Can We Put A Price On The Environment Economics Essay

In recent old ages people have become more cognizant of clime alteration and how it will impact the environment we live in. As clime alteration becomes a greater menace to society, scientist face a larger challenge in protecting home grounds. It has been stated that it is anthropological harm which is endangering the environment the most. This is non merely done straight but besides indirectly. However seeking to turn up where the duty lies to seek and extenuate this environmental harm is frequently ill-defined. This is particularly the instance when covering with common land or publicly used land. In these state of affairss Willingness to pay and willingness to accept is frequently used to bring forth financess needed to mitigation environmental harm. However in a universe where everything finally boils down to money, is it moral to set a monetary value on the environment?

There is no activity that is explicitly called “ valuing the environment ” . However what environmental economic experts seek to make is to mensurate people ‘s sentiment of environmental betterment or preservation ( Pearce, 1994 ) . In Environmental economic sciences the environment is valued as a physical entity and is valued for its aesthetic properties ( Hanley, 2008 ) . The environment is see as something which is publicly owned. Due to this the market fails to set a value on the environment ( Hanley, 2008 ) . As a consequence a non- market rating techniques must be used.

Contingent rating is the most widely used method to gauge this value ( Hanley, 2008 ) . This looks at how an person is affected by the loss of resource due to environmental debasement ( Pearce, 1994 ) . Contingent rating has been the topic of broad debated amongst faculty members. Many have criticised Contingent rating saying that the merchandises can frequently hold ill evaluated estimations, which brings inquiries about its cogency ( Bateman, 1996 ) . For this ground many environmental economic experts have a degree of distrust towards CV studies as there is a instance of people being bias and these causes at that place to be some disparity ( Mansfield, 1999 ) . From these measurings environmental economic experts are able to cipher the value the participant is “ willingness to pay ” ( WTP ) or “ willingness to accept ” ( WTA ) . Both these footings make premises about our ability to aggregate these single ratings ( Pearce, 1994 )

Willingness to accept has become a cardinal construct in foretelling the value an plus has to its proprietor. WTA can be defined as the minimal monetary value at which a individual is willing to sell a ownership ( Zellweger, 2008 ) . Willingness to Accept involves a individual having compensation due to loss or land. This can be applied with both in private or publicly owned land. WTA is used it there a lessening in environmental measure and the respondents have belongings right to the pre-change state of affairs ( Pearce, 2002 ; Zhai, 2009 ) . As environmental harm occurs it may go necessary to buffer ecosystems from human intervention or to seek to relocate home grounds. If this is done it may be ineluctable to make this without upseting worlds. This perturbation may hold a series of knock on effects to their lives for illustration loss of income. In this scenario compensation may be offered in the signifier of Willingness to Accept.

An illustration of where WTA has been applied is Tokyo Bay.Nearly 30 million people inhabitants the coastal country of Tokyo bay and is home to 30 % of the Nipponese economic system ( Zhai, 2009 ) . The sites is besides is used for agribusiness and for many provides there beginning of income. The site offers a diverse scope of home grounds. The site has faced an increasing degree of hazards due to lift in the sea degree, debasement of coastal environment, coastal eroding, temblors, and high moving ridges are facing human colony environments. It was decided by the authorities that to possible harm to the site they would cut down degree of entree to the coastal waterfront ( Zhai, 2009 ) . The coastal waterfront is used by people and hence has an environmental value.In this state of affairs the coastal waterfront can be considered to be a common goods ( Zhai, 2009 ) .

It was concluded that the coastal waterfront should be regarded as one of the belongings rights of coastal occupants in Japan. The economic value of a coastal ecosystem was calculated by gauging the part it made to human public assistance ( Zhai, 2009 ) . The economic value of Tokyo bay has been found to be 539 trillion hankerings ( Zhai, 2009 ) . This took into history the coastal hazard appraisal procedure to measure the efficiency of coastal hazard decrease steps. Zhai indicated that the WTA in Tokyo bay is 65.3 million hankerings per family ( Zhai, 2009 ) . This is more than ten times their one-year family income.

Many bookmans have a negative sentiment of WTA, saying it is immoral. There is frequently a position that WTA is merely “ acquiring money for nil ” . For illustration if the land is used by a community but ain by a council, the community have right to compensation even though they do non have the land. Besides a big sum of the literature have criticised WTA as it is seen to be implausible. It is frequently the instance that participants abuse the system and claims a larger sum of money that the land is deserving. This is done so they can have the most money for selfish grounds. This is due to the fact that respondents miss the experience of calucatling the degree of compensation claims for environmental goods ( Ward, 1992 ) . This may take to protesting or strategic command ( Lienhoop, 2007 ) . However in Leinhoop ‘s survey it was argued that if CV participants are given the clip and information they are capable to come to a logical monetary value. Leienhoop concluded that “ people need clip to believe about all the relevant properties associated with a complex good and make up one’s mind how much they care about each ” ( Lienhoop, 2007 )

Willingness to Pay can be defined as the act of measuring how much people are will pay to avoid any environmental harm. So for illustration if there is an surplus of pollution in an country this may be used. The local community will hold to pay a fee to the defiler so they stop fouling. Pearce stated that WTP should be applied to increase measure in countries where there is no belongings right to the post-change state of affairs, but have a belongings right to the pre-change state of affairs ( Zhai, 2009 ; Pearce, 2002 ) . To cipher the WTP the Environmental Kuznets Curve is frequently used. The Environmental Kuznets Curve uses the mean incomes in the country and the GDP per capita ( Jacobsen, 2008 ) . WTP can be estimated utilizing the mean household income and the GDP per capita for the state from which the sample is drawn ( Jacobsen, 2008 ) .The rate of WTP may besides change if there are rare species present and can differ along with the size of prospective alteration in the home ground or species ( Jacobsen, 2008 ) .

The Cockermouth Flood revenue enhancement is an illustration of the council implementing WTP. In 2009 Cockermouth experienced server flood with Waterss which reached 2.5mA ( BBC News, 2009 ) . Over 1,300 places were flooded and many were left without power or brinies H2O ( 2009 ) . As is of all time the instance many were left temporarily homeless for a long clip after the inundations. In the wake of the inundation the councils chief purpose was to put in flood defense mechanisms Town council members can ducted a study to measure whether occupants would be willing to pay excess council revenue enhancement to in order to contribution demand towards the ?5.2 million inundation defense mechanism strategy. Degree of payment needed was between ?8.97 and ?26.90 extra a twelvemonth depending on what set of house was take parting. The strategy was agreed by the local community and will run for three old ages ( New and Star, 2011 ) . The inundation defense mechanisms are planned to dwell of a series of walls, embankments and inundation Gatess along the River Cocker and River Derwent. Flood defense mechanisms will cut down the hazard of deluging in Cockermouth to a 1 % opportunity in any one twelvemonth ( Enviroment Agency, 2011 ) .

However some carbon monoxide munities are non as willing to take portion in WTP as Cockermouth. It is frequently the instance that members of the community do non wish to take portion in WTP and may protest against the step of economic value ( Jorgensen, 2000 ) . As WTP is normally done to forestall environmental harm it can be said that those who refuse to pay face bias from the local community ( Jorgensen, 2000 ) . It may besides be the attitude for participants to believe why should I have to pay to halt environmental harm? For illustration if the towns H2O beginning is being polluted it may be seen as unfair for the hapless to pay as they are non the 1s who have coursed the harm ( Jorgensen, 2000 ) It is frequently the instance in some states that CV practicians have gone to those who will non pay and size up their grounds for rejection for WTP ( Jorgensen, 2000 ) . However so on the other manus it could be argued that Wealthy occupants may besides be against paying if they believe they are below the belt targeted to bear the cost of intercession ( Jorgensen, 2000 ) . The usage of WTP for environmental losingss is has been criticised as it may good undervalue the environmental costs of a undertaking. This is particularly an issue when the good to be valued is alone and non substitutable ( Lienhoop, 2007 ) . WTP frequently has a negative consequence on one-year family income and vector of monetary values ( Jorgensen, 2000 ) . Peoples may be deterred from purchasing a house in a country with WTP, as it ties you into a long term contract that new comers to the community may non understand, hence see it as unneeded ( Jorgensen, 2000 ) .

However there are times where both WTA and WTP can both be used. This was demonstrated in the forestry committees Community Woodland strategy. In 1991 the Forestry Commission announced programs to implement a Community Woodland strategy. The strategy was financed by WTP from the local communities. Community woodland strategy is controlled by the local community and is leased to the group ( Community Woodland Association, 2012 ) . The purpose of the strategy was to supply new recreational forest installations in to towns and metropoliss, which did non hold any forest nowadays ( Bateman, 1996 ) . To accomplish this end they bought land from local husbandmans and got local communities to lend to the coat of running the site. Therefore in this case WTA and WTP were used ( Bateman, 1996 ) . At first merely 37 % of the husbandmans in the local country were willing to apportion land to the strategy in the return for compensation. This was due to concerns of public entree irrupting onto their land ( Bateman, 1996 ) . The Bateman survey found that Farmers ‘ were unhappy with the degree of WTA they received due to the current degrees of subsidy payment being excessively low. However the WTP acted like a feedback system as the benefit values generated by such wood lands increase the sum of money available for WTA payments to husbandmans ( Bateman, 1996 ) .

Many surveies have indicated that there is normally a difference in the sum people are willing to pay and the sum people will accept ( Horowitz, 2002 ; Plott, 2005 ; Minkler, 1999 ) . For illustration if we look at the difference degrees of money involved it is frequently the instance that WTP is a batch lower than WTA ( Minkler, 1999 ; Bauer, 2008 ; Thaler, 1980 ) . The difference in monetary value between WTA and WTP can be explained by the “ endowment consequence ” ( Plott, 2005 ) . The gift theory is based on the psychological science of penchants associated with “ prospect theory ” ( Plott, 2005 ) . The endowment consequence theory explains that people have a penchant which leads to the proprietor to defying to sell goods. This is because they are loss aversive or because merchandising is perceived as “ losing ” the endowed good ( Plott, 2005 ) . Numerous surveies have highlighted that there is a well higher monetary value to give up an object that they already own, than one that is non. Therefore people will accept a much higher monetary value to sell something than to pay to maintain it ( Bauer, 2008 ) . Knetsch believes that “ The endowment consequence and loss antipathy has been one of the most robust findings of the psychological science of determination making-people normally value losingss much more than commensurate additions ” ( Knetsch, 1989 ; Plott, 2005 ) . However it has been suggested that the being and magnitude of the endowment consequence varies on the trade good employed in the experiment ( Plott, 2005 ) .

In some respects it could be argued that the usage of WTP and WTA is slightly degage wholly from the environment. Some bookmans have indicated that the endowment consequence leads to people being selfish as It is frequently the instance it is done predominately for human addition. For illustration in Hite ‘s survey looked into if people were Willingness to Pay for Water Quality Improvements in the Mississippi country. The survey indicated that 62.4 % of people were willing to pay for improve H2O quality ( Hite, 2002 ) . When Hite look into why people agreed with the WTP, she found most people wanted it to continue human wellness. Of the 62.4 % who agreed 81.4 % of people stated it was needed to “ To protect the environment for human wellness ” while merely 2.7 % wanted it for “ To protect the environment for biodiversity ” ( Hite, 2002 ) .

In decision the monetary value given to set down in WTA and WTP is instead the cost of continuing an environment or counterbalancing the loss of land for a person. This finally comes down to the endowment consequence and what the land means to the people involved. Hanley provinces that when working out “ Landscape value it is more likely that people will believe of why a landscape is of import to person, instead than what they are willing to pay to protect it, or their penchant for it comparative to others ” ( Hanley, 2008 ) . It has been found that people can develop a “ sense of topographic point ” , and “ topographic point fond regard ” to a an country which they are peculiarly fond of. This “ sense of topographic point can act upon how they value a peculiar landscape, and the sentiments on alterations in this landscape ( Hanley, 2008 ) . Thaler found that if country of land has a high emotional value the WTA monetary value which the person privation will be well higher ( Zellweger, 2008 ; Thaler, 1980 ) . There are assorted types of emotional costs related to their ownership interest. For illustration if there have been any personal forfeit, loss of employment, and the load of duty this loss of income will hold for employees ( Zellweger, 2008 ) . Dramstad stated that “ people are influenced by a mixture of logic and emotion that incorporates facets of landscape construction, biodiversity and cultural heritage ” ( Dramstad, 2001 ; Hanley, 2008 ) .

The leader of A The Economics of Ecosystems and Biodiversity, Pavan Sukhdev states “ You ca n’t value nature per Se, other than to state it ‘s invaluable… … But what you can make is mensurate the economic value of services that come to you from nature. ” ( Jowit, 2010 ) . Once WTA and WTP is excluded any fiscal behavior by the proprietor the Emotional value can be seen as the difference between the fiscal input to the proprietor and the minimal monetary value at which they are willing to sell ( Zellweger, 2008 ) .Therefore it can be concluded that the monetary value of the environment is subjective as it depends on how the individual measuring the environment feels about the topographic point they are in.