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VALUING RESOURCES: ENVIRONMENT VS DEVELOPMENT

”the price of everything and the value of nothing."

by:

Dana G. Richardson

A Plan B Paper

Submitted to:
Michigan State University

in partial fulfillment of the
requirements for the degree of:

MASTERS IN URBAN PLANNING

College of Social Science
Urban Planning Program

April 26, 1993

TABLE OF CONTENTS

INTRODUCTION...OOOOOOOOOOOOOOOOOOOOOOOO0..OOOOOOOOOOOOOOOOOOOOOI

UNCOVERINGTHE ISSUES O..00...OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOCOS

CONSTRUCTING A HISTORICAL MODEL ..............................10

BORROWING FROM NATURE.........................................14

WHOSEWILLINGNESS To PAY 0....0.0.0.0...0.0.00.00000000000000015

A NATIONAL ACCOUNTING PROBLEM ................................17

DEFININGNATUMLRESOURCES OOOOOOOOOOOOOOOOOOOOC00.0.00000000021

No ECONOMICACCOUNTABILITY .0. .......... .OOOOOOOOOOOOCOOOOOOOOZ3

ACROSS PROBLEM: VALUATION 0.0... ...... 0.0...00.0.00000000000025

COMMODITIES OF EXCHANGE ......................................28

METHODS OFVALUATION OOOOOOOOOOOOOOOOOOOOO0.0.00.000000000000029

APROPOSEDMODEL0.0..0.0..0..0.0.0.....0.0.0.0.0000000000000032

THE PRESENT DILWAO...OOOOOOOOOOOOOOOOOO0.0.0.0000000000000037

CONCLUSION 0..O00....OOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO..000040

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INIBQDHQIIQN

During the 19603 and 19705, it was not uncommon to hear and
read a great deal of information directed towards the conflict
between development and the environment. Americans had long been
identified as the throw-away nation, with a substantial disregard
for the environment. Our ability to consume goods had far out-
distanced that of any other nation. Once more, few Americans
were aware of the environmental degradation that occur when
natural resources were used to produce consumer products.
But this image slowly began to change as Americans became more
environmentally conscious. The term sustainability became a
fashionable catchword of the 19803, and has since retained its
relevance into the 19905. Although gains have been made towards
creating policy and regulation, the question of how to value
resources where nonmarket goods are concerned remains unresolved.

Seeking sustainability requires forethought; what is to be
sustained, whom does it benefit, what will it cost and can it be
implemented. Furthermore, where should it begin; global,
international, national, regional or local levels?

Sustainability is a very broad and yet encompassing topic.
I have found a multitude of definitions that attempt to address

this query, where each spin becomes a vast entanglement of

arguments, however justified, built around some central thesis
whether it be economic, social, ecological and or physiological.
It is fair to say that sustainability means different things to
different people. Preservationists believe that sustainability
is achieved through retaining possession of the environment.
Conservationists believe that a balance between man and nature
should be struck; that development may occur only in concert with
the environment. Others argue that we live in a "learned
ecology" programmed by institutions and, broad sweeping change is
needed to a more convivial approach; a new holistic re-thinking
of human education and development.1 Still others believe, in a
less anthropocentric position, that man must re-define himself
away from a biblical definition of dominion over the earth to one
in which he is "not the sole item of value which bestows value in
the world."2 For our purposes, we need a more explicit
definition than have been given in the past to show how a revised
conception of sustainable development can be integrated into
practical decision making. David Pearce provides a useful
definition:

"At its simplest, sustainability means making things
last, making them permanent and durable. What is being

 

1Ivan Illich, Iools For Conviviality, (New York: Harper and
Row, 1973), 25.

2Michael R. Redclift, Sustainable Qevelopment: Exploring the
ggntrggigtigng (London: Methuen & Co, 1987), 44.

2

sustained can be an object of choice — an economy, a
culture, an ethnic grouping, an industry, an ecosystem or
sets of ecosystems - but sustainable development implies
that the object of concern is the whole process of economic
progress in which economies contribute to improvement in
human welfare, however defined."

"How sustainability comes about is the subject matter
of most of the debate, but one theme is constant to all the
discussions: it either means augmenting natural
environmental systems, or is a condition for safeguarding
economic development. This common environmental theme is
suggestive of an economic interpretation of sustainable
development. Sustainability requires at least a constant
stock of natural capital, construed as the set of all
environmental assets. Once it is interpreted in this way,
sustainable development turns out to serve goals which would
command wide, though not universal, assent."3

These goals are:

1 to provide justice in respect of the socially
disadvantaged

2 to provide justice to future generations

3 to provide justice to nature; and aversion to risk

arising from: our ignorance about the nature of the
interactions between environment, economy and society;
and the social and economic damage arising from low
margins of resilience to external ‘shock'.‘

I find Pearse's definition and goals useful because they
include the notion of sustainable development from both the
economists and ecologists point of view. What appears to be
missing in the exploration of the relationship between
development and the environment however, are assertions for

valuing nonmarket resources that are rooted in rationality, under

 

3David Pearce, "Economics, Equity and Sustainable Development, "
Egtgggg, (December 1988), 598.

‘Ibid., 599.

new social and economic paradigms, yet provide a bridge at the
edge of the philosophical cliff to application. Misconceptions
exist in the market place where both private and public goods are
assessed. What appears to be missing is a causal connection
between development thinking and the environment. I propose that
valuation can assist in providing this connection by placing
environmental amenities on the asset side of the balance sheet.
Like others before me, I am seeking new ground on which to
base an approach for a process that focuses on natural resources
as its target. In my quest, I will question the current methods
used to assess the value of land and our environment and in so
doing I will propose that better methods be established for
deriving a balance of equity between market and nonmarket
amenities and between generations. I will address what is wrong
with our national accounting system and will suggest that perhaps
we have fail to develop a working definition of natural
resources. Next, I will get to the heart of the matter; that is
valuation, by discussing the relationship between monetary value
and personal preference and indicate some of the new ways in
which scientists have been applying their theories. In a
hypothetical scenario I will create a procedure where planners
work to resolve the balancing of an environmental amenity and an

economic goal. Finally, I will discuss the current dilemma that

scientists face when constructing valuation models and I will

conclude with some possible ideas for overcoming these obstacles.

V UE

The proponents of growth control will point to a number of
issues focusing primarily on the environment or the economy and
the related necessity for regulation. Environmental scientists
espouse the theory that the bio-diversity of the environment is
critical to the very existence of all mankind and that there is
evidence of an environmental crisis on our hands. Indeed, such
environmental threats have been cited in research around the
world»5 Such environmental degradation includes:
desertification, deforestation, acid rain, the greenhouse effect,
the depletion of the ozone layer, toxic substances and the
extinction of animals and plant species. All of these events
have been explained in detail and consequence in a large but
inconclusive literature. Many of these terms are now common
household phrases and signify conditions which threaten the life-
support systems of our planet. In the United States, advocates
for the environment have strategically positioned themSelves
against those who favor unrestricted development. In the past,

some environmental advocates touted preservation as kind of

 

sPearce, 599.

ecclesiastical writ that must be observed. Purer environmental
consciences sometimes objected to any development at all.
Environmental policies were seen as those that tried to restrict
growth while development policies tended to be viewed as those
that promoted growth in human activity. But this is changing.
In recent years, the idea of environment as constraint has given
way to an acceptance of the environment as partner.6
Environmentalists realize that useful compromise can result from
the recognition that some development may serve the community
better if critical areas can be protected.7 Economists on the
other hand, are split. Those from the old school view natural
resources purely as commodities in waiting for production; that
is, to become consumed; however, economists on newer horizons,
are searching for means for integrating economic and sociological
theory. Nonetheless, economic growth or environmental
preservation are now perceived by many as the unsettling choice
that citizens now face.

Many economists will agree that our current economic dilemma
seems to be waning as a development predicament while the threat

of environmental degradation attracts more and more attention;

 

6Andrew Steer, "The Environment for the Development," Einance

egg Qeyelopemnt, 29. no. 2 (June 1992), 18.

7Jerry Adler and Daniel Glick, "Put Your Trust in the Land,"
Neweweek, (December 10, 1990), 76.

6

that development is slowly bringing us out of our dilemma but
only at the expense of the environment by depleting natural
reserves. However, the depletion of natural resources looms as a
threat to future growth, and the costs of preserving the
environment are rising8 Says economist John Shilling:

"debt crisis and environmental crisis stem from the same
root: environmental degradation resulting from the drive for
rapid growth, which given social structures and
technologies, leads to consumption of environmental
resources beyond sustainable levels."9

Furthermore, he points to a myriad of individual decisions shaped
by this country's policy framework and structure. "In some
cases, these decisions were due to subsistence demands of the
poorest segments of the population. But in many cases, it was
the relatively well off trying to increase their living standards
quickly."10

For centuries, governments at all levels have spurred
economic growth through resource utilization. However, rarely
are the costs of natural resource depletion and pollution
adequately represented in governmental income accounts or in
public or private budgets, meaning that drawing heavily on the

environment can easily appear to substantially raise measured

 

8John D. Shilling, "Reflections on Debt and the Environment,"

Einagee Q Qeyelopment, (June 1992), 28.
’Ibid., 28.

10Ibid., 28.

output (often overvalued) and lower measured costs (often
undervalued)." When GDP is not growing very fast, or indeed
falling, there is usually a scramble to protect incomes and
usually to the detriment of the environment. The failure to
resolve these internal distribution problems within the
constraints of available resources has, in some cases, encouraged
governments to follow shortsighted policies that are detrimental
to the environment.” These policies have included the opening

of fragile virgin timberland to harvest; an environmentally
expensive, but quick fix solution.

At local levels of government, the opinion that growth and
development are always positive and consensual is challenged by
political science professor Roland Anglin who states that "local
rapid economic growth has kindled debate about traffic gridlock,
environmental degradation, and spiraling land costs. Because of
these developments, citizens are reassessing their attitudes
toward unconditional support for growth."13 Public-choice theory
provides the dominant method used to examine local growth and

development. Its axiom is that growth is maximized in

 

"Ibid., 28.
12Ibid., 29.
13Roland Anglin, "Diminishing Utility: The Effect on Citizen

Preferences of Local Growth," urban Affairs Qeerteriy, 25. no. 4,
(June 1990), 684.

communities through the number of high-income residents and firms
and communities lure high income residents and firms by offering
an attractive bundle of public goods or an increased quality of
life. As benefits are divided among constituents, such as lower
average costs for public goods, they stay and continue to pay
local taxes. Because of such benefits, a consensus presumably
develops between the elite and the masses to support unfettered
growth and development. The move toward no-growth occurs where
growth brings enough negative utility to certain residents."
These residents tend to be upper to middle-class individuals
possessing the resources and time needed to mount organized
campaigns against rapid development and environmental
degradation.” Anglin contends that support or opposition for
growth largely is determined by how residents value the by-
products of growth. But these valuations are based upon the
polled opinion of residents and offer diminutive use towards the
establishment of economic value. What residents perceive offers
only subjective response towards choices over development versus
the environment. What is needed is a measurable means for
capturing the intrinsic values of nature that residents maintain.

These values should reflect the behavioral characteristics

 

“Ibid., 685.

1sBaldassare, Mark. Troubie in Paradise, (New York: Columbia
University Press, 1986), 86.

9

directly associated with the good and also be expressed in
monetary terms. A carefully constructed choice model could prove
to be a useful tool. Once data is obtained, it could be compared
with expected value from a well established set of equitable

alternatives.

0 U G H S ORICAL MODEL

Before we develop a choice model, it would be beneficial to
discuss the context of our development versus environment
dilemma. In exploring the relationship between development and
the environment we need to construct a brief historical model;
that is, how change has occurred over time. What we see is that
there exists a conflict in U.S. policy over economic development
and the environment. An on again, off again pattern had occurred
between political administrations where environment and
development policies have been written. Much of the
environmental policy has been conducted with only fleeting
reference to the development of the economy, the process which
assumes greatest explanation,‘6 and working in tandem with
capitalism has been our national quest for expansionism. Since
the low point of the great depression in 1933, the US economy has

experienced virtually continuous expansion; furthermore,

 

l6Redclift, 2.

10

Americans like to think of themselves as being always on the

move .

”Whether or not Lewis Mumford was correct - the fourth
migration was to be a resettling of the countryside and to
achieve a better balance between rural and urban
environments for living - it is interesting to note how much
the mobility of people has become a defining characterisitc
of what the USA stands for. Driven by technological change,
the spatial patterns of the country are in a perpetual
process of redefinition in a restless search for new
frontiers and opportunities"17

Though arguments have been made for the right of people to
live where they choose, they tend to be coupled with other
arguments that people should follow capital to new frontiers of
opportunity. Considerations of capital efficiency are, on the
whole, taken more seriously than other kinds of logic, such as
quality of life or the environment. Indeed, part of the
contradictory nature of capitalism is that the environmental
crisis presents a massive threat to the earning powers of
entrepreneurs, as under-written by U.S. policies.18 The U.S.
belief is that capital should have unrestricted mobility, and
that all factors of production including labor, should locate
wherever they expect the highest returns. People prosperity, it

is argued, is preferable to place prosperity, because it enhances

 

"John Friedmann and Robin Bloch, "American Exceptionalism in
Regional Planning, 1933-2000," International Journal of Urban end
Begienei Besearch 14 no. 4, (1990), 578.

“Redclift, 48.

ll

the efficiency of capital, and all of us gain when capital gains.
U.S. policies to promote regional expansionism have been availed
through projects like Hoover Dam, the Tennessee Valley Authority,
the Columbia River Basin Project and the construction of major
transportation projects during the "New Deal" era. Beginning
with the second world war, the federal budget exerted an enormous
influence on the spatial patterning of the U.S. economy and these
exertions were primarily based on military spending.19 The past
twelve years have been an era of self-proclaimed public-private
partnerships, "shameless excessiveness in the face of resurgent
urban poverty, environmental degradation, and the dismantling of
many social programs which popular movements had fought bitterly
to establish."20 Two major issues came to dominate this period:
local economic development and land-use and environmental
planning.

Citizen movements are beginning to demand tighter controls
on growth both to protect the environment in their immediate
surroundings and to ensure adequate provisions of public
infrastructure commensurate with the projected growth.21

Friedmann and Bloch believe that the next decade will see an

 

19Friedmann and Bloch, 586.
20Ibid., 597.
21Ibid., 598.

12

intensification of environmental activism, as the seriousness of
the threats to health from air and water pollution, toxic wastes,
and other hazards become increasingly apparent and as public
awareness increases.

"Demands will be made for stricter growth management at
local and even state levels and public opinions may well
support rather drastic measures to prevent further
environmental degradation and, if possible, to turn things
around. Because of this, state governments will have to
become even more involved than they already are with local
and metropolitan efforts at controlling environmental
quality and urban growth."22

Thus, we see citizen efforts directed at re-establishing
conditions of amenity in the community and environment which have
been threatened by relentless and, as it seems to many, socially
irresponsible growth. Furthermore, these citizens will need to
understand that growth has, in the past, been directly linked to
nature. "If we are interested, as we should be, in the ways in
which the environment is transformed under capitalism then it
might be useful to distinguish between the transformations that
occur as nature enters and leaves the production process."23 The
contradiction for us, lies in the fact that we frequently
overlook these transformations of exchange in value. While
seeking our own indulgence through consumption we unconsciously

create our undoing.

 

22Ibid., 598.
”Redclift. 178.

13

0W OH

We are not outside of nature, we are a part of it; which is
the most important truth about ourselves. Our artifacts and our
civilization is all borrowed. We are forever borrowing from the
environment to create and maintain our way of life. We borrow
resources from nature and transform them into goods in order to
gain some temporary measure of economic well-being. Everything
we transform eventually ends up back in nature after we have
expropriated whatever temporary value we can from it.24 The
moment we introduce the idea of borrowing into economics however,
a sense of responsibility suddenly enter the picture, because
with borrowing comes the notion of indebtedness. If every aspect
of our survival depends on borrowing, then we are indebted to the
core of our being. Just as Jerome Rifkin says, "There is no such
thing as free lunch," implicit in the concept of borrowing and
debt is the idea of paying back; but, to whom does this
responsibility rest? Some experts would say that the "me
generation,” are those who want it now, and prefer putting the
costs of unfettered development, inefficient use of resources and
other environmental externalities to future generations. Even in

a short interim, those whose current life styles benefit the most

 

24Jeremy Rifkin, De la at'on of a Hereti , (Boston: Routledge
& Kegan Paul, 1985), 97.

14

r1

1

from these casualties would also choose to defer paying for
environmental protection or preservation. So let us add to the
list of goals offered by David Pearce that sustainablility must
also include advocating for equity between generations and equity

within a generation.

' W N 0 PA

The ability to model human preferences for environmental
goods, through the 'willingness to pay' principle, rests on ways
of discounting present and future preferences. The rules for
assessing anticipated future losses "can be modelled and analyzed
in a framework which incorporates both economic and ecological
considerations."” But many economists remain unconvinced that
environmental resources represent a challenge which economics can
and should address. Some, following a utilitarian position,
would argue that there is no moral justification for extending
individual rights to future generations. Some economists clearly
do not see the environment as a problem for economics, even if
economics is a problem for the environment.26 Richard Norgaad on
the other hand, insists that economic models do need to meet the

challenge of future discounting. For one thing, future

 

25Pearce, 599.
26Ibid., 599.

15

generations need to inherit an improved capital stock and better
technology that will equip them to substitute resources and
overcome scarcity. The need to treat future generations as if
they are living now, he argues, is not just a requirement of
equity, but of the competitive conditions assumed by the
economist's model which assumes exchange between generations.27
Governments can rack up enormous future obligations far beyond
their capacity to pay and their accounts will look perfectly
balanced. Government accounting, in other words, is future-
blind.28 Vice president Al Gore, states that the accepted
formulas of conventional economic analysis contain short-sighted
and arguably illogical assumptions about what is valuable in the
future as opposed to the present; "specifically, the standard
‘discount rate' that assesses cost and benefit flows, resulting
from the use or development of natural resources, routinely
assumes that all resources belong totally to the present
generation."29 As a result, any value that they may have, to

future generations, is heavily "discounted" when compared to the

 

2"Richard B. Norgaard, "Environmental Economics: an
evolutionary critique and a plea for pluralism." Joernal of
o onom cs and a a ement, (August 1985), 455.

28David Osborn, and Ted Gaebler, Reinventing Governmenr,
(Massachusetts: Addison-Wesley Publishing Company, Inc. 1992) , 243.

29Al Gore, art The a nce, (Boston: Houghton Mifflin
Company, 1992), 191.

16

value of using them up now or destroying them to make way for
something else. "The effect is to magnify the power of one
generation to compromise all future generations."30 In the words
of Herman Daly, "there is something fundamentally wrong in

treating the earth as if it were a business in liquidations."31

O IN OBLE

Financial accounting teaches us that physical assets are
investments. When a government builds a highway or dam, it is
creating something of value, almost like a savings account. As
the dam ages and wears out, its value declines - because without
expensive repair, it will ultimately give way. This use is a
form of spending, in business it is called depreciation. But as
Herman Leonard points out, "our national accounting systems
hardly takes notice."32 Since they were designed to track cash
transactions, they don't record the declining value of a physical
asset. At all levels of government, accounting records almost
entirely ignore what assets are owned, their state of repair, and

their value. These systems therefore imply that it costs nothing

 

30Ibid, 192.

”Herman E. Daly and John B. Cobb. W.

(Boston: Massachusetts, Beacon Press, 1989), 8.

32Herman B. Leonard, C ecks U ba ced: The uiet Side

Pepiie_§pengigg (New York: Basic Books, 1986), 170.
17

I

to use existing assets. Indeed, they suggest the opposite: by
cataloging the costs of maintenance as a current expense, they
make it seem cheaper to use up assets than to keep them in good
repair.33

Consider the most basic measure of a nation's economic
performance: gross national product (GNP). In calculating GNP,
natural resources are not depreciated as they are used up.
Buildings and factories are depreciated; so are machinery and
equipment, cars and trucks. In the state of Washington, for
instance, why isn't the forest depreciated when it is cut down
and the topsoil washes away after careless harvesting methods
have reduced its ability to resist wind and rain? Why isn't that
loss measured as an economic cost of the process by which profits
are produced during the year? The wear and tear on the chain
saws and logging trucks as a result of a year's work will be
entered on the expense side of the ledger, but the wear and tear
on the forest itself will not. In fact, nowhere in the
calculation of this country's GNP will there be an entry
reflecting the stark reality that a million acres of forest is
now gone.34 And for all our institutions, the single most

important measure of progress in economic performance is the

 

33Ibid., 171.
“Ibid., 184

18

movement of GNP. For all practical purposes, GNP treats the
rapid and reckless destruction of the environment as a good
thing!

Economist Robert Repetto believes that traditional economic
valuation techniques lead to a gross distortion of national
accounts. He states:

”Natural resources make important contributions to long-term
economic productivity and should be considered as economic
assets whose value lies not in their investment cost but in
the potential income they can generate. If natural
resources are not treated as productive assets, economic
planners receive false signals that reinforce the unsound
dichotomy between the economy and the environment.”

The fundamental definition of income encompasses the notion
of sustainability. In accounting and economics textbooks, income
is defined as the maximum amount that the recipient could consume
in a given period without reducing possible consumption in the
future. Business income is defined as the maximum amount the
firm could pay out in current dividends without reducing net
worth. This income concept encompasses not only current earnings
but also changes in asset positions: capital gains are a source
on income, and capital losses are a reduction in income.
Depreciation accounts reflect the fact that unless the capital
stock is maintained and replaced, future consumption

possibilities will inevitably decline. In resource dependant

 

35Robert Repetto, "Nature's Resources as Productive Assets,"
Qhelienge (September-October 1989), 16.

19

economies, the failure to extend this depreciation concept to the
capital stock embodied in natural resources, which are such a
significant source of income and consumption, seriously distorts
economic evaluations.“ Even in economies where dependance does
not rely solely on the resource, to treat the loss of natural
resources and an externality is a travesty.

Such gross displacement of natural resource evaluation is
not indicative solely to national accounts. State and local
economies follow similar paths. Models which have been developed
to consider fiscal impacts as a consequence of development
specifically avoid indirect costs of environmental resource
depletion because of: "the near impossibility of predicting
accurately the secondary consequences of growth, the recurring
potential for double counting when primary and secondary impacts
are viewed simultaneously."37 These indirect costs are often
discounted as negative externalities to be written off because it
is assumed that the "contagion effects"38 of land uses in the
long run will net to zero. In other words, the extension of

development over areas that consequently destroys natural

 

36Ibid., 17.
n Robert W. Burchell, David Listokin and William R.Dolphin,
,- 1- F -c ' one_'- _ d: to _'s :l l°aC_ .A a s'~. (New
Brunswick New Jersey: Rutgers University Center for Urban Policy
Research, 1985), 3.
38Ibid., 3.

20

resources will have no meaningful, much less measurable,
consequences. Why aren't these consequences considered ahead of
time? If an assessment of the monetary value based on intrinsic
preferences can be made prior to a proposed development, perhaps
"negative externalities" that otherwise would be discounted as
worthless could be regarded as an asset. The environmental asset
could be either certain or contingent; meaning the assets
potential exists but is either inaccessible or unrefined in its
present state. In any event, if we are to accept the notion that
a natural resource can be an asset, in ways other than as a
direct market good, then we need a more concise definition as I

offer below.

T L RESOURCES

As previously stated, natural resources are not accounted
for in our economic well-being. Somewhere down the road we have
managed to confuse the idea of reproducible resource with the
idea of perpetually inexhaustible resources. They are not the
same. Living resources reproduce, but the life support systems
that nourish them do not; for example, air and water. Michigan
State University economics professor, Larry Pedersen takes an
more anthropocentric view point by stating that "resources are

not, they become;" that is, not until the attributes of good are

21

[Rik

discovered does a natural commodity become a natural resource
through derived demand. Therefore, resources are dynamic and
socially determined. Changing tastes can make a resource
uneconomical to use; for example, fur coats or burning wood for
fuel. Many resources cannot be measured. They are omnibus and,
as such, are available and shared by all. Thus, the means for
valuing many resources is, in some minds, a stretch of the
imagination; while in others, there exists a need to redefine
what natural resources actually are and what they do.

Lets assume a simple definition that resources are useful
and valuable commodities in the conditions we find them, either
through direct consumption or after processing. Taken a step
further resources serve an environmental function as:

Storehouse of raw materials

Source of convertible energy

Disposal support system for all flora and fauna
Source of aesthetic beauty

Space for occupancy

U'lwaH

As Albert Schmidt has argued, natural resources are the
products of a conversion process through which labor is applied
to nature. There is nothing natural about natural resources. To
begin with, the concept of property is socially determined in any
given environment. Natural resources are those which are of
potential use to human beings. They are socially determined in

the sense that "their value is related to the technologies used

22

in

to exploit them and the existence of people who consume them."39
Raleigh Barlowe defines natural resources by their division
into three primary classifications: funds, flows and composites.
Funds or stock resources are exhaustible. They can be chemically
changed through use, they wear out slowly and they may be
recyclable. Examples of fund resources include metals and some
fuels. Flows are self-renewing resource. Their basic
characteristic are that they can be captured, directed and
applied for use. These resources would include the sun, wind,
tides and other climatic phenomena. Composite resources are the
biological type and follow growth and decay curves. So long as
there is seed stock, composite resources can be renewed. The
productivity of these resources are heavily influenced by Mans'
intervention. The most prominent resource of this type is soil.
All types of resources call for different types of management and

are have different relationships with time and value.

OUN A

"Unless you can measure it, you can't control it," says
Repetto. "Resources are declining and there are only slight

efforts to quantify the natural resource system."40 While

 

39Albert Schmidt, The Concept of Nature in Mar . (London: New
Left Books, 1971), 105.

40Repetto, 16.

23

national income accounts treat buildings and equipment as
productive capital whose value depreciates over time as they
perform valuable work, natural resources assets are not so
valued. Instead, they are treated as gifts of nature rather than
as productive assets. "The hard truth is that our economic
system is partially blind. It see some things and not others.“1
It carefully measures and keeps track of the value of those
things most important to buyers and sellers, such as; food,
clothing, manufactured goods, work, and indeed, money itself.
But its intricate calculations often completely ignore the value
of other things that are harder to buy and sell for example;
fresh water, clean air, the beauty of the mountains, the rich
diversity of life in the forest, just to name a few. In fact,
the partial blindness of our current economic system is the
single most powerful force behind what seems to be irrational

decisions about the environment.42

RO E : VAL A ION
The idea of attaching a price to externalities has its roots
in both Marxism and Neo-classical economics. Marxists are

concerned primarily, with the process through which use values

 

“Ibid., 17.
42Gore, 183.

24

are converted to exchange values. Together with radical
ecologists, Marxists agree that the market allocates natural
resources in a inefficient way through time, ultimately
destroying the basis of survival for future generations.”
Nevertheless, Marxists see the commitment to commodity production
under capitalism as making ecological externalities inevitable.
Neo—classical economists have attempted to get around the problem
of environmental values by attaching a price to externalities,
enabling them to be treated as if they were part of an optimized
resource model.“ This does not necessarily enable economists to
incorporate the environment successfully into their analyses, but
it does enable them to model human preferences in the
environment, at least at the theoretical level.“ However,
exchange values are difficult to determine. Different people
have different preferences.

As we shall see, preferences will have a great deal to do
with the process of valuation. Monetary value, as such, is a
tightly defined and rigorously defensible concept. It is not, of
course, the only possible definition of value. As one reaches

beyond the economic disciplines, the concept of value takes on

 

”Ibid., 46.
“Redclift, 47.
”Ibid., 47.

25

additional meaning and interpretation. Unaware of these
additional potential interpretations of the meaning of value,
economists have frequently failed to communicate the limitations
of monetary measures.46 At the heart of monetary value are the
choices one makes for final consumption. These choices can be
viewed as bundles. That is, bundles of good or service that the
individual or group seeks to receive through the consumption of
any given commodity. This implies that values are inherent in
individuals. People do not buy goods because suppliers make them
and people do not utilize natural environments just because they
are there. Consumers decide what is actually purchased in the
market place or what benefits are to be anticipated in an outdoor
environmental experience. More subtle, the values being measured
are the rational motivation behind actual consumer decisions and
the values being sought are expected to be consistent with the
observable behavior of the individual.47 Economists model the
process of ranking and comparing alternatives using indifference
curves. Take for example a simple scenario like buying a cup of
coffee. I will need to make some assumptions that I have equal

time for each decision and that the availability (but not the

 

“Robert Mendelsohn and George Peterson, "The Definition,
Measurement, and Policy Use of Monetary Values", Amenity Besouree
yeieeti on, (State College, Pennsylvania: Venture Publishing,
1988), 54.

47Ibid., 55.

26

“My

price) of a cup of coffee is ubiquitous. Ordinarily I would
compare the price with all possible sources and would
superficially state that I arrived at my decision by comparing
prices in the marketplace. My decision can also be based on a
pattern of established behavior; that I have made this decision
so frequently that I no longer seek the valuation of the good
itself. Some economists would agree, that traditionally it is
not necessary to value the commodity to value the good. However,
in reality I am exploring my indifference curve by attempting to
derive at my anticipated maximum benefit: good taste, a boost in
energy, low calories, a hot beverage, quality, atmosphere, and
whatever else. In fact, all consumers compare along their
indifference curve all the benefits that they would typically
receive by making a particular choice. The point is, monetary
values are consequent and inadvertent behavioral values. They
are intended to explain how people actually make choices. In
experimental settings, psychologists have had difficulty getting
people to reveal their indifference curve. In these settings,
people have a tendency to be conservative and hold on to their
current bundle. These experiments have suggested that the
concept of an indifference curve is not part of consumer's

conscious awareness even though their market behavior may be

27

consistent with such a notion.48 'What is required is a well
defined map of indifference curves for any good or service under

consideration.

0 X G

As economies grew more complex and individuals became more
specialized, physical items became more specialized and awkward
as a means of exchange. Thus, societies gradually moved towards
a common easily transported and stable medium against which all
physical items could be traded. This common medium is money.
The dollars are not intended to be direct measures of
satisfaction but rather the small bundle of goods each of us
would give up to get more X and remain on our indifference
curves. The availability of market prices as a measure of the
marginal value of traded goods and services has, unfortunately
led to some confusion. Because the price of traded goods is
their monetary value, then goods without prices must have no
value. Services provided through the public or the environment
when not sold would appear to be worthless. This argument,
however is flawed. Many goods are not traded in the market
places so their monetary value is not reflected in market prices.

For example, national defense, public education, health research,

 

“Ibid., 55.

28

clean air and water, and most recreation opportunities in
national recreation areas are not bought and sold in the market.
Nonetheless, all these goods or services have monetary value as
long as people are willing to trade some of their wealth for
them.” Furthermore the value of both market and non-market

goods and services change as they become more or less scarce. In
any event, the problem lies not in whether monetary value exists
but in the application of methods for determining the monetary

value that these goods possess.

S V LU TION

For purposes of resource allocation, monetary assessment can
provide prudent and essential assistance in determining outcomes
for those resource. Deriving value for an individual is much
less complicated than that of society at large. Although the
basic building block is the individual's preference, it can only
be assumed that the social values of the individual and society
are identical. Furthermore, public goods are not consumed by a
single individual. For example, national defense, clean air,
outdoor recreation areas, or fisheries are all resources shared
by more than one user. The value of public goods, because they

are jointly consumed, is the sum of what all the users would

 

”Ibid., 57.

29

individually pay for the good. One widely recognized method is
contingent valuation which encompass both the willingness to pay
(WTP) and compensation demand (CD) principles that utilized a
branch of psychology called hedonics.‘o This method requires two
steps. First, a hedonic price schedule is estimated. This
simply represents an equilibrium price schedule and generally
does not reveal information about individual behavior. Second,
demand or bid functions are derived; although, this step is much
more complex due to theoretical and economic difficulties and
potential shifts in public policy. In practice, these techniques
are particularly well suited to studying localized externalities
since the key problems with the hedonic methodology and benefit
estimation do not arise.’1 A localized externality affects only
those in proximity to the externality such as urban neighborhood
settings. Determining people's willingness to pay for
environmental improvements or to avoid environmental degradation
is important in designing environmental policies. Similarly,
policy makers must frequently consider the compensation that

people would require to accept reductions in environmental

 

”The concept most commonly used by social psychologists to
refer to the value of any object is the concept of attitude, also
known as hedonics. An attitude is a disposition to respond
favorably or unfavorably to a commodity, person institution of
event.

”Raymond Palmquist, "Valuing Localized Externalities, " Journei
2f_flrban_figgngmigs 31 no. 1 (January 1992). 59.

30

quality.52 Outside of localized situations, WTP is not without
its problems. For example, there is a long-standing controversy
about the differences between willingness to pay and willingness
to accept in the contingent valuation literature.”

Willingness to pay reflects the money people would be
willing to exchange for more of the good and still be just as
happy as they are now. Willingness to accept (or compensation
demand) reflects the money they would have to be given to be just
as happy as with less of the resource. In both cases, the
intention is that the person remains on the same indifference
curve both before and after the change. Economists have had some
success with willingness to pay models in recreational settings
where users' behavioral characteristics are distributed over
travel time, taking work off, length of stay and other criteria.
On the down side however, WTA has been five to six times larger
than CD, in some studies, revealing that contingent valuation
estimates, or at least certain estimates of monetary values, must
be viewed cautiously.54

Other methods of valuation include simple travel costs

models designed to value an entire site by estimating the demand

 

”Ibid., 68.
”Ibid., 69.
“Mendelsohn and Peterson, 63.

31

for trips to the site. The hedonic property (wage) method
determines the value of environmental factors surrounding private
property (employment) by exploring the variation in sale values
(wages) within a private market. The multiple site travel cost
model is intended to value types of sites and to explore
interaction among systems of sites. The generalized travel cost
model attempts to value site characteristics by examining subtle
shifts in the demand for trips to various sites. Finally, the
hedonic travel costs method estimates the value of site
characteristics by examining how users choose which site to

visit.

OS 0 EL

In this section I will propose a hypothetical model that
might be useful for our purpose; that is, to simulate how a
valuation model might be applied for a natural environment in a
localized setting. The goals are to maintain private ownership
of property, to avoid the use of exaction proceedings, and to
encourage the use of conservation where conservation becomes a
convivial learning tool. An argument could be made for a nexus
between the lose of that environment and a legitimate state
interest, should a development significantly impact a natural

environment; however, I will want to avoid litigation where the

32

issue of taking is concerned. By encouraging the use of
conservation with WTP or WTA models, I hope to provide the means
for achieving mutual benefit and to create a situation where
participants engage in a learning process. In this scenario I
have formulated a hypothetical situation where a proposal is
before a local planning agency for a single family housing
development on a twenty acre parcel of property. A trout stream
runs through this property and is revered by fisherman as
exceptional. The stream is also a part of a much larger riparian
system where its banks connect with various other properties.
Environmental scientists have informed us that the destruction of
this portion of the stream would significantly impact the total
riparian system and therefore should be protected. The planning
commission does not want to prohibit the development of the
property because this development will provide greatly needed
housing and will augment municipal and school tax revenues. The
commission would like to recommend to the city council that it
establish a two part program. One that creates an initial reward
for a environmentally sensitive site plan and progressively
rewards the new housing association for following environmentally
sound maintenance practices. The planning commission has asked
us (consultants to the commission) to prepare both programs. Our

report will state the following:

33

1. that a density bonus be developed for initial
conservation effort.

2. that a ongoing tax abatement program be initiated to
reward conservation efforts.”

The planning commission has ask us to prepare a report
indicating the monetary value of that portion of the property
which contains the stream as it relates to the human choices
based on a willingness to accept model. This model should result
in a method for deriving the compensation equivalent to the tax
abatement offered. Furthermore, the intrinsic values which are
derived should be solicited in a market-like-environment
according to the following:

Consequently, if respondents treat an evaluation procedure
as a nonmarket process, their logical strategy is to
exaggerate actual values. In a WTP environment, they tend
to respond with value measures that understate their actual
demand for the good. Likewise, in a WTA environment, they
tend to overstate the compensation required to reduce the
level of a good's provision. Without the addition of a
market-like elicitation procedure that induces truthful
revelation of value, the gap and associated asymmetry
between WTP and WTA measures should not be expected to

 

”The establishment of a tax abatement program is intended to
simulate.Garret Hardin's concept of the "Tragedy of the Commons" in
which initial exploitation of a resource may lead to an immediate
gain for the individual but over time the losses become to great to
overcome, both for the individual and the community. To avoid
degradation of the stream over time, land owners who participate
in the conservation program will be rewarded through abatements.
Penalties in the form of higher tax assessments will be issued
should the opposite occur; In order to monitor conditions a yearly
inspection will be required. Furthermore, maintenance
specification will be written for the participants and would be
made available, free of charge, by the city.

34

disappear.56

To best simulate a market-like-environment we will select a
control group to conduct our experiment. This control group will
record their assessment on site at various times throughout the
experiment. Economists also say that it is impossible to
separate the measured value of the good from the elicitation
procedure through which the value is obtained57 thus, one of our
many tasks will be to devise a questionnaire in which values are
to drawn during the site visitation; however, there is another
issue of bias that must be overcome. Psychologists will argue
that may biases are more likely to arise from variations in the
frame work by which values are elicited.58 This means the
questions must be written in a way that also achieves equilibrium
between WTA and WTP. It must question the participants
indifference to the use of the stream and reveal the greatest
possible incentive for truthful revelations of intrinsic value.
Hypothetically, the experiment would work like this: Ten

individuals from the community would be randomly selected. The

 

“David S. Brookshire, Don L. Coursey and Karen M. Radosevich,
"Market Methods and the Assessment of Benefits: Some Further
Results. " Amenity Reseurce Valuation, (Pennsylvania: State College,
Venture Publishing, 1988). 168.

”Ibid., 168.

”Ibid., 168.

35

environmental attributes and boundaries of the riparian area
alone would be described to the group. They are told that only
the area within the riparian boundaries are to be considered.
Each individual in the control group is given 100 tokens. These
tokens are to serve as a monetary equivalent to an previously
determined exchange value. Prior to sending the control group
out to the site they are asked to bid an amount for the value of
the site; that is site unseen. Upon completion of this initial
bid, the individual is asked to visit the site within a specified
period of time. While at the site the individual is to answer
the corresponding survey. This procedure is repeated three times
and following each visit, the participants is allowed to adjust
his/her initial bid. Upon completion of the experiment, the
recordings are tallied and a distribution curve is developed.
The mean values can now be used to arrive at a level of
compensation that the homeowners would be willing to accept and
the actual compensation would result in yearly tax abatements.
Of most importance to this discussion is that neither human
values nor the environment of any kind or type are static. They
are in a continual state of transformation. Ecosystems are
constantly evolving as are human choices, influenced by tastes
and trends in the market place. We cannot base our models on

static assumptions about technology, tastes and environmental

36

investments by the community. Through time, all valuation models

will require adjustment to the attending conditions.

IHE_EBE§EHI_DILEMMA

Economists' tools alone might be too crude for assessing the
value of the natural environment. Economists have attempted to
value various environmental services but the question for them is
whether or not these values are meaningful. Monetary value is a
limited concept of exchange that is dependent on supply, demand,
competing substitutes, and consumer sovereignty. It does not
necessarily convey either inherent worth or ethical wisdom. Air,
for example, has no direct monetary value, but we can't live
without it. Monetary value can be further subdivided into priced
and non-priced, cash and noncash values. It also can be broken
into marginal prices and non-marginal values, and further comes
unglued in terms of willingness to pay for rights not owned and
compensation demanded for the loss of owned rights.‘9 The
problem for economists becomes one of maintaining efficiency. Is
it possible for economic analysis, to determine the intrinsic
value of nature? Environmental philosopher Mark Sagoff says yes
and identifies three broad categories: instrumental, aesthetic

and moral.

 

”Peterson, Driver, Gregory, 258.

37

The instrumental value of something is utility as a means to
some end. The "end" in economics is the satisfaction of
preferences. Price or willingness to pay are the common measures
of this type of value.60 People also value nature aesthetically,
as an object of knowledge and perception. To quote Sagoff,
"While the basis of instrumental value lies in our wants and
inclinations, the basis of aesthetic value lies in the object
itself, in qualities that demand an appreciative response from
informed and discriminating observers."61 Finally, according to
Sagoff, we value an object morally when we regard it with love,
affection, reverence and respect. "Like aesthetic value, the
basis of moral value lies in the object itself, rather than the
benefits the object confers on us."62 We often value moral
objects as unreplaceable. Moral and aesthetic value are both
intrinsic, that is, they are both concerned with the inherent
worth of something. The question becomes, can intrinsic values be
measured using the tools of economic analysis? Can they be
reduced, at least in part, to economic terms? "Given perfect
tools, economists can measure instrumental values. For example,

economic value tells us noting about distributive justice; how

 

60Mark Sagoff, The Economy of the Earth: philosophy, law, end
the enyironment, (New York: Cambridge University Press, 1988), 2.

 

“Ibid., 15.
”1516., 16.

38

should we compare a rich person's willingness to pay for a luxury
good with a poor person's willingness to pay for food? For the
most part, the tools of economics are fairly well suited to

"“ Perhaps economists could also

measuring instrumental values.
generate some very crude indicators of the aesthetic value of
nature, depending on exactly how we define aesthetic value.

While there are great philosophical and methodological problems
in measuring the aesthetic value of nature,64 I think that the
tools of economics can capture some, but not all, of this type of
value.

When it comes to the moral value of nature, however, even
perfect economic tools would be of little use. The reason is
simple: Moral values are nearly impossible to appraise across
groups of individuals65 and equally difficult to expressed in
monetary terms. Moral values are associated with a host of
espoused myths that are dissimilar in each person or culture
group. For example, the way parents value their children or the

way people value traditional burial grounds cannot be

meaningfully expressed in dollars. Rather than measuring moral

 

“David N. Bengston, "Toward Broader Theories of Values in
Forest Economics," Paper presented at the Midwestern Forest
Economists Meeting, Sault Ste. Marie, Ontario, 19 August 1991, 7.

“Ibid., 8.

65This would.be an:required.assumptionwwhere an un-bias control
groups is used to solicit a value judgement.

39

value using willingness to pay, exactly the opposite is required:
Our unwillingness to pay, or unwillingness to accept compensation

are indicators that we value something morally.66

QQHQLQ§IQE

I am not convinced that the instruments of economics are all
that are necessary for valuing resources. At times these
instruments appear to be too blunt. Perhaps they should include
other disciplines for measuring behavioral characteristics.
Trying to estimate the intrinsic values of nature with the tools
of economics is a bit like performing brain surgery with a chain
saw. It can't be done, and the results are very messy and
probably counterproductive. Chain saws cannot be used to perform
brain surgery, and the raw tools of economics cannot be used to
get at intrinsic values. New refined tools are required. When
decisions are made or justified on the basis of economic value,
to the neglect of deeply held, intrinsic values, the result is
increased social conflict over resource management.67 We need to
recognize that people value nature in ways that are not directly
be expressed in dollars; however, these deeper values seem to be

becoming increasingly important as economists in concert with

 

“Sagoff, 68.
67Bengston, 8.

40

social scientists seem to be breaking ground in this new field.
If economists are going to contribute to managing the
environment for multiple values rather than multiple uses, they
need to broaden their theory of value. When real market context
is not available, as in the case for nonmarketed goods, precise
specifications of the context becomes especially important. The
key assumption of the contingent valuation method is that
consumers are able and willing to answer such questions
truthfully. Those in the behavioral sciences are particularly
suited to develop these specifications. Economists need to work
with environmental philosophers, other social scientists,
ecologists, and the public to better understand the diverse and
complex values associated with nature. Nevertheless, economists
are not the only ones who need to push for changes. Social
psychologists and other behavioral scientists need to become more
interested in valuation in the context assessing nonmarket goods
(of applied public policy. Many of the topics they study, or at
least the way they are studied, are interesting from a scientific
point of view but are not very relevant to the needs of policy
analysts.68 It will take movement from both sides if more
effective collaborative arrangements are to be successfully

accomplished. Perhaps it is time for a discipline of applied

 

68Peterson, Driver and Gregory, 260.

41

behavioral economics, or applied economic behavior, with a
faculty consisting both of economists and of other behavioral
scientists and with a targeted agenda of policy application.
Lastly, the various value assessment models that have been
developed by leading scientists need to be tried where land use
applications can be found. I believe that the land use arena not
only provides a rich testing grounds but will prove to be the
litmus test for these models. They will either gather strength
or fail miserably when challenged for constitutional validity and
substance. Planners will need to exercise extreme caution when
either opting for amenity valuation models or interpreting their
results. In any event, the future for amenity resource
evaluation appears luminous. This text is an exploration of the
possibility of that new science, and of the environmental

benefits that could arise from its practice.

42

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