The Board of Regents of the University of Wisconsin System

Valuing Environmental Functions: Tropical Wetlands

Author(s): Edward B. Barbier
Source: Land Economics, Vol. 70, No. 2 (May, 1994), pp. 155-173
Published by: University of Wisconsin Press
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 Valuing Environmental Functions: Tropical Wetlands
EdwardB. Barbier

ABSTRACT. Recent studies have suggested ate wetlands (see Turner 1991;Turnerand
that tropical wetland systems may have a cru- Jones 1991;Farberand Costanza 1987).But
cial economic role to play in development. The to date, little analysis of tropical wetland
followingpaperprovidesan overviewof these benefits has been undertaken. Yet recent
benefits, using the general framework of cost- studies across the developingregionsof the
benefitanalysis as the methodologicalapproach world have suggested that tropicalwetland
to assessing wetland values. An analysis of
trade-offs between conserving or converting systems-whether inland freshwater sys-
tropicalwetlands demonstratesthat taking into tems or coastal, mangrove systems-may
account the opportunitycost of wetland loss have a crucial role to play in economic de-
leads to a lower level of conversion than would velopment (Barbier1993).
otherwise be the case. Finally, the paper dis- In particular,economic analysis of the
cusses the extensionsand limitationsof the pro- environmental functions of tropical wet-
ductionfunction approachas applied to valuing lands-the support and protection they
nonmarketedwetland benefits. (JEL Q20) provide for economic activity and prop-
erty-is underdeveloped.A majorproblem
I. INTRODUCTION is the lack of scientific data on ecological
relationships and functions in developing
Since 1900,over half of the world's wet- countries. However, recent advances in the
lands may have disappeared. The United methodology for valuing nonmarketeden-
States alone has lost an estimated 54 per- vironmental goods and services suggest
cent (87 millionhectares)of its originalwet- that in many instances the data require-
lands, of which 87 percent has been lost ments for valuing environmentalfunctions
to agriculturaldevelopment, 8 percent to may not be too overwhelming.The produc-
urban development and 5 percent to other tion function approach to valuation may
conversions (Maltby 1986). The total area be especially promisingas an approachto
and status of tropical wetlands are still un- valuing certain environmentalfunctions of
known, but the availableevidence suggests tropicalwetlands.
that the pattern of wetland conversion in The followingpaperdiscusses the valua-
developingcountries may be similarto that tion of environmentalfunctions of tropical
of the United States-and perhaps pro- wetlands, focusing in particular on their
ceeding at even a faster rate in some re- regulatoryecological functions in support
gions. or protection of economic activities. The
Natural wetlands perform many impor- valuationproblemis illustratedthroughthe
tant functions for humankind-prevention use of a basic model indicating the costs
of stormdamage,flood and water flow con- and benefits of convertingor divertingwet-
trol, supportof fisheries, nutrientand waste
absorptionand so forth. Wetlandscan also
be used for recreationand water transport,
and their diverse resources can be directly Professor,Departmentof EnvironmentalEconom-
ics and EnvironmentalManagement, University of
exploited for fishing, agriculture, wildlife York, United Kingdom.
products,wood productsand water supply. This article was taken from a paper presented to
When properly measured, the total eco- the BiodiversityProgrammeWorkshop,The BeijerIn-
nomic value of a wetland's ecological func- stitutefor EcologicalEconomicsof the SwedishRoyal
tions, its services and its resources may ex- Academy of Sciences, Stockholm, 29-31 July 1992.
The author is grateful to Carl Folke, Karl-GGran
ceed the economic gains of converting the Miler, andCharlesPerringsand to the commentspro-
area to an alternativeuse. Some economic vided by two anonymous referees. All errors and
studies have valued the benefits of temper- omissions are, of course, solely those of the author.

Land Economics e May 1994 e 70(2): 155-73

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156 Land Economics May 1994

land resources to an alternative use. The or services (i.e., the ecological functions).
model indicates that failure to consider the In addition, ecosystems as a whole often
foregone net benefits of in situ use of wet- have certainattributes(biologicaldiversity,
land resources can lead to an underestima- cultural uniqueness/heritage) that have
tion of the costs of alternativeuses of these economic value either because they induce
resourcesand theirexcessive appropriation certain economic uses or because they are
from the wetlands. Given that many of the valued in themselves.
direct and indirect uses of wetland re- It is therefore helpful to distinguishbe-
sources are nonmarketed, estimation of tween:
their value may be best approximated
(a) directuse values (e.g., the values de-
throughthe productionfunction approach. rived from direct use or interaction
Potential applications of this approach in with a wetland's resources and ser-
the simple case of a single-use system are
vices);
examined, along with the potential modifi-
cations and problemsencountered.The full (b) indirectuse values (the indirectsup-
valuationproblemof a multiple-usesystem port and protectionprovidedto eco-
nomic activity and property by the
presents furtherdifficulties,which are also wetland's naturalfunctions, or reg-
discussed. The paper concludes by high-
ulatory "environmental" services);
lightingthe additionalsteps requiredto de- and
velop analytical techniques and applica- (c) nonuse values (the values derived
tions which may have wider relevance to neither from current direct or indi-
many valuation problems in developing rect use of the wetland).'
countries.

II. VALUATIONAPPROACHESAND
METHODOLOGY-AN OVERVIEW
'A specialcategoryof value is option value, which
"Valuing" a wetland essentially means arises because an individualmay be uncertainabout
valuingthe characteristicsof a system. Any his or her future demand for a resource and/or its
system, whether natural or human-made, availabilityas a wetlandin the future.There is a gen-
eral consensus in the economics literaturethat option
can be characterized by three concepts: values are not a separateform of value but represent
stocks, flows, and the organizationof these a differencebetween ex ante and ex post valuation
stocks and flows. These three system char- (Smith 1983;Freeman1984).If an individualis uncer-
acteristics have parallel concepts in both tain about the future value of a wetlandbut believes
it may be highor thatcurrentexploitationandconver-
ecology--structural components, environ- sion may be irreversible,then there may be quasi-
mental functions and diversity; and eco- option value derived from delaying the development
nomics-assets, services and attributes. activities. Quasi-optionvalue is simply the expected
Table 1 summarizesthe linkages between valueof the informationderivedfromdelayingexploi-
these basic system characteristicsand their tation and conversion of the wetland today. Again,
there is a consensus that quasi-optionvalue is not a
ecological and economic counterparts. separatecomponentof benefitbut involves the analyst
In ecology, a distinctionis usually made properlyaccountingfor the implicationsof gainingad-
between the regulatory environmental ditionalinformation(Fisher and Hanemann1987).In
functions of an ecosystem (e.g., nutrient contrast, however, there are individualswho do not
currentlymakeuse of tropicalwetlandsbut neverthe-
cycles, microclimatic functions, energy less wish to see them preserved"in theirown right."
flows, etc.) and its structural components Such an "intrinsic"value is often referredto as exis-
(e.g., biomass, abiotic matter, species of tence value. It is a form of nonuse value that is ex-
flora and fauna, etc.). This distinction is tremely difficultto measure, as existence values in-
volve subjectivevaluationsby individualsunrelatedto
useful from an economic perspective, as it either their own or others' use, whether current or
corresponds to the standard categories of future.An importantsubset of nonuse or preservation
resource stocks or assets (i.e., the struc- valuesis bequestvalue, whichresultsfromindividuals
tural components) vs. environmental flows placinga high value on the conservationof tropical

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70(2) Barbier: ValuingEnvironmentalFunctions 157

TABLE 1
GENERAL, ECOLOGICAL AND ECONOMIC SYSTEM CHARACTERISTICS

GeneralSystem Ecological System EconomicSystem

Characteristics Characteristics Characteristics
Stocks Structuralcomponents Assets
Flows Environmentalfunctions Services
Organization Biologicaland culturaldiversity Attributes
Source:AdaptedfromAylwardandBarbier(1992).

Thus the total economic value of a tropical Direct uses of wetlands could involve both
wetland system may comprise all three commercialand noncommercialactivities,
types of values-use (direct and indirect), with some of the latteractivities often being
option, and existence values. The standard importantfor the subsistence needs of local
techniquesavailablefor measuringthe vari- populations. Commercialuses may be im-
ous economic values of wetlands are sum- portantfor both domestic and international
marizedin Figure 1.2 markets. In general, the value of marketed
The use and nonuse values of temperate products (and services) of wetlands is eas-
wetlands, which exist largely in developed
countries, may differ significantly from
those of tropical wetlands, which occur wetlandsfor futuregenerationsto use. Bequestvalues
mainlyin the developing world. For exam- may be particularlyhigh among the local populations
ple, many tropical wetlands are being di- currentlyusing a wetland, in that they would like to
rectly exploited, often throughnonmarket, see the wetlandand their way of life that has evolved
"informal" economic activity, to support in conjunctionwith it passed on to their heirs and fu-
ture generationsin general.
human livelihoods, e.g., through fishing, 2Note thatin Figure1, optionandquasi-optionval-
hunting, fuelwood extraction, and so on, ues are indicatedwith a dotted line, since these values
whereas recreation/touristuse may often are not strictly a separate component of total eco-
be limited. In contrast, direct exploitation nomic value in the sense that direct and indirectuse
values can be separatedfrom existence value. More-
to support livelihoods-except perhaps over, in most cases, the preferredapproachfor incor-
commercialfishing or forestry in some ar- porating option values in the cost-benefit analysis
eas-may be smallfor most temperatewet- would be to develop well-specifiedmodels of individ-
lands, but their recreationalvalue is often ual choice, throughreasoningabouthow marginalutil-
ities of incomedifferin the variouscontingencystates
significant.Valuationof the noncommercial (Freeman1984).Similarly,quasi-optionvalue can be
direct use of wetlands by local populations calculatedby an analysis of the conditionalvalue of
is often criticalin determiningthe economic informationin the decisionproblem(FisherandHane-
value of tropical wetlands to developing mann 1987).Such approachesare particularlyvalid in
countries.The failureto take this value into the case of uncertaintysurrounding"decrements"in
naturalenvironments,e.g., the losses in value that
account is often a majorfactor behind pol-
might occur if a tropical wetland is converted to an
icy decisions that lead to overexploitation alternativeuse. In contrast, Brookshire,Eubanksand
or excessive degradationof tropical wet- Randall(1983) have arguedthat in cases of "supply-
land systems. side uncertainty"surrounding"increments"in natu-
Direct uses of the wetlands would there- ral environments,e.g., a project to protect wetlands
fore include both consumptive uses of its mightprovideadditionalfuture values such as recre-
ation, contingentvaluationmethods (CVM)mightbe
resources(e.g., livestock grazing,fuelwood employed. However, Freeman(1985)has arguedthat
collection, forestry activities, agriculture, this scenario is only one of four possible patternsof
wateruse, huntingand fishing)and noncon- supplyuncertainty,and has cautionedagainstthe use
of CVM in cases where either the project can only
sumptiveuses of wetland "services" (e.g., reduce but not eliminatesupply uncertaintyor where
recreation,tourism,in situ researchand ed- there is a positive probabilityof supply even without
ucation, navigation along water courses). the project.

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158 Land Economics May 1994

Total Economic Value

I I
UseValues NonuseValues

Direct Use IndirectUse Option, Existence,

Values Values Quasi-option Bequest
(Functional Values Values
Values) I
CVM
ICM
Outputs Benefits CVI
- fish - flood CVM
- fuelwood control
- recreation - storm
- transport protection
- meat, etc. - external
support,etc.

Market Damagecosts
analysis; avoided;
TCM;CVM; Preventive
Hedonic expenditures;
prices; Value of changes
"Public" in productivity;
prices; [Relocationcosts];
[IOC]; [Replacementcosts]
[IS];
[Replacement
costs]

FIGURE 1
VALUING WETLAND BENEFITS

Notes: ICM = individualchoice models

CVI = conditionalvalueof information
CVM = contingentvaluationmethod
TCM= travelcost method
IOC = indirectopportunitycost approach
IS = indirectsubstituteapproach
[ ] = valuationmethodologyto be usedwithcare
Source:Adaptedfrom Barbier(1989a).

ier to measure than the value of non- chargefunction of floodplainwetlands may

commercialand subsistence direct uses. As have indirect use value throughits replen-
noted above, this is one reason why poli- ishmentof aquifersystems that supply wa-
cymakersoften fail to consider subsistence ter for domestic use and agriculture.The
and informal uses of tropical wetlands in storm prevention function of mangrove
many developmentdecisions. swamps may also have indirect use value
Various regulatory ecological functions through the protection afforded coastal
of tropicalwetlands may also have impor- property and economic activity. The bio-
tantindirectuse values. Theirvalues derive logical diversity of a wetland ecosystem
from supportingor protectingeconomic ac- may also have an importantrole in main-
tivities that have directly measurableval- taining regulatoryfunctions, e.g., changes
ues. For example, the groundwater re- in species diversity may affect how well

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70(2) Barbier: ValuingEnvironmentalFunctions 159

support and protective services function, project options involving wetland

and in some cases, even their availability. systems or resources (e.g., whether
The indirectuse value of an environmental to divert waterfrom the wetlandsfor
function is related to the change in the other uses, or to convert/develop
value of productionor consumptionof the part of the wetlands at the expense
activity or property that it is protecting or of other uses); and,
supporting.However, as this contribution (c) total valuation-an assessment of
is nonmarketed, financially unrewarded the total economic value of the wet-
and only indirectlyconnected to economic land system (e.g., for national in-
activities, these indirectuse values may be come accounting or to determineits
difficult to value (Aylward and Barbier worth as a protected area).
1992). Although few valuation studies of
Under the first approach, assessing a
key environmental functions in tropical
wetlands have been conducted, the avail- specific environmental impact involves
able evidence suggests that the economic valuingthe changes in the wetlandresulting
value of regulatory environmental func- from thatimpact.For example, assume that
tions may be highly significant(Adams and discharges of oil are regularlypolluting an
Hollis 1988; Barbier 1989a and 1993; Bar- estuarine wetland, affecting both fish pro-
bier, Adams, and Kimmage 1991; Lal and duction and water quality in the wetlands.
Dixon 1990; Ruitenbeek 1992; Twilley The costs of this activity are the losses in
1991;Yafiez-Arancibiaand Day 1988). wetland values arisingfrom damage to the
Despite the rangeof benefitsprovidedby ecosystem and its resources. These dam-
tropicalwetlands, they are currentlyunder ages would amountto the losses in net pro-
threat from a numberof sources. In many ductionbenefits(i.e., the economic benefits
cases, the loss of wetland resources, func- of productionless the costs) from the im-
tions and even entire systems may be justi- pacts of the oil spills on the fisheryplus the
fied. To make consistent choices between losses in net environmental benefits
wetlandconservation, preservationand de- in terms of poorer quality water supplies
for wetland and neighboring settlements,
velopmentoptions-or between a decision
to halt, modify or continue with an activity as well as for general ecosystem function-
that is inflicting damage on a wetland-- ing. Thus, by assessing and valuing these
requiresthe applicationof a consistent eco- losses, we would arrive at an estimate of
nomic appraisal methodology for evaluat- the net productionandenvironmentalbene-
ing the alternativeoptions. At the heart of fits of the wetlands, NBW,that are affected
the appraisalmethodologyis the determina- by the oil spills. The total cost of this im-
tion of the various costs and benefits asso- pact, C', in terms of damageto the wetland
ciated with each option. Criticalto this as- are these foregone net benefits:
sessment of costs and benefits is the choice
of appropriatevaluation techniques, as in- C' = NBW. [1]
dicated in Figure 1 and discussed above.
Barbier(1993) suggests essentially three Dixon and Hufschmidt(1986)and Dixon
broad categories of assessment, with each et al. (1988)provide case studies of apply-
category correspondingto each majortype ing this particularapproach in the overall
of policy decision concerning wetland use context of economic appraisalof environ-
that generally needs evaluating:3 mental impacts. For example, in the anal-
ysis of the cost-effectiveness of various op-
(a) impact analysis-an assessment of tions for disposing of wastewater from a
the damages inflictedon the wetland geothermal power plant on the island of
from a specific environmental impact
(e.g., oil spills); 3In what follows, it is assumed that all costs and
(b) partial valuation-an assessment of benefitsare discountedat some positive rateinto pres-
alternative resource allocations or ent value terms.

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160 Land Economics May 1994

Leyte in the Philippines, it was necessary riverthat is providingwaterfor agriculture.

to decide which means of wastewater dis- If this projectdiverts water from a wetland
posal fromthe plantwould protectthe envi- downstream,then any resultingloss in wet-
ronmentin the most cost-effective manner. land benefits must be included as part of
For some of the options, the costs of the the overall costs of the project. Given di-
environmentalimpacts in terms of lost ma- rect benefits(e.g., irrigationwaterfor farm-
rine fisheryand rice productionwere quan- ing), BD, and direct costs (e.g., costs of
tified. Other environmentalcosts, such as constructingthe dam, irrigationchannels,
energy loss, lost riverine fishery produc- etc.), C', then the direct net benefitsof the
tion, humanhealth effects and amenity im- projectare:
pacts, were not possible to quantify. For
example, the analysis showed that the NBD = BD - CD. [2]
quantifiableenvironmentalcosts of releas-
ing untreatedwaste into the Bao River or However, by divertingwater that would
into the MahiaoRiver were quite high, ac- otherwise flow into the downstream wet-
counting for 41 percent and 35 percent of lands, the development project may result
total measurablecosts of these options, re- in losses to floodplainagricultureand other
spectively. Both options may also seriously primaryproductionactivities, less ground-
contaminatethe marineecosystem with un- water rechargeand other external impacts.
known and unquantifiableeffects. Given these reductions in the net produc-
An impact analysis was also conducted tion and environmentalbenefits, NBW,of
to examine the downstreameffects of log- the wetlands, then the true net benefits of
ging-inducedsedimentationon the marine the developmentproject (NB') are NBD -
environmentof Bacuit Bay, Palawan, the NBW.The development project can there-
Philippines (Hodgson and Dixon 1988).4 fore only be acceptable if:
The analysis indicated that continued log-
ging of the Bacuit Bay watershedwould re- NBP = NBD - NBw > 0. [3]
sult in a reduction in gross revenues of
morethan US$ 40 millionfrom tourismand If the foregone wetland benefits are sig-
marinefisheriesover a ten-yearperiod.The nificant, then the failure to assess the loss
present value of these lost earnings ex- of wetland benefits will clearly lead to an
ceeded US$ 11 million. The major impact overestimationof NB'. This is tantamount
was on coral cover and diversity, which to assuming that there is no opportunity
have an importantindirectuse value in sup- cost of divertingfloodwaterfrom the wet-
porting marine fisheries. Increased sedi- lands, which is rarely the case. Moreover,
mentation of coastal waters reduces both it may not be necessary to measure all af-
coral cover and diversity, eventually caus- fected wetland benefits-for example, if
ing a markedfall in fish biomass. Loss of one or two impacts prove to be sufficiently
pristinecoral reefs and clear water also af- largeto renderthe developmentprojectun-
fects tourism, which is largely from an in- economical. In any case, it is not necessary
ternationalclientele. to measure all wetland benefits but only
The second assessment approach, i.e., those benefitswhich are affected by the de-
partial valuation of wetland benefits, may velopment project-which is why this ap-
be requiredwhen one or more development proach is called a "partialvaluation."
options may lead to alteration or conver- A partial valuation was conducted to
sion of wetland systems. That is, choices assess the economic importance of the
involving diversion, allocation or conver- Hadejia-Jama'arewetlands, and thus the
sion of wetland resources should compare opportunitycost to Nigeria of its loss, by
the opportunitycosts of the proposed op-
tions in termsof the subsequentloss in wet-
land benefits. For example, assume that 4See Aylward and Barbier (1992) for a critical
there is an upstreamirrigationproject on a review.

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70(2) Barbier: ValuingEnvironmentalFunctions 161

estimatingsome of the key direct use val- therefore have to exceed the direct costs,
ues the floodplainprovides to local popula- C", of settingup the protectedarea (includ-
tions through crop production, fuelwood ing any costs of relocatingor compensating
and fishing(Barbier,Adams, and Kimmage existing users) plus the net benefits fore-
1991).5 The economic analysis indicates gone, NBA, of alternative uses of the wet-
that these benefits are substantialon both lands:
a per hectare basis and a water input
basis-i.e., the minimum and maximum NBW> CP + NBA. [4]
amount of floodwater required to sustain
them. This proves to be the case even when Ruitenbeek (1989) has followed this ap-
the agriculturalbenefits were adjusted to proach in determiningthe economic value
take into account the unsustainabilityof of Korup National Park in Cameroon,
much pump-irrigated wheat production where the alternativeuse would be logging
within the wetlands. As indicated in Table of the forest area.7Ruitenbeek(1992) uses
2, the present value of the aggregatestream a similarapproachin evaluatingthe trade-
of agricultural,fishing and fuelwood bene- offs between different forestry options in
fits were estimated to be around N850 to a mangrove system in Bintuni Bay, Irian
N1280 per ha, or aroundN240 to N370 per Jaya, Indonesia-although in this exam-
103m3(with "maximum"flood inputs).6 ple the comparison is between the total
The economic importance of the wet- economic value of a wetlands preserved
lands suggests that the benefits it provides through a cutting ban and the total eco-
cannot be excluded as an opportunitycost nomic value generatedby various forestry
of any scheme that divertswateraway from development options rangingfrom partial,
the floodplain system. When compared to selective cutting to clear-cutting.8
the net economic benefits of the Kano An importantfeature of the analysis is
River Project, the economic returns to the that it explicitly incorporates the linkages
floodplainappearmuch morefavorable(see between mangrove conversion, offshore
Table 2). This is particularlythe case when fishery productivity, traditional uses and
the relative returns to the Project in terms the imputedbenefits of erosion control and
of waterinputuse is comparedto thatof the biodiversitymaintenancefunctions. To the
floodplainsystem. The result should cause extent that these linkages exist, some of
some concern, given that the existing and these direct and indirect uses become mu-
plannedwater developments along the Ha- tually exclusive with more intensive man-
dejia-Jama'areriver system, such as the grove exploitation through forestry op-
Kano River Project, will continue diverting tions. The "optimal" forest management
water from the floodplain. optionwill thereforedependon the strength
As the name implies, the final assess- of the environmentallinkages. The results
ment approachinvolving total valuationof indicatethat the clear-cutoption is optimal
a wetland system requires an appraisalof only if no environmentallinkages exist-a
all the net benefits of a wetland system. If highly unrealisticassumption. At the other
the objective of the total valuation is to
measure,say, the economic contributionof
the wetlands to the welfare of society as 5See Barbier,Adams and Kimmage(1991)for fur-
partof a resourceaccountingexercise, then ther details on the analyticalapproachof the study,
the objective should be to value as many of including the difficulties encountered, and Barbier
(1993) for a retrospective review. Both papers also
the net productionand environmentalbene- discuss possible alternativeapproachesto valuingthe
fits, NBW, of the wetlands as possible. An- groundwaterrechargefunctionof the floodplain.
other objective requiring total valuation 6In 1989/90prices,7.5 NigerianNaira(N) = US$ 1.
would be the need to determine whether or 7See Aylward and Barbier (1992) for a critical
review.
not the wetlands should become a pro- 8The "productionfunction" methodology of the
tected area with restricted or controlled BintuniBay case studyis discussedin moredetaillater
use. The total net wetland benefits would in the paper.For a criticalreview, see Barbier(1993).

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162 Land Economics May 1994

TABLE2
COMPARISON OF PRESENT VALUE NET ECONOMIC BENEFITS
KANO RIVER PROJECT PHASE I AND HADEJIA-JAMA'ARE FLOODPLAIN, NIGERIA

(N7.5 = US$ 1, 1989/90)

Per Hectarea (8%, 50 yrs) (8%, 30 yrs) (12%, 50 yrs) (12%, 30 yrs)
HJF (N/ha) 1,276 1,176 872 846
KRP (N/ha) 233 214 158 153

Per Water Useb

HJF (N/103m3) 366 337 250 242
KRP (N/10'm3) 0.3 0.3 0.2 0.2
Notes: aBasedon a total productionareaof 730,000ha for Hadejia-Jama'are floodplain(HJF)and
a total crop cultivatedarea of 19,107ha in 1985/86for the Kano RiverProjectPhase I (KRP).
bAssumesan annualaverageriverflow into Hadejia-Jama'are floodplain(HJF)of 2,549 Mm3and
an annualwateruse of 15,000m3per ha for the Kano RiverProjectPhase I (KRP).
Source:Barbier,Adamsand Kimmage(1991).

extreme, a cutting ban is only optimal if At any time, t, scarce tropical wetland
the linkagesare very strong, i.e., mangrove resources can be represented as a stock,
alterationand conversion would lead to im- S(t). Whichresourcesare to be represented
mediate and linear impacts throughoutthe by S will of course depend on the allocation
ecosystem. Even if weak interactionsexist, problem. For example, if a coastal man-
an 80 percent selective cutting policy with grove is being converted to shrimp ponds
replanting is preferable to clear-cutting. or irrigatedrice production, then S could
However, given the considerable uncer- representthe total stock of land area within
tainty over the dynamics of the mangrove the mangrovesystem. Alternatively, if the
ecosystem, and the fact that alterationand mangrove forest itself is valued, e.g., for
conversion may be irreversibleand exhibit woodchip production, then S could be ei-
high economic costs, the analysis con- ther the stock of mangrovebiomass or for-
cludes that there is little economic advan- est area. Finally, in cases where the water
tage to cutting significant amounts (e.g., flowing into the wetland is being reallo-
more than 25 percent) of the mangrove cated, e.g., floodplainwaterdivertedby up-
area. stream developments for irrigationand in-
dustrial use, then S might represent the
III. THE VALUEOF ALTERNATIVE total volume of water stored in the wet-
TROPICALWETLANDUSES-A MORE lands.
FORMALANALYSIS9 Equally, the amount of wetland re-
sources converted (or diverted) from the
A simple model can be invoked to indi- wetlandsin any time period, D(t), can also
cate more formallythe need for consistent be defined dependingon the nature of the
choice in decisions to convert tropicalwet- conversion(or diversion)activity.0oTo sim-
lands, or to allocate their resources (e.g.,
water) to other uses, when such decisions
involve the loss of wetland benefits. As the 9The analysis of the following section benefitted
greatlyfrom discussions held with Karl-G6ranMiler
previous sections indicate that many con- and Carl Folke at the Beijer Institute of Ecological
flicts in tropicalcountries are over wetland Economics, Royal Swedish Academy of Sciences, in
resource use values-i.e., whether to con- preparationof a projectproposalon mangrovevalua-
vert or exploit wetlandresourcesto alterna- tion. Basedon these discussions, Mailer(1992)has also
tive productiveuses or to maintaincurrent extendeda productionfunction model to incorporate
direct and indirect uses of tropical wet- mangrovevaluation.
'0Inwhatfollows, notationis simplifiedby omitting
lands-the following model will focus on the argumentof time-dependentvariables, by repre-
this choice of alternativewetland use. sentinga derivativeof a functionby a prime, by em-

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70(2) Barbier: Valuing Environmental Functions 163

plify matters, it is assumed that the conver- D, and 8 is the social rate of discount.
sion/diversion activity leads to an irrevers- The "utility" function, U, essentially rep-
ible loss in the wetland resource, S, which resents aggregategross consumer surplus,
is essentially nonrenewable: and is assumed to have the standardprop-
erties with respect to its partialderivatives,
S = -D. [5] U'(-) > 0, U"(.) 5 0 and U'(-) -~+ o as D, S
-+ 0.13 Equation [9] represents the aggre-
Thus, by virtue of [5], the analysis can fo- gate direct costs to the country of produc-
cus on the costs and benefits of productive
activities that lead to wetland loss."
Two production activities are assumed
ployingnumberedsubscriptsto indicatepartialderiva-
to be competingfor wetlandresources. One tives of a function,andby denotingthe time derivative
activity combines resources extractedfrom of a variableby a dot.
the wetlands, D, with other inputs, Z, to 1"Thisis an obvious simplificationin some prob-
lems of wetlandresourceconversionor diversion.For
producea commodity, Y.The other activity example, mangrovesand other wetlandforests do re-
either directly uses the remainingstock of generate,andeven the totallandareaof some wetland
resources, S, or is indirectly supportedor systems has been knownto grow in size as more sedi-
protected by the wetland resources. The ment(andwater)is "trapped"by the system. Thusfor
various direct and indirect use values of some wetland resource allocation problems, a more
realisticformulationof Equation[1] would be:
tropical wetlands were discussed in detail
in previous sections and are outlinedin Fig- S = g(S) - D, [1]'
ure 1. The stock of wetland resources, S,
can thereforebe consideredone inputin the whereg representsthe rateof naturalgrowth,or accu-
productionfunction of the activity, which mulation,of the wetlandresource,with gs > 0 and gss
< 0. Alternatively,as noted in the previous section,
along with other inputs, X, produce a com- wetlandsystems and resources may be indirectlyaf-
modityQ.'2 fected by the environmentalimpacts of neighboring
If the productionfunctions for Q and Y activities, such as oil spills and other forms of pollu-
are assumed to be increasing, strictly con- tion. Equation [1] could therefore be written in the
form of a damagefunction:
cave, twice differentiableand linearly ho-
mogeneous, and if their units are normal- S = -h(D), [1]"
ized so that X and Z are equal to 1, then:
where hD > 0 and hDD< 0.
12See, forexample,the
Q = F(S, 1) = f(S), f' > 0, f" < 0, [6] followingsection andMiiler
(1991)for a discussionas to why this formulationmay
be appropriatefor capturingthe majoruse values of
Y = G(D, 1) = g(D), g' > 0, g" < 0. [7] wetland resources. As the next section will discuss,
includingthe stock of resources, S, explicitly as an
Thus, the tropical wetlands country is as- argumentin the productionfunctionfor Q is particu-
sumed to maximizethe present value of fu- larlyappropriatefor the indirectuse values of wetland
environmentalregulatoryfunctions.
ture welfare, W: 13For example, it is conceivable the U takes the
form:
Max W = {U(Q, Y) - C}e-•tdt, [8]
D o U(Q, Y) = fB(Q)dQ + B2(Y)dYdY

subject to [5], [6], and [7], and where BI(Q) = Pi = d'1(Q) and B2(Y) = P2
d-' (Y) are the inverse demandfunctions for Q and Y
C = c(D, S), co > 0, CS> 0, determiningtheir prices p, and P2, respectively, if
CDD O, css
ss 0, [9] dl(Q) and di(Q) < 0. It follows that U'(Q) = pi > 0
and U'(Y) = P2 > 0. Note that the objectivefunction
[8] would also resultif U is a quasi-linearutilityfunc-
S(0) = So and lim S(t) 0. [10] tion, i.e., if it is linearin some good m (e.g., "money")
which serves as the numeraireand is assigned the
price 1, such that U = U(Q, Y) + m. For proof, see
The control variable of the problem is Varian(1984).

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164 Land Economics May 1994

ing Q and Y, using the (normalized)inputs termsof their relativedirect and/or indirect
of S and D.14 Equation [10] contains the use values. Note that the right-handside of
initialand terminalboundaryconditions. [14] can be positive, negative or equal to
The current value Hamiltonian of the zero. If i/K < 0, then the optimal rate of
above optimalcontrol problemis: extractionshould increase over time; how-
ever, i/K > 0 implies that b < 0.16
H = U(f(S), g(D)) - c(S, D) - XD, [11] Essentially, condition [14] confirms the
argumentsin the previous section: if poli-
where h is the costate variable of the cymakersfail to take into account the "op-
shadowprice of the "unextracted"wetland portunity"costs of wetlandloss in terms of
resource. foregone direct and indirect use values,
Assumingan interiorsolution, the maxi- then they are misrepresentingthe true so-
mum principle yields the following condi- cial value of tropical wetlands. The failure
tions: to consider the foregone net benefits of in
situ use of wetlandresources can lead to an
X> Uyg' - CD, [12] underestimationof the costs of alternative
uses of these resources and their excessive
S= x - (UQf' - CS), [13] extraction from the wetlands. The latter
point will be illustratedexplicitly in a mo-
where aUlaQ = UQ and aUlaY = Uy. ment. First consider the case where the net
Equation [12] reflects the nonnegativity
constraintD 0. If D > 0, then the shadow
price of the - "unextracted" wetland re- 14For example, C may take the form c(D, S) =
source must equal the difference between c(D) + c(S). It is conceivablethat c(D) = wD, where
the value of the marginalproductof the re- w, is the averagecost of "extracting"or "converting"
source appropriatedto produce Y and the a unit of wetland resource D to produce commodity
marginal costs of this production. How- Y. It is also possible that c(S) = w2S is the costs of
"maintaining"or "utilizing" the remainingstock of
ever, if K exceeds the net value marginal wetlandresource,S for activityf(S). However, if this
productof the appropriatedresource, then latteractivityonly indirectlyuses the resourceS, then
conversion of wetland resources is not there may be no direct costs of utilizationor mainte-
worth it and D = 0.'5 Equation [13] indi- nance and c(S) is effectively zero. In either instance,
as the next section discusses, the correctapproachto
cates the optimal rate of increase in the
valuingthe net welfare contributionof S is through
value of the (unextracted) wetland re- the productionfunctionapproachappliedto the (non-
source. AssumingD > 0, [13]can be rewrit- normalized)productionof Q = F(X, S).
ten as: "SHowever,it follows from the standardeconomic
theoryof exhaustibleresourcesthat Ycan still be pro-
= 8 - (UQf' - CD).
duced if D is not essential to its production(Dasgupta
/X - cs)/(Urg' [14] and Heal 1974, 1979). Note also that conditions [12]
and [13] depend on the assumptionthat S(t) > 0 in
Thus, the rate of change in the shadow finite time. This assumptioncan be revoked in cases
whereD is not essential to producingY, and either S
price of the tropical wetland, K, is deter- is not essential to producingQ or Q can be perfectly
mined not only by the social rate of dis- substitutedby anothercommodity(e.g., Y) in social
count, 8, as is the case in standardnonre- utility, W.
newable resource problems, but also by 16Ifit is assumed as before that U(Q, Y) is addi-
an additionalfactor indicatingthe relative tively separable, and additionallythat Y = g(D) is
social value of in situ wetland resources constant over all periods, then totally differentiating
[12]with respectto time yields X = (Uyr(g')2 +
(UQf' - cs)/(Urg' - CD). In other words, - Thus when Xis negative in expressionsUrg"
[13]
8 representsthe opportunitycost of "hold- andcoD)D.
[14]thenD > 0. If positive, thenD < 0. However,
ing onto" wetlandresources today-as op- note thatD > 0 is infeasibleover an infinitetime hori-
zon as wetlandresources are fixed and must eventu-
posed to appropriatingthem for current ally be exhausted. Nevertheless, D(t) is not neces-
production of Y-whereas (UQf' - cs)/ sarily monotonic over the planning horizon; e.g.,
- cD) represents the social gains depletioncould conceivablyincreasein earlierandde-
(Urg' "holding onto" wetland resources in
from crease in later periods.

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70(2) Barbier: ValuingEnvironmentalFunctions 165

benefits of in situ wetland resource use are to production of Y such that D > 0 over
ignored. finite time also implies that:
If tropicalwetlands are viewed only as a
source of resources that essentially have no
economic value unless they are converted f D(t)dt = So or = [20]
or divertedto a "productive"activity, then (a/I8)Xho So0.
the planning problem as represented by Utilizing [17]-[20], optimalpaths for D and
[5]-[10] effectively reduces to the even sim- X can be determined:
pler problemof nonrenewableresource ex-
traction.As the previous sections of the pa- D*(t) = [MSo/a]e- t/a, [21]
per have indicated, this is precisely the
view of tropicalwetlandsthat is often taken X*(t)= [iSo/la]-es'. [22]
in policy and investment decisions that
determine the allocation of wetland re- Thus, if the initial level of wetland re-
sources. The Hamiltonian[11]thereforebe- source appropriationis set at the optimal
comes: level 8So/a, D(t) will decline thereafterat
the rate 8/a. The value of "unextracted"
H = U(g(D)) - c(D) - XD. [15] resources will begin at [S0o/a]-a and rise
at the rate B.
AssumingD > 0 and S > 0 in finitetime and Similar optimal paths can also be con-
an interiorsolution, the standardfirst-order structedfor the originalwetlands problem.
conditions for optimal nonrenewable re- To facilitatecomparisonwith the pathsjust
source extraction result: derived for the "myopic" wetlands prob-
lem, assume that K > 0 in the first-order
1 = Urg' - CD, [16] conditionsof the originalmodel. Returning
to [13] and integratingyields:
= or X(t) = koe8', [17]
8•
, X(t) = Xoe ' - f(UQfs - cs)dt. [23]
where X0 = X(t). Condition [16] has the
same interpretationas [12]for D > 0. Com- The second term on the right-handside
parison of [17] and [14] confirmthe differ- of [23] representsthe cumulativestreamof
ence between the standard nonrenewable net benefits from in situ wetland resources
extractionproblem and the problemwhere over time. Effectively, this term is the un-
the foregone net benefits of in situ wetland discountedasset value of "conserved," or
resourcesare an opportunitycost to appro- "unappropriated," wetland resources at
priatingthese resources for an alternative time t. Defining q(t) = f(UQfs - cs)dt
productiveuse. and substituting[23] into [18] yields:
FollowingDasguptaand Heal (1979),the
extraction path D(t) can be characterized D(t) = e-t/a _ -
i/a [24]
X•oI-
as a demand for wetland resources that is
inversely related to its price, X(t). Assum- Letting q(t) = p0oeSt,where 3 > 0,17 then
ing this demandis isoelastic, then:
D(t)dt = + [25]
D(t) = x(t)-11/~, [18] o (a/I)ho-1/
(alp)9•-/la.
where a > 0. Substituting [17] into [18]
yields: '7Thisexpressionassumes that the (undiscounted)
asset value of wetland resources throughproduction
D(t)= Xo-1ie-Sti*. [19] activityQ = f(S) will increasewith time over its initial
period value. The presumption is that UQfs - CS> 0
over time, which is a reasonableassumptionprovided
However, the condition that D is essential thatthe activity, Q, is "sustainable"-i.e., it does not

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166 Land Economics May 1994

It is possible for expression [25] to be are ignored. In other words, policymakers

greaterthan or equal to So. Assuming first shouldbe absolutelycertainthat the oppor-
that the entire stock of wetland resources tunity cost of wetland resource conversion
is appropriatedin the long run, then [25] and appropriationis zero before embarking
suggests that: on investmentand policy decisions that are
based on this assumptionand lead to irre-
Xg*= [8So/at]-V
- (al/P)o < X'. [26] versible wetland loss.
If the opportunitycost of wetlandloss is
From [23] and [24], the optimalpaths for not zero, then the wetland benefits fore-
D and X can thereforebe determinedas: gone must be explicitly accountedfor in de-
velopment decisions. This again raises the
-
D(t)** = [(8Sola)((alP)po)-l/)]e-Pt/' issue as to what is the best methodfor valu-
- (aP < D(t)*, [27] ing these benefits, given that the economic
contributionof wetland resources-partic-
k(t)** = -(oalP)po]est ularly their environmental functions-is
- < k(t)*.
[(0So/a)-a [28] often nonmarketed.

Taking into account the asset value of IV. VALUATIONOF WETLAND

"unappropriated"wetland resources has ENVIRONMENTAL FUNCTIONS:THE
the effect of shiftingdown both the optimal PRODUCTIONFUNCTIONAPPROACH
path of resource extraction, D(t), and that
of the shadow price, X(t). The differencein The precedinganalysis noted the impor-
the two extractionpaths [24] and [27] is: tance of wetland resources for production
by includingthem explicitly in the produc-
A(t)= D(t)* - D(t)** tion function for Q. The assumption was
thatwetlandresourceswere being eitherdi-
= + (p-l/a, [29]
((a/P)9•)-l/ae-Pt/a rectly used in productionas inputs or indi-
where dAldt < 0. Thus as shown in Figure rectly used in the sense that the environ-
mentalfunctionsof wetlandresourceswere
2, the two paths eventually will converge
in the long run. supportingor protectingeconomic activity.
In the second case, where some of the Earlier sections have noted the important
stock of wetland resources remain even in economic contributionof many wetland in-
the long run, then: direct use values, such as supportof fisher-
ies, groundwaterrecharge,flood and water
flow control, prevention of storm damage,
fD(t)dt + R = S0, [30] and so forth. The results of the previous
analysis would suggest that decisions con-
where R is the remaininglong-runstock of
wetland resources. Defining D(t) as the itself lead to degradationof the wetlandresourcebase,
new extractionpath for wetland resources, S. For instance, some direct uses of wetland re-
it follows that: sources, such as harvestingfor fuelwood and timber
or certainfarmingsystems, may prove to be "unsus-
tainable"with time. As discussed by Barbier(1989a,
D) = [(8/at(So - R)) - ((al/P)o)-l/]e-P/t/ 1993),it is importantthat any calculationof the future
- -1/ < D(t)** < D(t)*. [31] streamof net benefitsfrom these activities takes into
accounttheir "unsustainability";otherwise,the asset
value of wetland resources as reflected in the eco-
In sum, the above analysis has demon- nomic value of these activities will be overestimated.
stratedformallythat, when the loss of wet- For example, the analysis of agriculturalbenefits in
land benefits is taken into account in deci- the Hadejia-Jama'are floodplainof Nigeria took into
account the impact on land degradationof pump-
sions to convert tropical wetlands, a lower irrigatedwheat productionwithin the wetlands that
level of wetland conversion will result than couldarise withinthreeto four years (Barbier,Adams
would be the case if these wetland benefits and Kimmage1991).

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70(2) Barbier: Valuing Environmental Functions 167

DO*

D,*

D(t)*

D(ttim**
time
FIGURE2
OPTIMALEXTRACTIONPATHSFORWETLANDRESOURCES

cerning wetland conversion and resource contribution of this important ecological

use do requirepropervaluationof the envi- supportfunction.
ronmental functions of tropical wetlands
where these functions are instrumentalin
supportingor protectingeconomic activity.
One promisingmethod is to employ the '8Anotherterm for this method is the household
productionfunction approach,which is a more appro-
production function approach,'8 as implied priateterm for applicationsbased on the derived de-
by equation [6] above, to capture the indi- mandby householdsfor environmentalquality(Smith
rect use value of regulatoryecological func- 1991). In such applications,F can be thoughtof as a
tions: "household" production function that appears di-
rectly in the householdutility function:
Q= F(Xi... Xk, S), [32] U = U(F(Xi. . Xk, S), Y),

where Fs > 0, Fss < 0. For example, a where Y is a vector of other goods and services for
whichboth prices and quantitiesare known. Thus by
common ecological function of mangroves explicitly incorporatingnonmarketedenvironmental
is support of offshore fisheries by serving functionsin the modellingof individuals'preferences,
as both a spawning ground and a nursery household expenditureson privategoods can be re-
for fry (see, for example, Yafiez-Arancibia lated to the derived demandfor environmentalfunc-
and Day 1988).The area of mangrovesin a tions. Some well-knowntechniques in applied envi-
ronmentaleconomics-such as travelcost, recreation
coastal region, S, may thereforehave a di- demandand avertingbehaviormodels-are based on
rect influence on the catch of mangrove- this approach.However, applicationsat the household
dependentspecies, Q, which is independent level in developingcountriesmay be limitedgiven the
from the standardinputs of a commercial detailed data requirementsfor household patternsof
expenditures,time allocations,commodityprices and
fishery,Xi ... Xk. Includingmangrovearea wage rates, along with measuresof levels of environ-
as a determinantof fish catch may therefore mental quality experienced by the same households
"capture" some element of the economic (Smith 1991).

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168 Land Economics May 1994

Applying the production function ap- wetlands'supportfor the fishery-which in

proach to the various indirect use values this case is equivalentto the value of incre-
of tropical wetlands may prove a useful ments to wetland area-can then be im-
methodof estimatingthese nonmarketed- puted from the resulting changes in con-
but often significant-economic values. sumers' and producers' surplus.
However, it is extremely importantthat the In the Ellis and Fisher model, equation
relationship between the environmental [32] above assumes the specific Cobb-
regulatoryfunctionof the tropicalwetlands Douglas form:
and the economic activity it protects or
supportsis well understood. Q= AXaSb, [33]
Mialer(1991) distinguishes between ap-
plications of the production function ap- where Q is the quantity of crab catch in
proach. When production, Q, is measur- pounds,X is catch effort measuredby traps
able, and either there is a marketprice for set and S is area of wetlands. The corre-
this outputor one can be imputed,then de- spondingcost function is:
termining the marginal value of the re-
source is relatively straightforward.If Q C = WA-liaS-b/aQl/a, [34]
cannot be measureddirectly, then either a
marketed substitute has to be found, or where W is the unit cost of effort and S is
possible complementarityor substitutabil- determined exogenously. Assuming an
ity between S and one or more of the other isoelastic demandfor crabs and either pri-
(marketed)inputs, Xi . . . Xk, has to be vate ownership or optimal public manage-
specified explicitly. Although all these ap- ment (i.e., price equals marginal cost in
plicationsrequiredetailedknowledgeof the both cases), Ellis and Fisher solve the two-
physical effects on production of changes equationmodel for the incrementalvalue of
in the wetlandresource, S, and its environ- the wetlands' supportfunction.
mentalfunctions, applicationsthat assume However, using the Ellis and Fisher
complementarity or substitutability be- model for the blue crab fishery, Freeman
tween the resource and other inputs are (1991) has made the important additional
particularlystringenton the informationre- point that the values imputed to the wet-
quiredon physical relationshipsin produc- lands are influencedby the market condi-
tion. Clearly, cooperation is required be- tions and regulatorypolicies that determine
tween economists, ecologists and other the conditions of access and rate of utiliza-
researchersto determinethe precise nature tion of the fishery. For example, under
of these relationships. open access, rents in the fishery would be
Applicationsof the productionfunction dissipated, and price would be equated to
approachmay be most straightforwardin averageand not marginalcosts. As a conse-
the case of single use systems-i.e., wet- quence, producersurplus is zero and only
landsystems in which the predominanteco- consumer surplus determines the value of
nomic value is a single regulatoryfunction increasedwetland area. When the demand
or a groupof ecological functions providing for crabs is inelastic, the social value of an
supportor protection for an economic ac- increasein areais higherunderopen access
tivity in concert. For example, Ellis and than underoptimalregulation,whereas the
Fisher (1987) use this approach to model wetlands are more valuable under optimal
explicitly the environmental function of regulationwhen demandis elastic. This re-
Gulf Coast wetlands in supportof the com- sult stems from the role of price changes in
mercial blue crab fishery. Taking the sum allocatingwelfare gains between producers
of consumers' and producers' surpluses as and consumers:in the case of optimalregu-
the measure of economic value, they hy- lations, part of the consumers' gain is a
pothesize that an increase in wetland area transfer from producer surplus, whereas
increases the abundanceof crabs and thus under open access and zero producer sur-
lowers the cost of catch. The value of the plus, any reductionin the price of fish asso-

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70(2) Barbier: ValuingEnvironmentalFunctions 169

ciated with the average cost curve shifting on these linkages, Ruitenbeek developed
down (in response to an increase in wetland several differentscenarios based on differ-
area) results in a gain in consumer surplus ent linkage assumptions. This essentially
and increased wetland value." These dif- amountedto specifying more precisely the
ferent impacts of market conditions and relationshipbetween Q and S in the produc-
regulatorypolicies for the productionfunc- tion function[32]for each productiveactiv-
tion approach to valuing wetlands are an ity at time t, Qit:
importantconsideration in the application
of this approach to tropical wetlands in Qit/Qio = (STI/So)a, [35]
many developing regions, where open ac-
cess and imperfect markets for resources where S, is the area of remaining undis-
are common. turbed mangroves at time t, a and 7 are
In the case of multipleuse systems-i.e., impact intensity and delay parametersre-
wetland systems in which a regulatory spectively, Qio = Qit,(t= 0) and So = S,(t
function may support or protect many dif- = 0). For example, for fishery-mangrove
ferent economic activities, or which may linkages,a moderatelinkageof a = 0.5 and
have more than one regulatory ecological 7 = 5 would imply that shrimpoutput var-
function of important economic value- ies with the square root of mangrovearea
applicationsof the productionfunction ap- (e.g., a 50 percent reduction in mangrove
proach may be slightly more problematic. area would result in a 30 percent fall in
In particular,assumptions concerning the shrimpproduction), and there would be a
ecological relationshipsamong these vari- delay of five years before the impact takes
ous multiple uses must be carefully con- effect. If no ecological linkagesare present,
structed. i.e., there is no indirect use value of man-
For example, an importantfeatureof the groves in terms of supportingshrimp fish-
analysis of the mangrove wetlands of Bin- ing, then a = 0. At the other extreme, very
tuni Bay, Irian Jaya, Indonesia was that it strong linkages imply that the impacts of
attemptedto incorporateexplicitly the pos- mangroveremoval are linear and immedi-
sible ecological linkages between indirect ate, i.e., a = 1 and 7 = 0. As discussed
and direct use values (Ruitenbeek 1992). above, the analysis concluded that the as-
Specifically, the mangroves may support sumption of no environmentallinkages is
many economic activities within the wet- unrealisticfor most economic activities in
lands, such as commercial shrimp fishing, the wetlands. Moreover, given the uncer-
commercialsago productionand traditional tainty over these linkages and the high
household production from hunting, fish- costs associated with irreversibleloss if en-
ing, gathering and cottage industry; they vironmental linkages prove to be signifi-
may also have indirect use value through cant, then only modest selective cutting
controlling erosion and sedimentation, (e.g., 25 percent or less) of the mangrove
which protects agriculturalproduction in area was recommended.
the region; and they have an indirect role Two majordifficultiesin specifying eco-
in supporting biodiversity. To the extent logical-economic relationships for the ap-
that the ecological linkagesin terms of sup- plication of the production function ap-
port or protection of these activities are
strong, then the opportunity cost of for- '9Freeman(1991) also calculates the social value
estry options that lead to the depletion of the marginalproductof wetlandarea,whichis given
or degradation of the mangroves will be by:
high. Thus, as discussed above, the "opti-
mal" forest managementoption-whether VMPs= bPQ/S,
clear-cutting,selective cutting or complete where P is the price of crabs. As optimalregulation
preservation-depends critically on the should lead to a higher price than open access, an
strengthof the ecological linkages. inelasticdemandmeans that VMPsis higherunderop-
In the absence of any ecological data timalregulation.

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170 Land Economics May 1994

proach to estimatingindirect use values in the Hadejia-Jama'arefloodplain in North-

multiple use tropical wetland systems are ern Nigeria supportsa numberof important
the problems of "double-counting" and agricultural,forestry and fishing activities
"trade-offs"between variousdirect and in- withinthe wetlandarea. The floodplainalso
direct use values (Aylward and Barbier contributesto the rechargeof groundwater,
1992).The problemarises when analystsat- which is in turn drawn off by numerous
tempt to "aggregate" the total economic smallvillagewells throughoutthe regionfor
value (TEV) of the wetlands from the dif- domestic use and agricultural activities.
ferent use value subcomponents. However, concerns have recently been ex-
Aylward and Barbierprovide an exam- pressed about the excessive water use of
ple of both on-site and off-site double- pump-irrigatedwheat productionwithinthe
countingin terms of the nutrientretention floodplain(Barbier, Adams and Kimmage
functionof a coastal wetland. Coastal wet- 1991). Increasinguse of the floodplainwa-
lands often absorb organic nutrients from ter to support this activity may mean less
sewage and other waste emittedinto water- water availablefor naturalgroundwaterre-
ways further upstream. Suppose that the charge-and thus for village wells outside
nutrientsheld by the wetlandare indirectly the floodplain. If there are trade-offs be-
supportingboth shrimp production within tween the two environmentalsupportfunc-
the wetland area and the growth of fish fry tions, then addingthe full value of the wet-
that supply an offshore fishery. If the full land's contributionto pump-irrigatedwheat
value of the shrimp production is already productionwithin the floodplainto the full
accounted for as a direct use value of the value of groundwaterrecharge of wells in
wetland's resources, addingin the share of neighboringregionswould overestimatethe
the nutrientretentionservice as an indirect total benefit of these two environmental
value and aggregatingto obtainTEV would functions.
double-count this indirect use. In other In sum, the problems posed by double-
words, the value of shrimp productional- countingand possible trade-offsneed to be
ready "captures" the value-added contri- sorted out in any measurementof the indi-
bution of nutrientretention. If instead one rect use values of environmentalregulatory
wanted to explicitly account for the value- functions in multiple use tropical wetland
addedcontributionto shrimpproductionof systems. While it is necessary to disaggre-
the nutrientretentionfunction, then the di- gate the goods, services and attributesof
rect value of the shrimpmust be decreased an ecosystem for valuation purposes, any
to account for the return in value now complementarity and substitutability of
attachedto the nutrientretention service. these services must be accountedfor in ar-
Similarly, if the fish fry supported riving at either total indirect use or total
through nutrients retained in the wetland use values. Otherwisethese values may be
eventually migrate to an offshore fishery, grossly overstated.
then the indirect contribution during the Finally, a majordifficultythat any inter-
fry's stay in the wetland is included as an disciplinary effort to improve economic
off-site component of the service's value. valuationof ecologicalfunctionsmustover-
That is, the nutrient retention function of come is reconciling the different "world-
the wetlandproducesan "external"benefit views" of economics and ecology. Despite
in terms of supportingan offshore fishery. the apparent unifying methodology over
Again, care must be taken to adjust the system concepts impliedby Table 1, funda-
value of harvested fish in any companion mental disagreements do arise between
analysis of the adjoining fishery to avoid economists and ecologists over what these
misrepresentingthe total economic value of concepts actuallyentail and how they relate
the wetland and the fishery taken together. to the ecosystem as a whole, especially in a
Trade-offsbetween two or more indirect dynamiccontext of ecological change. For
use values of a given ecosystem may also example, Common and Perrings (1992)
occur. For example, as discussed above, have arguedthat disagreementsover the in-

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70(2) Barbier: ValuingEnvironmentalFunctions 171

terpretation of economic and ecological certain and irreversible consequences. As

"sustainability"have hinderedcooperation discussed previously, economic concepts
between the two disciplines on the decision such as option and quasi-optionvalue can
rules concerning economic use of ecosys- be incorporatedinto the cost-benefitanaly-
tem goods and services. Bridging these sis to allow for certain contingencies aris-
conceptual differences is fundamental to ing from environmentallosses. However,
progress in economic valuation of ecologi- economists have increasingly recognized
cal functions, which is best accomplished that valuation of whole-scale ecosystem
throughmore applied interdisciplinaryre- changes must explicitly or implicitly make
search on such problems. judgements involving intergenerationaleq-
uity, with implicationsfor the choice of dis-
V. CONCLUSIONS count rate and/or the valuationmethodolo-
gies chosen.21 When these changes may
Increasingly,tropical wetlands are seen potentially endanger key species, or even
to performmany importantecological regu- whole ecosystems, then some recent eco-
latoryfunctionsthat protect or supporteco- nomic thinking has advocated the more
nomic activity. Valuing this indirect use precautionary approach of respect for
value may be importantto decisions con- "safe minimumstandards"and "ecological
cerning wetland conversion and the diver- thresholdeffects," particularlywhere there
sion of wetland resources to other uses. is reason to believe that the social costs of
Whenthe economic value of environmental species loss or system collapse may be
functions are significant,less "extract'on" high.22It is conceivable that a cost-benefit
of wetland resources appears to be more frameworkinvolvingmarginalvaluationsis
optimalthan in the case where the opportu- only relevant when development deci-
nity cost of extraction is zero. sions influencing environmental losses
Consistent choice in the allocation of operate within the bounds established by
wetland resources therefore requires care- "safe minimumstandard"and "ecological
ful analysis of the economic values pro- threshold" criteria. Nevertheless, any ap-
vided by tropicalwetlands, in particularthe proach that puts the requirements of an
indirect use values of environmentalregu- ecological-economicsystem above those of
latory functions. Because the economic the individual again requires an ethical
services of these functions are generally judgementabout the role and rightsof pres-
nonmarketed,special valuation techniques ent and future generations-a judgement
may need to be employed to assess their that is beyond the scope of the analyst
economic contribution. Although the pro- alone to make.
duction function approach is promising, Addressing such major issues requires
care must be taken to specify correctly not only guidance from policymakers, but
the ecological-economic relationships de-
terminingthe role of wetland environmen-
tal functions in production, the regulatory 2?Thereis always the danger, however, that this
guidance may be dominated by special-interest
policies and market conditions that influ- groups. For an interestingreview of how the method-
ence the value of this production and the ology of appraisalof naturalresourceprojectscan be-
problems of double-countingand possible come a public "bargaining"process, and not always
trade-offs encountered when the indirect for the worse, see Henry (1989).
use values of multipleuse systems are ana- 21Forthe generalissues involved in economic ap-
praisal, see Krutilla and Fisher (1985) and Porter
lyzed. (1982). For issues related to the specific concerns of
However, there are certain ecosystem developing countries, see Markandya and Pearce
valuationissues that are problematicfor a (1988).
cost-benefitframeworkto address without 22On"safe minimumstandards"and endangered
species, see Bishop (1978), Ready and Bishop (1991),
adequate guidance from policymakers.20 and Tisdell (1990). On the implicationsof ecological
One is the possibility that humanactivities thresholdeffects for economic development,see Bar-
can lead to changes in ecosystems with un- bier (1989b)and Perringsand Pearce (1992).

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172 Land Economics May 1994

also close cooperationbetween economists Common,MichaelS., and CharlesPerrings.

and ecologists to determine the policy- 1992."Towardsan EcologicalEconomicsof
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