Valuing language diversity: an environmental economics perspective

Paulo A.L.D. Nunes

International Summer SchoolValuing Cultural Diversity In Cities: Challenges To Cultural Economics

Island of Procida, 4|8 September 2009

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Contents

Background

Motivation

Definition of the total economic value

Biological diversity Vs Language diversity

Take home message: interdisciplinarity

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Background

Economic Valuation methods

Sustainable Development and Language Diversity

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Motivation: price, values and human welfare

Price is an output of the market mechanisms.

Markets: consumers, producers.

Equilibrium

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Motivation: price, values and human welfare

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Market failure

Market price does not translate the economic value of the resource.

Market price is zero, does not mean that the economic value is zero.

If the market price is zero, moving towards a zero level of provision will have a welfare impact.

From the sustainable allocation of resources view-point, it is not policy advisable to go for a “zero” supply of the resource.

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TEV = Use values + + Non-Use values + + (Warmglow and altruism values)

Definition of the total economic value

Characterize!

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Environmental quality: biological diversity

direct usevalue

recreation benefitse.g. sight-seeing, fishing, swimming

TOTALUSEVALUES

indirectuse value

ecosystem functional benefitse.g. watershed protection, timber production

ECONOMICVALUE

optionvalue

safeguard of use benefitse.g. pharmaceuticals, future visits

NONUSEbequestvalue

legacy benefitse.g. habitat conservation for future generations

VALUES existencevalue

existence/intrinsic benefitse.g. knowledge of continued protection ofwildlife diversity

adapted from Pearce and Moran (1993)

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Environmental quality: biological diversity

direct usevalue

recreation benefitse.g. sight-seeing, fishing, swimming

TOTALUSEVALUES

indirectuse value

ecosystem functional benefitse.g. watershed protection, timber production

ECONOMICVALUE

optionvalue

safeguard of use benefitse.g. pharmaceuticals, future visits

NONUSEbequestvalue

legacy benefitse.g. habitat conservation for future generations

VALUES existencevalue

existence/intrinsic benefitse.g. knowledge of continued protection ofwildlife diversity

adapted from Pearce and Moran (1993)

Arise without the need for any use or experience the environmental asset (e.g. natural park)

Therefore the possible loss of the environmental asset would result in a welfare loss to the general public, including individuals that never visited the natural park and may never do so.

Arise without the need for any use or experience the environmental asset (e.g. natural park)

Therefore the possible loss of the environmental asset would result in a welfare loss to the general public, including individuals that never visited the natural park and may never do so.

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Non-market valuation methods

The economist needs to study this effect. The economist needs to estimate the magnitude of this effect. The economist needs to value this effect in monetary terms. Archaeologist type of behaviour.

The economist has access to a rather rich tool box, in which one can explore a set of wide range of valuation tools. Or better, a wide range of non-market valuation methodologies.

Before however.

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Biological diversity Vs Language diversity

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Source: MEA (2005), adapted.

Forests systemsCoastal and freshwater systems

Marine systems

Biodiversity, ecosystem services and well-being

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Goods and Services provided by Marine and Coastal Ecosystems

The Millennium Ecosystem Assessment defines four categories of ecosystems services:

1. Provisioning Services: e.g. fisheries, aquaculture, petroleum, natural gas

2. Regulating Services: e.g. shoreline stabilization and protection, climate regulation, nutrient regulation, carbon sequestration

3. Cultural and Amenity Services: e.g. culture, tourism, and recreation

4. Supporting Services: e.g. habitat provision, nutrient cycling, primary productivity, resilience against non-native species.

Biodiversity, ecosystem services and well-being

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The Economist, 15th October 2008

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Why economic valuation

Cost-benefit-analysis and policy formulation

Legal claims and natural resource damage

assessment

Environmental accounting

Marine Ecosystems are a scarce resource

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TEEB: Stern like review on biodiversity

COP9, May 2008, Bonn– FEEM - Nunes & Markandya has been

the study leader of the review contract with DG Environment, Review on the economics of biodiversity loss – phase 1 (scoping) – Economic analysis and synthesis - a project under the Framework contract for economic analysis ENV.G.1/FRA/2006/0073

– FEEM – Nunes & Markandya has been the study leader of the European Environment Agency project on scaling up biodiversity values.

– FEEM – Nunes and Markandya has been partner of the consortium COPI - The Cost of Policy Inaction (COPI): the case of not meeting the 2010 biodiversity target, ENV.G.1/ETU/2007/0044(4)

Now phase 2 (2008-2010)

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Economic valuation perspective

Characterize!

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Alternative perspectives

(1) Welfare vs. intrinsic valuation.

(2) Monetary vs. physical indicators.

(3) Market vs. nonmarket values.

(4) Direct vs. indirect values resources.

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Alternative perspectives

(5) Value of levels vs. values of changes (in the languistic system under consideration)

(6) Local vs. global benefits.

(7) Primary vs. transfer values.

(8) Holistic vs. reductionist approaches.

(9) Expert vs. general public assessments.

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All in all…

It is clear that many different valuation perspectives can be distinguished based on the above nine considerations. This means that different opinions on biodiversity value may in fact based on different perspectives.

This does not mean that one is right and the other is wrong.

Evidently, it is crucial to know the perspective being adopted.

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Economic perspective, which underpins the concept of (economic) value

Instrumental perspective

Metric assessment providing a monetary indicator

Valuation is operationalized through explicit system changes, preferably marginal or small (interpreted as alternative scenarios)

Calls for interdisciplinarity

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Biology description of the

system (e.g. indicators) identification of threats

Economics

economic valuation economic policy

theory

Law

general (international) legal regime implementation and control at regional and sectorial level

Scenarios formulation

Instruments

Take home message: interdisciplinarity

Linguistics

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HOMEWORK: mapping of the services!

Language diversity, language services and well-being

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Campo S. Maria Formosa30122 Venezia - Italy

tel +39 | 041 | 27 11 400fax +39 | 041 | 27 11 461web http://www.feem.it

Contact:

THANK YOU.pnunes@unive.it

Overview of valuation methods

Paulo A.L.D. Nunes

International Summer SchoolValuing Cultural Diversity In Cities: Challenges To Cultural Economics

Island of Procida, 4|8 September 2009

26

Contents

Modeling the concept of economic value

Types of Environmental Benefits

Market and Non-Market Valuation Methods

Conclusions and take home messages.

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Types of Environmental Benefits (cont.)The concept of economic value

v is the indirect utility function for individual i

p is the market price (observed) of the private good

M the amount of (monetary) income

z a ecosystem quality indicator (e.g. species richness)

zMpv ii ,,

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Types of Environmental Benefits (cont.)The concept of economic value (cont.)

Variables and function of interest Original situation New situation

Ecosystem quality level 0z 1z

Utility level 0V 1V with 10 VV

Indirect utility function 0,, zMpv 1,, zMpv

Policy/Regulation:

z species richness: moving from z0 to z1 with z0 > z1

This change may be interpreted as the introduction of a set of new regulations designed to allow commercial development in protected areas.

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Types of Environmental Benefits (cont.)The concept of economic value (cont.)

The economic literature suggests two alternative measures that can be

used to assess the magnitude of the welfare change as described by the

introduction of the new regulation.

01,,0,, VzHCMpvzMpv

101 ,,,, VzHEMpvzMpv

with 10 VV

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Types of Environmental Benefits (cont.)The concept of economic value (cont.)

The economic literature suggests two alternative measures that can be

used to assess the magnitude of the welfare change as described by the

introduction of the new regulation.

01,,0,, VzHCMpvzMpv

101 ,,,, VzHEMpvzMpv

with 10 VV

Task:

empiri

cal assessm

ent

of the H

E/HC in

come m

agnitude

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Types of Environmental Benefits/Values

Use benefits refer to the utility arising from direct or indirect physical use of a resource including commercial use, recreational use, and aesthetic use.

Non-use benefits refer to utility that is derived from environmental resources without physical interaction with the resource:

Total Economic Value = Use values + Non-Use values

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Use Benefits

Consumptive use benefits are private benefits that are derived from resource consumption and contribute to resource depletion. Examples are farming, forestry, fishing, grazing, hunting, mining.

Non-consumptive use benefits are generally public good benefits that do not contribute to resource depletion. Examples are swimming, boating, hiking, camping, viewing wildlife, observing scenic forests, mountains, rivers, waterfalls.

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Non-use (or passive) benefits

Existence benefits, or inherent benefits refer to utility derived from the knowledge of the mere existence of environmental resources. You might never see many of the endangered species but you might still value their existence.

Bequest benefits refer to benefits derived from passing an environmental resource on to children and/or future generations.

Warmglow benefits refer to benefits derived from impure altruistic reasons including from knowing that we feel with good with ourselves when contributing to ‘good-causes’ such as the conservation of the worlds’ resources.

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Non-use (or passive) benefits

Existence benefits, or inherent benefits refer to utility derived from the knowledge of the mere existence of environmental resources. You might never see many of the endangered species but you might still value their existence.

Bequest benefits refer to benefits derived from passing an environmental resource on to children and/or future generations.

Warmglow benefits refer to benefits derived from impure altruistic reasons including from knowing that we feel with good with ourselves when contributing to ‘good-causes’ such as the conservation of the worlds’ resources.

public g

ood benefit

s

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Types of Environmental Benefits (cont.)Market and Non-Market Valuation Methods

Market Valuation methods: The use of market prices is the most direct method (e.g. resort skiing, commercial whale watching).

But

1) Market fails in capturing the public good benefits;

2) Environmental resource are characterized by a strong public good character;

3) Market prices do not embed the full value range of environmental resource…

=> Alternative valuation methods!

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Alternative valuation methods

Classification:

• Revealed preference methods

• Stated preference methods

• Dose response methods

Anchored at consumer behaviour(utility function)

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Dose response methods

Production/Cost methods: if natural resources can be restored (such as species richness) engineering and nature development techniques can be applied to estimate the cost of restoration/replacement.

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Non-Market Valuation Methods

General public

Revealed preferences methods;

Stated preferences methods;

Nota bene:If the economic valuation exercise is only based on special interest groups’ preferences we refer to expert value assessment (implicit valuation exercise, delphi valuation method, multicriteria analysis).

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A classification of valuation methods

DIRECT METHODS INDIRECT METHODS

Revealed PreferenceMethods

Stated Preference Methods Dose Response Methods

travel cost method contingent valuation production cost

hedonic price method contingent ranking production factor

averting behavior pairwise comparison

allocation games

attribute based method

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Hedonic price method

Goods in general can be thought of as bundles of characteristics.

The hedonic pricing method is used to estimate economic values for environmental services that directly affect market prices.

It can be used to estimate economic benefits or costs associated with:

– environmental quality, including air pollution, water pollution, or noise

– environmental amenities, such as aesthetic views or proximity to recreational sites

** think on tuition fees for private schools and the schooling program, professors cv, languages, etc…

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Hedonic price method: regression analysis

Market price of a commodity is related to a set of characteristics

kk

k xaaprice 0

, including environmental quality.

ss

s ya

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Hedonic price method: regression analysis

Market price of a commodity is related to a set of characteristics

kk

k xaaprice 0

, including environmental quality.

ss

s ya

The hedonic price function approach is a method that infers the marginal value of each characteristic (Zi) form

the price of the combined bundle:

Implicit prices or valuation (ai) of environmental quality such as air quality can be

deduced from market prices (e.g. Day, Bateman and

Lake 2007)

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Weaknesses• It requires good quality data on each market

transaction and information on how to map environmental quality into the market demand functions.

• Multiple demand equation is data demanding and may be difficult to estimate/econometrics

• Use values only.

Hedonic price method

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Travel cost method

The travel cost method uses actual travel expenditures (e.g. gas, plane tickets, etc.), and opportunity costs of time (e.g. wage rate) to infer valuation of recreational activities.

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Travel cost method

Example:

Zandvoort beach in the NL

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Travel cost method

Example:

Zandvoort beach in the NL

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Travel cost method

Example:

Zandvoort beach in the NLIt attracts 2,400,000 visitors/year. Each visitor spends 1 and 1/2 hours traveling. The opportunity cost of time is 30 Euro/hr for the average visitor. Gas and car use cost 10 Euro per visitor. Parking cost is 5 Euro/visit. Thus, the total travel cost is:

– 2,400,000 * [1,5 * 30 + 10+ 5] = 40,000 * 70 = 132,000,000 Euro (2003)

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Travel cost method

The 132 million is an estimate of a lower bound for recreational benefits from the visiting Zandvoort, because anyone that finds it optimal to spend time at the Zandvoort beach must receive at least enough benefit to cover the travel cost of getting there, but might receive considerably more.

If there are other substitute, travel cost methods become more complex. For example, closure of one beach (in this case due to harm full algal blooms) for a specific recreational activity will cause some people to use substitute beaches. In turn, these get more congested and the benefits of using them will decline.

Only visitors

Use values only.

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Survey Based Techniques

“The CV method uses survey questions to elicit people’s preferences for public goods by finding out what they are willing to pay (WTP) for specified improvements in them. The method thus aims at eliciting their WTP in dollar amounts.” R. Carson.

It circumvents the absence of markets for public goods by presenting consumers with hypothetical markets in which they have the opportunity to buy the good in question.

Because the elicited WTP values are contingent upon the hypothetical market described to the respondents, this approach

came to be called the contingent valuation method.”

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A set of survey based approaches for eliciting statements of willingness to pay (or be paid) for a survey described change in the environmental or cultural resource (quality or quantity).

Contingent Valuation Method

The use of surveys in economics is not a novelty:National Census

Consumer Expenditures Surveys

Panel Studies

Labor Surveys

National Education surveys

The use of surveys in economics is not a novelty:National Census

Consumer Expenditures Surveys

Panel Studies

Labor Surveys

National Education surveys

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A set of survey based approaches for eliciting statements of willingness to pay (WTP) for a survey described change in the environmental or cultural resource (quality or quantity).

Elements of the CV survey: Commodity specification

-- NON MARKET GOOD!! Contingent scenario

-- POLICY OPTIONS Elicitation format

-- HOW TO PRESENT the WTP questions Payment vehicle / Implementation rule

-- HOW TO COLLECT or TO OPERATIONALIZE THE WTP PAYMENTS

Definition: elements of the CV survey

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Biology description of the

system (e.g. indicators) identification of threats

Economics

economic valuation economic policy

theory

Law

general (international) legal regime implementation and control at regional and sectorial level

Scenarios formulation

Instruments

Interdisciplinarity

Linguistics

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Willingness to pay (WTP) is the maximum amount of money an individual would give up in exchange for all the benefits associated with an environmental resource.

Willingness to accept (WTA) is the minimum total amount of money an individual would accept to forego all the benefits associated with an environmental resource. It is the opposite of WTP in terms of resource allocation or property rights.

Elicitation format

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Survey design

Payment vehicles

The crucial point is to find a scheme that best fits the environmental change in a way that:

First, creates a situation which convinces the respondents to accept the payment vehicle as a likely way to pay for the described program;

Second, is associated with a fair method of paying for the program: all respondents, independently of their socio-economic characteristics, life experiences or residential localisation, would be equally compelled to pay; and,

Third, is viewed as appropriate for the good being valued

and not subject to waste and fraud.

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Illustration

Compulsory tax– The government proposes a referendum regarding

the introduction, only for a period of one year, of the National Park Tax. All households would have to pay the tax if the majority votes in favour. If the tax amount to be paid was 100 Euro to protect the Natural Park, how would you vote?

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Dichotomous choice (DC) Binary (yes/no) information on the maximum willingness to pay

DC with follow-up

Discrete/interval information on the maximum willingness to pay

Compulsory tax

Initial Bid

YES NO increased

bid decreased

bid

YES NO YES NO

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Contingent Valuation Method

Example:

Protected Area in Portugal.National sample, visitors, non-visitors and potential visitors.Average, annual WTP for a Portuguese household, is about 30 to 40 Euro. Portugal has about 3,1 million households, therefore the total value allocated to the protection of this area is about 12,4 million Euro.

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Open-ended

Continuous information on the maximum willingness to pay (WTP)

Payment card or checklist -- respondents are offered a card which contains a list of bid amounts and asked to indicate which amount of money on the card they are willing to pay for the described environmental change

Discrete/interval information on the maximum WTP Iterative bidding -- a series of questions has been asked,

i.e., letting the interviewer iteratively raise, or decrease, the proposed bid until the respondent alters her yes or no answer.

Continuous information on the maximum willingness to pay

Alternative elicitation formats

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- is the contingent valuation method capable of providing estimates of lost nonuse or existence values that are reliable enough to be used in the natural resource damage assessments?

NOAA Panel

"... the Panel concludes that well conducted CV studies can produce estimates reliable enough to be the starting point of a judicial process of damage assessment, including lost passive values." (Federal Register, Vol. 58, No. 10, page 4610)

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1) The CV experiments should rely on face-to-face interviews rather than telephone interviews, and whenever this is not possible (specially because of the high costs associated with the personal interviews) telephone interviews are preferable to mail surveys;

NOAA Panel guidelines

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2) The CV experiments should elicit the respondent’s WTP to prevent a future incident rather than WTA for an incident already occurred;

NOAA Panel guidelines

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3) The CV experiments should use a dichotomous choice (DC) referendum elicitation format, i.e., the respondents should be asked how they would vote (favor or against) upon a described environmental quality change.

NOAA Panel guidelines

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4) The CV experiments should contain an accurate and understandable description of the program or policy under consideration and the associated environmental benefits in each of the two scenarios, i.e., with and without the policy. Interdisciplinary work with other research areas, namely the biological sciences, is here recommended;

NOAA Panel guidelines

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5) The CV experiments should include reminders of the substitutes for the commodity in question as well as its budget.

NOAA Panel guidelines

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6 ) The CV experiments should include a follow-up section at the end of the questionnaire to be sure if the respondents understood (or not) the choice that they were asked to make.

NOAA Panel guidelines

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Conclusions

Different valuation instruments are available to the researcher to assess benefits provided by biodiversity conservation.

CV is an important valuation technique and since it is the only one capable of assessing the value of the non-use benefits. Therefore, economists cannot glean information regarding these values by merely relying on market-based valuation approaches.

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Conclusions

The CV method consists of implementing a market with the help of a survey directed to the individual consumer.

The principal idea underlying this method is that individuals not only have preferences defined over the described environmental good, but also are capable of transforming these preferences into monetary units.

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Take Home Message

Combining contingent and non-contingent valuation strategies can be opted so as to assess in more detail the complexity involved. This strategy signals the need for a multidisciplinary approach searching for a clear perspective on direct and indirect effects of scenario changes on human welfare. This will contribute to more robust economic value estimates that can serve to guide policy.

Paulo A.L.D. Nunes, Ecological Economics 2003

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Campo S. Maria Formosa30122 Venezia - Italy

tel +39 | 041 | 27 11 400fax +39 | 041 | 27 11 461web http://www.feem.it

Contact:

THANK YOU.pnunes@unive.it