Total economic value in coastal management practice
Definition of Total economic value:
Total economic value represents the monetary equivalent of the benefits provided by the coastal zone. It includes direct and indirect use values, option value and non-use values such as existence and bequest values.
This is the common definition for Total economic value, other definitions can be discussed in the article
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This article addresses the question of what monetary equivalent value can be attributed to coastal zones. This question is increasingly important as intensive use affects the 'goods and services' coastal zones can provide to society in the short and long term. The term 'services' is used here in the broad sense of contributions to welfare and wellbeing. These include direct economic benefits (e.g. ports, waterways, tourism), conditions for benefits elsewhere (e.g. natural protection of the hinterland, nursery grounds for marine fish stocks, water and soil purification), opportunities for future use and non-material benefits such as landscape beauty and spiritual experience. A key consideration in valuation is that coastal zones are a scarce resource, with limited availability and competing uses.
Contents
Coastal zone as a public resource
The coastal zone is largely public property regulated by local, regional or national authorities. These authorities can grant use permits, levy taxes and charge fees for particular uses. Parts of the coastal zone are so-called 'common-pool resources', for example beaches that are free-access but where overcrowding can limit recreational benefits. Other parts may be allocated for use by industry, real estate, agriculture and other users on an exclusive basis. Privately owned parts of the coastal zone are not considered here; private property is generally significant only beyond the direct physical influence of the sea.
Determining the total economic value of the coastal zone is far from straightforward. Important complicating factors are:
- Many coastal goods and services cannot be marketed, for example the flood protection provided by natural coastal dunes.
- Net benefits from coastal use should account for externalities: costs or benefits imposed on other users. These costs can be considerable because many coastal goods and services are limited resources.
Correcting market failure
Views differ on the services provided by coastal zones and how these should be valued. Understanding these differences is important for reaching consensus on coastal management. Similar questions arise in the management of all publicly owned natural systems and resources and are a major subject of environmental economics[1].
A core concept in environmental economics is market failure, which occurs when markets do not reflect the full social costs or benefits of a good. Free-market mechanisms therefore do not guarantee an allocation of coastal resources that maximizes social welfare. An important cause is externalities. Negative externalities include the social costs of degrading the capacity of natural systems and resources to provide goods and services, such as through degraded water quality, depletion of fish stocks, coastal erosion or loss of biodiversity. These costs can extend beyond local stakeholders, both geographically and to future generations. Because wider society and future generations cannot negotiate these costs with private users, government intervention is necessary.
Coastal goods and services available as common resources can be distinguished according to whether their use is rival. Public goods are non-rival: use by one person does not reduce the benefit available to others. Common-pool resources are rival: use by one person reduces what remains available to others. Unregulated access to common-pool resources can therefore lead to overexploitation, commonly referred to as the “tragedy of the commons”.
An unobstructed sea view is a public good. Enjoying the view does not prevent others from enjoying it too. However, if a sea panorama attracts a large noisy crowd, the enjoyment will be less – it turns into a common-pool resource. Use of public goods, as opposed to common-pool resources, typically does not impose major negative externalities on other users.
Because of market failure and overexploitation, coastal authorities must regulate uses of the coastal zone to promote an allocation that maximizes social welfare. This requires knowledge of the total economic value of potentially provided coastal services, including use and non-use values.
Values to be considered
Total economic value includes more than opportunities for economic development; goods and services without direct economic benefits can be equally important. Different coastal zone functions can therefore be distinguished:[2][3]
- Regulation functions: the capacity of natural and seminatural coastal ecosystems to support and regulate natural processes, providing e.g. healthy water and soil, natural defense against flooding
- Habitat functions: contribution to coastal zone biodiversity and resilience, nursery function
- Production functions: provision of goods for human consumption and use (e.g. seafood, biomass, pharmaceuticals, fuel, construction materials)
- Carrier functions: provision of space and a suitable physical environment for human activities, such as recreation, habitation, agriculture, industry, harbors, navigation and other infrastructure.
- Information functions: contributions to the maintenance of human health and well-being by providing opportunities for reflection, spiritual enrichment, cognitive development, re-creation and aesthetic experience.
These coastal zone functions provide economic and other benefits, but their use can also entail negative externalities—the 'hidden' social costs of economic development—which need to be estimated as well.
Estimating the total economic value
There are basically two approaches for estimating the total economic value of the goods and services provided by the coastal zone: a cost-based approach and a demand-based approach.
Cost-based approach
The cost-based approach uses market costs as proxies for the monetary value of goods and services. This is straightforward for production functions providing traded goods such as seafood. Some regulation functions can be valued from theoretical replacement costs, for example the cost of artificial coastal defense replacing natural flood protection. The same applies to carrier functions, such as beach nourishment for recreation. Replacement cost is a meaningful proxy only if the replacement provides an equivalent service, is the least-cost alternative and would actually be undertaken if the natural service were lost. Where no direct replacement is available, avoided costs such as health-care costs or flood damage can provide a proxy. Habitat functions such as ecosystem productivity can sometimes be valued through the resulting production of consumer goods.
The total value of the production function is generally limited by the carrying capacity of the coastal ecosystem. When the carrying capacity is exceeded, overexploitation degrades the resource on which production depends and can ultimately cause the production function to collapse, while imposing negative externalities on other coastal functions and users.
Demand-based approach
The demand-based approach estimates services that cannot be adequately valued by cost-based methods. These are often less tangible public goods related to leisure, well-being and cultural values. Their value can be inferred from people's choices, trade-offs and willingness to pay within their budget constraints. Several methods are described in related Coastal Wiki articles:
- Travel cost valuation estimates the recreational value of a coastal destination from the costs incurred by visitors and any additional amount they would be willing to pay for the visit. See Travel cost method.
- Hedonic value is an estimate of the economic value of ecosystem or environmental services that directly affect market prices, for example, the added value of sea view to the price of real estate. See Hedonic Evaluation Approach and Values of amenities in coastal zones.
- Contingent valuation estimates how much people would be willing to pay to maintain a coastal feature, such as a natural coastal landscape or biodiversity, or would be willing to accept as compensation for its loss. See Contingent Valuation Method.
Stated-preference methods such as contingent valuation can also estimate non-use values. These include:
- Bequest value measures willingness to pay to preserve an asset or resource for future generations. See Non-use value: bequest value and existence value.
- Existence value measures willingness to pay for knowing that a coastal asset or resource is preserved, independently of its use.
Limitations of the total economic value concept
Resource allocation must respect mutually exclusive uses, and total economic value must account for externalities. The total economic value estimated according to the above systematic then represents the potential economic value under a given allocation of the coastal resource among its different functions. The actual economic value can be lower when the allocated resources are not optimally used.
Coastal functions that are non-rival and not affected by their users are less relevant for resource allocation by management authorities.
Expressing all relevant values in monetary units is often challenging and estimates can have considerable uncertainty. Resource allocation should therefore not rely on total economic value alone. Monetary cost-benefit analysis can be complemented by non-monetary decision-support methods such as Multicriteria techniques. Combining monetary and non-monetary methods is generally preferable to relying on either alone.
Related articles
- Travel cost method
- Contingent Valuation Method
- Hedonic Evaluation Approach
- Value Transfer
- Economic Value
- Socio-economic evaluation
- Non-use value: bequest value and existence value
- Values of amenities in coastal zones
- Economic valuation of goods and services of the UK coastal and marine ecosystem
- Multifunctionality and Valuation in coastal zones: concepts, approaches, tools and case studies
- Multifunctionality and Valuation in coastal zones: introduction
- Multicriteria techniques
References
- ↑ Anderson, D. 2019. Environmental Economics and Natural Resource Management. Routledge, New York
- ↑ De Groot, R.S. 1992. Functions of Nature: Evaluation of Nature in Environmental Planning, Management and Decision Making. Wolters-Noordhoff, Groningen, The Netherlands. 315 pp.
- ↑ De Groot, R.S., Wilson, M.A. and Boumans, R.M.J. 2002. A typology for the classification, description, and valuation of ecosystem functions, goods, and services. Ecological Economics 41: 393-408
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