evolutionary economics, evolutionary game
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