Social Desirability and Environmental Valuation

Abstract

The economic valuation of environmental goods 2.1. Measuring environmental values The natural environment is the basis for all human life on earth because it provides the foundations for its existence, such as air to breath, food, temperate climate which constitutes the atmosphere, and many more direct and indirect benefits. Through a variety of different channels the natural environment favors human life. So, in terms of economic theory, the natural environment clearly generates utility for individuals both directly by providing accurate space for their existence, and indirectly by allowing for the production of consumption and investment goods, such as food and inorganic natural resources. Those indirect and direct benefits of the natural environment can be referred to as environmental goods. The decisive difference between such goods and ordinary market goods such as furniture, food, or labor is the public good nature of environmental goods. When environmental goods are produced, i.e. when they exist in the form of an intact ecosystem, clean air, or a beautiful landscape, typically nobody can be prevented from enjoying the benefits provided by these goods. According to Samuelson (1954), this so-called non-excludability is one defining characteristic of a public good. The other characteristic of a public good, non-rivalry in consumption, is also given for many environmental goods. Benefits of a reforestation program or a program to reduce air-pollution for example can be enjoyed by everybody without diminishing the benefits for any other member of society (Samuelson 1954). Even though a pure public good that completely exhibits the two above characteristics is a merely theoretical concept, most environmental goods have clear public goods characteristics. Therefore, property rights for such goods cannot be clearly defined and as a result, markets where such goods are bought and sold do not exist. Consequently, environmental goods can be classified as nonmarket goods, so there are no market prices that would be the result of a market equilibrium, either. When the value of these obvious benefits, which environmental goods provide people and society with, cannot be quantified by means of market prices, other techniques have to be devised. Yet, before discussing ways to

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