The Socio-Economics of the West, Central and Southern African Coastal Communities

1.5 Determining Applicable Economic Valuations for LME Ecosystem Services

Direct Output Impact

hypothetical behaviour is often conducted. People are asked either directly how much they would be willing to pay for specified benefits (contingent valuation), or are asked to rank, by their willingness-to-pay for or willingness-to-accept, different hypothetical bundles of goods. 79

The Direct Output Impact (DOI) is used to estimate the“economic impact” of goods and services from various LME marine sectors. To find the DOI, the quantity of an ecosystem good or service is multiplied by its market price. 71,72 This economic impact measurement can be useful in determining the societal importance of an ecosystem service. It does not, however, reflect the “value” 73 of the good or service because the costs of production inputs, including environmental degradation or depletion of natural resource stocks, are not accounted for. 74 Total Economic Value (TEV) is typically the preferred valuation method as it measures the “value” of ecosystem services, or the net environmental benefits. Additionally, TEV includes non-use values. It is an estimation of the “sum of consumer surpluses (what consumers are willing to pay over and above the market price for goods or services) and producer surpluses (what firms, such as trawling companies, earn from the sale of goods and services over and above their cost of production).” 75 The standard approach to TEV valuation employs direct and indirect observed behaviour methods. Direct observation methods are usually applicable “where the ecosystem services are privately owned and traded in functioning markets.” 76 Indirect observationmethods use actual observed behaviour “in a surrogate market, which is hypothesized to have a direct relationship with the ecosystem service value.” 77 These indirect methods include: • hedonic pricing methods: statistical techniques are used to divide a price paid for a service into prices for each of its attributes, including environmental attributes, e.g. aesthetic views or clean air • travel cost methods: a site’s demand function is derived from travel costs that people incur to visit that destination • replacement cost methods: an estimated value is assumed from the cost of a service that has been substituted for the service provided by an ecosystem, e.g. water filtration. (Replacement cost methods have been criticized for over- and underestimating value, as costs do not reflect the true benefit or welfare of an ecosystem service). 78 Total Economic Value

The Benefit Transfer Method

When neither the observed behaviour nor hypothetical methods are available, a final approach known as “benefit transfer” may be used. Due to lack of data regarding a given ecosystem service, estimates from a different site or context are used. For the valuation to be at all effective, the site and populations affected by the service being valued must be almost identical to the site and populations affected where the actual estimates were made. For example, data regarding the economic benefits of west, central and southern African mangroves are unavailable so the west, central and southern African studies “transfer” figures from valuations of south Asian mangrove regions. 80 However, since it has often been used incorrectly, benefit transfer is a controversial method. 81 Valuation Methods Used in the West, Central and Southern African LME Studies Due to lack of data, the three economic valuations considered in this report largely provide DOI estimates as opposed to estimated TEVs. Furthermore, when values, as opposed to economic impacts, are approximated, they are generally derived from the benefit transfer approach and/or the replacement cost method. The economic figures are reported as presented in the LME studies, without any adjustments for inflation or exchange rate fluctuations. Within this synthesis, all monetary amounts will be listed in U.S. dollars and all values, unless otherwise stated, are annual estimates. These initial studies are not intended to serve as a basis for a comprehensive management plan, but rather to illustrate a “broad overview” that can “provide local resource managers with indicators about the economic impact of different economic sectors.” 82 Regional studies would provide the detail necessary for more thorough decision-making. 83 These larger views are intended as “rough estimates”, given that the “urgency of initiating a more sustainable management practice in LME conservation” outweighs the uncertainty of the results. 84

When observed behaviour methods are not available or workable, a second TEV valuation approach based on

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