John M. Gowdy

Integrating the ecological and economic dimensions in biodiversity and ecosystem service valuation

Linking biophysical aspects of ecosystems with human benefits through the notion of ecosystem services is essential to assess the trade-offs (ecological, socio-cultural, economic and monetary) involved in the loss of ecosystems and biodiversity in a clear and consistent manner. Any ecosystem assessment should be spatially and temporally explicit at scales meaningful for policy formation or interventions, inherently acknowledging that both ecological functioning and economic values are context, space and time specific. Any ecosystem assessment should first aim to determine the service delivery in biophysical terms, to provide solid ecological underpinning to the economic valuation or measurement with alternative metrics. Clearly delineating between functions, services and benefits is important to make ecosystem assessments more accessible to economic valuation, although no consensus has yet been reached on the classification. Ecosystem assessments should be set within the context of contrasting scenarios - recognising that both the values of ecosystem services and the costs of actions can be best measured as a function of changes between alternative options. In assessing trade-offs between alternative uses of ecosystems, the total bundle of ecosystem services provided by different conversion and management states should be included. Any valuation study should be fully aware of the „cost? side of the equation, as focus on benefits only ignores important societal costs like missed opportunities of alternative uses; this also allows for a more extensive range of societal values to be considered. Ecosystem assessments should integrate an analysis of risks and uncertainties, acknowledging the limitations of knowledge on the impacts of human actions on ecosystems and their services and on their importance to human well-being. In order to improve incentive structures and institutions, the different stakeholders - i.e. the beneficiaries of ecosystem services, those who are providing the services, those involved in or affected by the use, and the actors involved at different levels of decision-making - should be clearly identified, and decision making processes need to be transparent1. Integrating the Ecological and Economic Dimensions in Biodiversity and Ecosystem Service Valuation 2. Biodiversity, Ecosystems and Ecosystem Services 3. Measuring Biophysical Quantities and the Use of Indicators 4. The Socio-cultural Context of Ecosystem and Biodiversity Valuation 5. The Economics of Valuing Ecosystem Services and Biodiversity 6. Discounting, Ethics, and Options for Maintaining Biodiversity and Ecosystem Integrity 7. Lessons Learned and Linkages with National Policies Appendix 1: How the TEEB Framework Can be Applied: The Amazon Case Appendix 2: Matrix Tables for Wetland and Forest Ecosystems Appendix 3: Estimates of Monetary Values of Ecosystem ServicesAll ecosystems are shaped by people, directly or indirectly and all people, rich or poor, rural or urban, depend on the capacity of ecosystems to generate essential ecosystem services. In this sense, people and ecosystems are interdependent social-ecological systems. The ecosystem concept describes the interrelationships between living organisms (people included) and the non-living environment and provides a holistic approach to understanding the generation of services from an environment that both delivers benefits to and imposes costs on people. Variation in biological diversity relates to the operations of ecosystems in at least three ways: 1. increase in diversity often leads to an increase in productivity due to complementary traits among species for resource use, and productivity itself underpins many ecosystem services, 2. increased diversity leads to an increase in response diversity (range of traits related to how species within the same functional group respond to environmental drivers) resulting in less variability in functioning over time as environment changes, 3. idiosyncratic effects due to keystone species properties and unique trait-combinations which may result in a disproportional effect of losing one particular species compared to the effect of losing individual species at random. Ecosystems produce multiple services and these interact in complex ways, different services being interlinked, both negatively and positively. Delivery of many services will therefore vary in a correlated manner, but when an ecosystem is managed principally for the delivery of a single service (e.g. food production), other services are nearly always affected negatively. Ecosystems vary in their ability to buffer and adapt to both natural and anthropogenic changes as well as recover after changes (i.e. resilience). When subjected to severe change, ecosystems may cross thresholds and move into different and often less desirable ecological states or trajectories. A major challenge is how to design ecosystem management in ways that maintain resilience and avoids passing undesirable thresholds. There is clear evidence for a central role of biodiversity in the delivery of some – but not all - services, viewed individually. However, ecosystems need to be managed to deliver multiple services to sustain human well-being and also managed at the level of landscapes and seascapes in ways that avoid the passing of dangerous tipping-points. We can state with high certainty that maintaining functioning ecosystems capable of delivering multiple services requires a general approach to sustaining biodiversity, in the long-term also when a single service is the focus.For most resource allocation problems economists use a capital investment approach. Resources should be allocated to those investments yielding the highest rate of return, accounting for uncertainty, risk and the attitude of the investor toward risk. As illustrated in Figure 6.1, suppose an investor has a choice between letting a valuable tree grow at a rate of 5 per cent per year, or cutting the tree down, selling it and putting the money in the bank. Which decision is best depends on the rate of interest the bank pays. If the bank pays 6 per cent and the price of timber is constant the investor will earn more money by cutting the tree down and selling it, that is, by converting natural capital into financial capital. This simple example is a metaphor for the conversion of biodiversity and ecosystem services into other forms of capital. The shortcomings of this simple approach to valuing biodiversity and ecosystems include: (1) the irreversibility of biodiversity loss; (2) pure uncertainty as to the effects of such losses; (3) the difference between private investment decisions and the responsibilities of citizens of particular societies; (4) the implicit assumption.

The Revolution in Welfare Economics and Its Implications for Environmental Valuation and Policy

Two research programs are brought together to contribute to the growing body of work on alternatives to standard welfare-based approaches to environmental valuation and policy. The first is the theoretical literature undermining the “new welfare economics.” The second is the growing body of work on endogenous preferences. Both these research programs point to the necessity of interpersonal comparisons in welfare economics. This paper focuses on (1) the theoretical flaws in the use of Potential Pareto Improvements as a policy guide, (2) the “filtering” of expressed preferences through the axioms of consumer choice, and (3) the role of endogenous preferences in a reformulation of environmental valuation and policy. (JEL D61, Q28)

Evolutionary Theories in Environmental and Resource Economics: Approaches and Applications

Recent advances in evolutionary theory have important implications for environmental economics. A short overview is offered of evolutionarythinking in economics. Subsequently, major concepts and approaches inevolutionary biology and evolutionary economics are presented andcompared. Attention is devoted, among others, to Darwinian selection,punctuated equilibrium, sorting mechanisms, Lamarckian evolution,coevolution and self-organization. Basic features of evolution, such assustained change, irreversible change, unpredictability, qualitativechange and disequilibrium, are examined. It is argued that there are anumber of fundamental differences as well as similarities betweenbiological and economic evolution. Next, some general implications ofevolutionary thinking for environmental economics are outlined. This isfollowed by a more detailed examination of potential uses ofevolutionary theories in specific areas of environmental economics,including sustainability and long run development theories, technologyand environment, ecosystem management and resilience, spatial evolutionand environmental processes, and design of environmental policy.

Reformulating the foundations of consumer choice theory and environmental valuation

Abstract The burgeoning field of environmental valuation has raised serious doubts about the fundamental axioms of consumer choice theory, the general validity of the Walrasian system and methodological individualism. This paper examines these aspects of consumer choice theory, paying particular attention to the pioneering contributions of Georgescu-Roegen. We argue that evidence from psychology, game theory, anthropology and contingent valuation surveys reveals a more complex pattern of decision-making than that described by neoclassical utility theory. We discuss the notions of the invariance of preferences, non-satiation, the principle of complementarity, lexicographic preferences and the hierarchy of wants with reference to environmental valuation. We also discuss the notion of marginal utility of money, the validity of the Walrasian system, and methodological individualism using scaling concept in hierarchy theory. We then address the conflict between theory and reality by introducing a probabilistic binary choice scheme under uncertainty about environmental attributes. We argue that these extensions are necessary to account for consumer choices revealed in environmental valuation surveys. We conclude with the hope that a reformulation of consumer choice theory based on realistic models of human behavior can be the basis for a viable alternative to neoclassical welfare economics.

Cumulative CO2 emissions: shifting international responsibilities for climate debt

In contrast to many discussions based on annual emissions, this article presents calculations and projections of cumulative contributions to the stock of atmospheric CO2 by the major players, China, Europe, India, Japan and the USA, for the period 1900–2080. Although relative contributions to the climate problem are changing dramatically, notably due to the rapid industrialization of China, long-term responsibilities for enhanced global warming have not been transparently quantified in the literature. The analysis shows that if current trends continue, by the middle of this century China will overtake the USA as the major cumulative contributor to atmospheric concentrations of CO2. This has enormous implications for the debate on the ethical responsibilities of the major greenhouse gas emitters. Effective climate policy will require both the recognition of shared responsibility and an unprecedented degree of cooperation.

Weak sustainability and viable technologies

Abstract The context of the concept of weak sustainability is examined using a three-tier hierarchy of value. We argue that weak sustainability is relevant only in the context of market exchange at a particular point in time. It offers an inadequate guide to the sustainability of social institutions and of the natural world. On the other hand, Georgescu-Roegens concept of a viable technology recognizes that the integrity of the social and environmental systems surrounding market activity must be maintained if the human species is to persist through time. The concept of viability recognizes that market activity depends not only upon the sustaining functions of the environment but also upon the social sustaining functions of human institutions.

Technological and demand change in energy use: an input - output analysis

In this study input–output tables for the US economy are used to examine the changing pattern of energy use from 1963 to 1977. A method is developed for isolating some of the reasons behind the observed changes. We examine the impact of four types of technological change and two types of demand change on energy use. Two types of technological change that are of particular importance in the time period considered are changes in energy mix and changes due to substitution among nonenergy inputs.

The Evolution of Georgescu-Roegen's Bioeconomics

Georgescu-Roegens work is usually divided into two categories, his earlier work on consumer and production theory and his later concern with entropy and bioeconomics beginning with his 1966 introductory essay to his collected theoretical papers published in the volume Analytical Economics. Most economists usually praise his earlier work on pure theory and ignore his later work which is highly critical of neoclassical economics. Those economists sympathetic to his later work usually take the position that he “saw the light” and gave up neoclassical theory some time in the 1960s to turn his attention to the issues of resource scarcity and social institutions. It is argued here that there is an unbroken path running from Georgescus work in pure theory in the 1930s, 1940s, and 1950s, through his writings on peasant economies in the 1960s, leading to his preoccupation with entropy and bioeconomics in the last 25 years of his life. That common thread is his preoccupation with “valuation.” The choices our species makes about resource use and the distribution of economic output depends upon our valuation framework. Georgescu-Roegens work begins in the 1930s with a critical examination of the difficulties with the hedonistic valuation framework of neoclassical economics, moves in the 1960s to the conflict between social and hedonistic valuation, and culminates in the 1970s and 1980s with his examination of the conflict between individual, social, and environmental values. This paper traces the evolution of Georgescu-Roegens thought about valuation and the environmental and social policy recommendations which arise out of his bioeconomic framework.

Georgescu-Roegen/Daly versus Solow/Stiglitz Revisited

There are two key issues which are not fullyelaborated in the papers in a recent special issueof Ecological Economics (The contribution ofNicholas Georgescu-Roegen, Vol. 22, No. 3,1997): (i) the operational meaning of substitutionin production function; and (ii) the effect of tech-nological improvement on resource utilization. Inthis piece we examine these two issues based on:(i) Georgescu-Roegen’s conceptualization of pro-duction process; and (ii) Jevons’ paradox.Neoclassical production functions, whether forindividual firms or the aggregate economy, as-sume that any factor can always be substituted forany other factor (except the cases of fixed coeffi-cients and:or the existence of limitational factors).The implication or entailment of this assumptionis that an increase in the input of any factoralways yields an increase in output. This is thebasis for Solow’s contention that ‘‘[t]he world can,in effect, get along without natural resources’’(Solow, 1974).However, those neoclassical economists adopt-ing the substitution assumption have not paid dueattention to the essential distinction between flows(˚quantities of materials qualitatively trans-formed in the process) and funds (˚agents trans-forming a given set of inflows into a given set ofoutflows) in the material production process(Georgescu-Roegen, 1971). Neglecting this dis-tinction results in a systematic indifference to thebiophysical foundation of economic activities. Infact, according to Georgescu-Roegen (1990), fordesigning a blueprint of a factory process anexpert has to consider a set of three relationships:(i) the normal rate of output (

Fairness and retaliation in a rural Nigerian village

Results from ultimatum and dictator games played in western societies routinely violate the canonical economic model. Results from non-western societies are even more problematic. In this study ultimatum and dictator games were played in the small Igbo village of Umuluwe in southeastern Nigeria. Follow-up interviews to high acceptance rates suggested that fairness, not fear of retaliation, was the overwhelming reason for high offers, suggesting the limited predictive power of the neoclassical behavioral model. The economically rational prediction of a high acceptance rate of ultimatum game offers holds in traditional societies but not for the reasons the standard model assumes.