The Theory of Non-market Valuation

Abstract

Environmental resources supply a flow of direct and indirect services to society. The services provided by these ecosystems and their corresponding levels of biological diversity are numerous, ranging from basic life-support to the filtration of nonpoint source pollution from urban and rural run-off. But while these resources provide a nearly limitless set of valuable attributes, many of their services remain unpriced by the market. The services are rarely bought and sold by the pound on the auction block, and therefore never enter into private markets and remain unpriced by the public sector (see Chapter 2). For example, the market price of land does not generally account for the nutrient filtration and wildlife habitat services provided by a Minnesota wetland or a Scottish moor. The market undervalues wetland services because the associated costs and benefits accrue to more than just the owner of the land. Water filtration benefits all those downstream; wildlife does not stay within the confines of one landowner's property. This inability to exclude others from enjoying benefits or suffering costs prevents the market price from sending the correct signal about the true economic value of the wetland.