Valuation of Ecosystem Goods and Services Part 1: An Integrated Dynamic Approach

Abstract

This is the first part of a two-part paper which offers a new approach to the valuation of ecosystem goods and services. The existing literature on environmental valuation is based on two distinct foundations. The ecological valuation methods derive values by a cost-of production approach. Their common characteristic is the neglect of consumer preferences. The economic valuation methods focus on the exchange value of ecosystem services. Their common characteristic is that they are finally based on consumer preferences, and do not adequately take account of the complex internal structure of ecosystems. As the existing methods for the valuation of ecosystem services emphasize either the economic system or the ecosystem, the main objective of part 1 is to provide the conceptual foundations for a new method of valuation of ecosystem services, which deals simultaneously with the ecosystem, the economic system and society in a balanced way. Within a simple pre-industrial model it is shown how the interdependencies between the three subsystems influence values, and how values change over time.

Keywords: Dynamic optimization, Ecosystem goods and services, Environmental valuation

JEL Classification: Q57, Q51, C61