Forests produce a great variety of goods and services for people. Thus, forests have value to people and contribute to meeting human needs in a number of ways. The contributions occur through: (1) direct use of the forest; (2) indirect use of the forest; and (3) the mere existence of the forest or of options for its future direct or indirect use.
Competition for use of the world's forests is increasing. The public is more concerned about the fate of its forests. Thus, forest managers are becoming more broadly accountable for decisions regarding changes in such uses. Increasing the available knowledge about the broad range of values associated with forests provides decision makers with useful information for making choices among alternate uses of forest and land that meet the needs of the various groups involved.
The present discussion deals with economic values associated with forests. These are values to which we assign some monetary measure, whether derived through market transactions or through other means, which economists call “shadow pricing.” Table 1 provides examples of each type of economic value associated with forests.
Decisions on forest use and misuse are driven by many different values, only some of which can be measured in economic or monetary terms. Thus, values associated with ethical, religious, and other social concerns also enter into consideration.
The origins of values, including economic ones, are psychological and thus depend on individual human perceptions of values. Therefore, (1) they vary from individual to individual and from group to group, and (2) they can change rapidly over time as individual situations and perceptions change. These two points are critical to keep in mind in any practical discussion of valuation: There are no absolute economic values - other than in the perceptions of individuals, and these perceptions tend to be dynamic, changing as circumstances change. Individual perceptions of the real world can be a distorted picture of what actually exists.
In the present paper, we deal with a number of questions that logically arise in the mind of the decision maker: What are economic values and why are they useful? In what contexts should we use them? Whose values do we consider in decisions? How can we measure or estimate economic values? How can we use them in practice?
The remainder of this paper takes up each of these questions in turn. Below we provide some brief, summary answers to the questions.
What are economic values, and why are they useful to decision makers? (Chapter 1)
“Economic concepts of the value of natural resources begin with individual willingness to pay.... all consumers have their own values and their own tastes and preferences by which to judge the relative merits of one good or service over another. Economists believe that aggregate or social values can be derived by adding these individual values” (Kramer et al. 1992).
Table 1. Values associated with forest contributions to human welfare.
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DIRECT USE VALUES ASSOCIATED WITH Consumptive Uses
INDIRECT USE VALUES ASSOCIATED WITH:
OPTION AND EXISTENCE VALUES.
Note that any of the above values can be considered at different scales, e.g., catchment, forest, watershed, region, nation, globally. |
Economic values are associated with monetary measures. People's tastes and preferences are translated by economic valuation into monetary units of measure. Various techniques are used (see chapter 4).
Economic value measures establish a common metric of value. Thus, they can be used to establish values of unlike things, such as timber and wildlife, recreation and watershed benefits. Because of the common metric, we can add up the values of unlike goods and services to arrive at aggregate values, i.e., commensurable values are established.
For the same reason, economic value measures provide the opportunity to make comparisons between competitive, unlike goods and services from the forest, e.g., timber and recreation. Generally, there are competing interests and, therefore, viewpoints on the best use for given forest areas. Thus, in making choices among alternatives, we want to compare the alternative. But such comparisons have to be made in specific decision contexts, and with specific tradeoff criteria in mind.
Economic value measures are mainly useful in a decision-making context, i.e., the main use for monetary measures of forest values is as information on which to base comparisons of, and ultimately decisions on, proposed changes in forest management and use. Such changes might be opening up a forest to logging or to settlement, establishing a new forest on bare land, or clearing it to make way for other uses of the land, or setting it aside as a protected preserve. The discussion that follows takes the perspective of public forest managers and other planners/administrators who have to make these types of tradeoff decisions, whether at the management or the policy level, for public forests.
Ideally, public decision makers should be neutral figures. In reality, we recognize that they clearly are not always so. They have their own interests and agendas; and those often are reflected in their value perspectives and ultimately in their decisions. However, for presentation purposes, we assume that the public decision maker is neutral and dedicated to the public good, allowing for the values of the various interests of society, including those associated with the welfare of future generations.
In what decision contexts should we use economic value measures? (Chapter 2)
As mentioned above, economic value measures are of primary use in comparing and making decisions on proposed alternate uses for the forest. If decision makers do not have a proposal for change (i.e., a proposed alternative to the status quo) in hand, or in the emerging stages, then they do not need value measures, other than purely for reasons of curiosity, which is a luxury that most cannot afford. Given this point, it is important to understand the decision context before moving on to try to measure or estimate economic values.
The values needed and the best way to estimate them will vary with the decision context. In all cases, the values associated with a proposed change should be compared with the status quo, i.e., the comparison should be between the sets of values that would exist “with and without” the proposed change. Thus, in all decision contexts, we are talking about incremental change in values. Beyond that, there are great variations in both the policy and administrative contexts associated with decisions and values. These need to be sorted out.
In most contexts, we cannot ignore the fact that different groups have different values that they associate with forests. Again, there are no absolute values, only those that exist in the perceptions of people. Thus, the next question arises.
Whose values should we consider in making decisions? (Chapter 3)
In all situations involving proposed change in forest management and use, there are different interested groups that will be affected in different ways. Costs as well as benefits are involved in making most changes. Some groups would perceive negative values from the change; others would perceive positive values. These different affected groups are called here “interested groups.” The question for the decision maker is: which interested groups should I consider in making my decision? Ideally, it might be all groups. In practice, depending on the context in which we are making decisions, we can consider only some groups. Further, we will attach different weights to different groups, depending on their importance in the decision context. We not only have to be concerned with the unit values associated with the different interested groups' perspectives, but also with the aggregate values involved.
As a first step, we identify the various interest groups involved or affected by a proposed change and then define their various value perspectives that need to be reconciled in the decision process. To what extent are the various perspectives similar and complementary? To what extent do they compete or conflict? As an example, it is proposed to open a given forest area for logging. Some obvious interested groups would be the proposed loggers, the indigenous populations that live in the forest areas, the country or province that owns the forest (and thus would gain revenue), various environmental groups, and the consumers of timber products, particularly if the increased logging resulted in lower prices for consumers.
How can we best measure economic values associated with forests? (Chapter 4)
The most common, observable measure of economic value was developed by citizens themselves centuries before we even thought up the word “economics.” The measure is derived through market transactions and called “market price.” Values measures - called prices - are developed in markets by the willingness to pay of consumers (buyers) and the willingness to sell of producers (sellers). Market prices provide a strong tool for economic analysis.
However, in some cases, market prices do not reflect true willingness to pay (wtp) for a good or service. In other cases, market prices do not exist. The latter situation is true for many goods and services associated with forests. Over the years economists have developed some ways of correcting market prices in cases where they do not provide a good reflection of economic value or wtp. We discuss these various measures and their usefulness in terms of the main categories of forest goods and services.
What guidelines exist for using economic values in practice? (Chapter 5)
For the public sector, the following general approach can be used in sorting out the values of different interested groups and their importance in different decision contexts. It also can be used in developing economic or monetary measures of value, where such are appropriate:
Define the decision context for a proposed change:
define the policy context as clearly as possible;
define the administrative context in terms of what decision criteria are acceptable;
limit the number of value perspectives considered;
consider context broadly enough to include the main external effects of a decision on value measures;
define and get consensus on economic tradeoff criteria for decisions, since they influence the valuation approaches chosen; and
use the “with and without” principle.
Once the context has been defined, value the relevant costs and benefits with and without the proposed change:
start by estimating values of costs, and then the values associated with the easiest to measure, important benefits;
use market prices where such exist, adjusting where necessary;
work with “policy prices,” or values that reflect the decision context;
allow for capital value changes as well as flow values;
take “time value” into account to adjust values to a common point in time; and
do not try to value everything in economic terms.
Deal appropriately with value uncertainties:
deal with uncertainties in input-output information; and
deal with uncertainty regarding future values.
