Total economic value in coastal management practice

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This article is about the question of what monetary value can be attributed to coastal zones? This question is important because of the increasingly intensive use of coastal zones, which has consequences for the 'services' they can provide to society in the short and long term. The term 'services' should be understood in the broad sense of providing welfare and wellbeing. It includes not only direct economic profit (e.g. as a port/waterway facility, tourist destination), but also creating conditions for indirect profit elsewhere (e.g. natural protection of the hinterland, nursery for marine fish stocks, water/soil purification), for later use (by future generations) or for landscape beauty and spiritual experiences (e.g. source of inspiration for painters and poets). A key notion for valuation is that coastal zones are a so-called 'scarce resource', with limited availability and competing uses.

Common property

The coastal zone is generally not someone's private property. Users of the coastal zone do not have to pay to a private owner. It is a common property managed by organizations that are part of or affiliated with local, regional or national authorities. These organizations can grant use permits and charge money for this through land and use taxes. How much a user has to pay (in money or returned services) depends on the extent to which the use positively or negatively affects the value of the coastal zone. But what is that value and how can it be determined?

Before going into this further, it should be noted that the above-described approach assumes an ideal situation in which coastal management is actually based on trade-offs between, on the one hand, the social benefits (services provided, employment, money) of granting permits for use of the coastal zone and, on the other hand, the costs of the possibly reduced capacity to provide other services for society. This ideal situation rarely exists in practice, but should be strived for.

Correcting market failure

What is the value of the coastal zone? An unequivocal answer to this question is not possible. There are major differences in views on what services are provided by coastal zones and how these services should be valued. Understanding the different views is important to reach consensus on regulations for coastal management. The issue of valuing coastal areas is not unique. Any management of publicly-owned natural systems and resources raises similar questions. Much research has been done and knowledge acquired in the field of environmental economics that addresses precisely these questions[1].

A core concept in environmental economics is the so-called market failure. Market failures occur when markets do not reflect the full social costs or benefits of a good. When it comes to the use of natural systems and resources, free market mechanisms do not result in allocation to users in a way that produces the greatest social welfare. The reason for this is the so-called externalities, the social costs associated with the possible degradation of the capacity of natural systems and resources to provide other services for society. Examples are degraded water quality, depletion of fish stocks, coastal erosion, loss of biodiversity, etc. Society is not a market party that can negotiate social costs with private users. Directly affected local stakeholders are not the only party. Interests in coastal services extend far and wide, both geographically and over time. This is where the concept of sustainability comes into play, stating that the needs of future generations should also be met.

Not all services provided by coastal areas are subject to externalities. Services not subject to external effects are called 'public goods'. 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 crowd due to the presence of other recreational facilities, the enjoyment will be less. In fact, open access to public property can lead to overuse or overexploitation (the so-called 'tragedy of the commons') and ultimately to destruction of the property.

Because of market failure and overexploitation, uses of the coastal zone must be regulated by coastal management authorities. Their decisions should repair market failures such that uses of the coastal zone are allocated in a way that produces the greatest social welfare. Coastal management authorities should therefore be informed of the total economic value of the services potentially provided by coastal zones, including use values and non-use values.

Values to be considered

When estimating the total economic value of the coastal zone, not only values related to opportunities for economic development should be considered. The goods and services provided by the coastal ecosystem are equally important. Therefore different ecosystem functions can be distinguished:[2]

  • Regulation functions: the capacity of natural and seminatural 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 ecosystem goods for human consumption and use (e.g. seafood, biomass, pharmaceuticals)
  • Information functions: contributions to the maintenance of human health by providing opportunities for reflection, spiritual enrichment, cognitive development, re-creation and aesthetic experience.

Externalities, the 'hidden' social costs of economic development, often relate particularly to the possible impairment of these ecosystem goods and services.

Estimation of use values

The economic use value of the coastal zone is associated with the potential of different types of uses to generate net financial benefits. It includes current uses and possible future uses (optional uses), but excludes mutually exclusive competing uses. It is the price for a use permit that would be paid on the market if there were no externalities. It can be estimated with market theoretical models, although the uncertainty margins are often considerable. This value is commonly called the use value.

Estimation of non-use values

Estimating the value of non-economic uses (non-use value) and externalities is more difficult than estimating the use value. Not only must the question be answered what are the potential non-use values, but also to what extent these are affected by different economic uses.

Methods for measuring the non-use economy are generally based on the choices people make and what they are willing to pay for, rather than on the preferences of governments. People express their preferences through the choices and trade-offs they make, given their budgetary options. Several methods have been developed to identify and estimate these non-use values, which are described in several Coastal Wiki articles.

  • Travel cost valuation measures the value based on the costs people pay (or the price they are willing to pay) to visit a coastal destination as an expression of its recreational value. See Travel cost method.
  • Contingent valuation measures how much money people would be willing to pay (or willing to accept) to maintain the existence of (or be compensated for the loss of) a coastal feature, such as natural coastal landscape or coastal biodiversity. See Contingent Valuation Method.
  • Value (or benefit) transfer method consists of estimating economic values by transferring existing benefit estimates from studies already completed for another location or issue. See Value Transfer.
  • Existence value measure the willingness for individuals to pay for the sense of well being, of simply knowing that coastal zones are preserved.

The case that not all values can be monetarized

Decisions in coastal management often involve choosing between different options. For example, choosing between different options for granting user or development rights. If a monetary valuation of all aspects/criteria of the different options is available, the optimal choice can be determined by means of a cost-benefit analysis. However, it can be challenging to express all aspects in economic use values and non-use values. In many cases, the valuations will have considerable margins of uncertainty.

Other decision support methods can therefore be considered, alongside or instead of a cost-benefit analysis. Multi-criteria methods can be an attractive additional alternative. With this method, valuation criteria are not expressed exclusively in money. An assessment grade can be given to criteria for which a good monetary estimate is not possible. In a first step, all scores, both monetary and non-monetary rating grades, are normalized so that the best scoring option on a given criterion receives a 1, while other options receive a proportionately lower score. In a second step, weights are assigned to all criteria, by which the normalized scores are multiplied. By adding the results together, the final best-scoring option is found. The crucial step is determining the weights of the criteria. Weights can be determined for example through expert judgment and/or stakeholder consultation.

The use of both monetary and non-monetary decision support methods is generally preferable to the use of a single method.


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


References

  1. Anderson, D. 2019. Environmental Economics and Natural Resource Management. Routledge, New York
  2. 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


The main author of this article is Job Dronkers
Please note that others may also have edited the contents of this article.

Citation: Job Dronkers (2024): Total economic value in coastal management practice. Available from http://www.coastalwiki.org/wiki/Total_economic_value_in_coastal_management_practice [accessed on 30-05-2024]