Last fall, I gave a presentation titled ‘Valuing Ecosystem Services.’ It was for Professor Bob Minckley’s class, BIO 104K: Ecosystem Conservation & Human Society. Lasting the entirety of the class period, the presentation aimed to define ecosystem services and to explore the various ways in which they are valued. Depending on one’s perspective and expertise, we are bound to consider these topics in quite different terms.
In short, an ecosystem service is a natural process or product that occurs naturally; humans also happen to need it to survive. Examples include clean water, clean air, climate regulation, pollination… the list goes on. Humans tend to take from these systems at a faster rate than the system functions, causing environmental damage, or at least causing inconvenience to humans and other animals alike.
There are many ways to assign value to an ecosystem service, and these are important, because how we choose to value the service determines how it will be used. Generally, the options for humans are to preserve, harvest, or develop an ecosystem service.
I compared viewpoints from classical economics, moral philosophy, and environmental economics for the sake of this presentation. While classical economists consider value in terms of money and profit, environmental economists value ecosystem services based on their importance to various ways of life. Money is a much simpler measuring tool to use than “importance,” making classical economics easier to apply in valuing ecosystem services. Additionally, moral philosophy provides a basis for making the best, most ethical decision. Currently we mostly borrow from utilitarianism (what is best for the most humans; this view doesn’t take other organisms into account). Utilitarianism aligns well with classical economics.
One key idea I found most interesting was the Water-Diamond Paradox, also known as the Paradox of Value. Though water is more valuable (as it is essential to nearly all life forms), diamonds are regarded are far more valuable (in that they cost much more, despite meeting no needs of any life form for survival). This is because rarity affects how we interpret value: the less there is of something, the more we perceive it to be worth. This line of thinking directly affects how we value and treat the environment.
Another interesting concept I came across was the possible incompatibility of economics and environmentalism. Environmentalists recognize that the environment has a carrying capacity (K), and so it has a limit to how much it can hold, create, sustain, etc. However, economists focus primarily on progress, development, and short-term gains and losses. Classical economists are inclined to believe in infinite growth and progress, which the environment cannot sustain.
Though economics provides us with a simple mechanism by which to value ecosystem services (money), there are many properties of nature that can’t be quantified, such as the religious, therapeutic, and spiritual.
What do you think? Are economics and environmentalism incompatible as they stand? Comment below!
Note: the full presentation is linked in the first sentence. Access it by clicking on ‘presentation.’
Written by Melissa Kullman, class of 2014
“an ecosystem service is a natural process or product that occurs naturally; humans also happen to need it to survive. Examples include clean water, clean air, climate regulation, pollination… the list goes on. Humans tend to take from these systems at a faster rate than the system functions, causing environmental damage, or at least causing inconvenience to humans and other animals alike.”
Don’t we and can’t we also contribute to them as growth increases and technology improves? Heck, smarter-than-human robots may come about in the next half century and make much or all of this moot.
I’ll not comment on, but just agree with, ZT and Rizzo on your misunderstanding of what economics is really all about and what classical economists may or may not believe.
You got the water-diamond paradox wrong. The point of the paradox is that prices are based on marginal value, not absolute value. This doesn’t come from us “perceiving” things as more valuable when they are “rare;” this comes from the fact that people will use resources in the most important way first, so that as they get more of a resource it becomes less valuable to them. (Ie, the first gallon of water that keeps you alive in the desert is more improtant than the next gallon which lets you wash yourself.) The fact that diamonds are more rare than water is not what makes them more expensive. What determines the value of a diamond is what you can do with another diamond, after you have X amount. It’s related to the fact that diamonds are scarce, but the rate at which the utility of diamonds declines or doesn’t decline is equally important.
Also, talking about the “incompatibility of economics and environmentalism” is ridiculous. All of these arguments essentially amount to claiming (without evidence) that economists are ignoring some important factor, without actually attacking the economic approach. Moreover, what the lecture completely misses is the possibility of non-anthropocentric utilitarianism. (The most famous living utilitarian philosopher, Peter Singer, is also the most famous academic animal rights advocate, so this is a gigantic oversight!) Non-anthropocentric utilitarianism allows us to have “economic” approaches that value things other than human welfare.
If you’re not persuaded, consider this: Economics isn’t about money. It’s about prices. Prices simply reflect the relative value of any number of goods, and money is just a convenient medium to reflect prices. Economists work with utility functions, and any set of preferences about the state of the world can be converted into utility functions as long as they meet some very basic axioms, primarily transitivity. If a preference, be it “spiritual” or “religious” or “therapeutic” or anything else, doesn’t meet these axioms, it’s not even internally coherent. It’s gibberish. This isn’t meant to be a dig at people with these values; instead, the point is that they can indeed be interpreted as utility functions. We could also incorporate animal value into utility functions; animals themselves can’t directly express their preferences to us, but we can still value their welfare.
Economics is the study of how certain institutions convert individuals’ utility functions into prices. There’s a broad consensus that when dealing with normal goods (in the conventional sense of the term “normal,” not the economic sense) in normal circumstances, free markets with well-defined property rights fulfil a set of criteria that most people find desirable. That doesn’t mean economics isn’t equipped to analyze other circumstances, and economics does not *start* with the assumption that “free” markets, or any other system, work best.
Just to help us readers, I ask that you show me in what economics paper, textbook, lecture, class note, legitimate source that indicates, in your words,
“However, economists focus primarily on progress, development, and short-term gains and losses. Classical economists are inclined to believe in infinite growth and progress, which the environment cannot sustain.”
That is wholly aside from the other comments. Surely on day 1, as our students will tell you, the first lesson I teach them about economics is that it is about placing a monetary value on things. Precisely.