Academic journal article Denver Journal of International Law and Policy

How to Value Environmental and Non-Market Goods: A Guide for Legal Professionals

Academic journal article Denver Journal of International Law and Policy

How to Value Environmental and Non-Market Goods: A Guide for Legal Professionals

Article excerpt

Putting a price on environmental goods may seem impossible. Without a market, how does anyone determine the value of a good? Complicating matters, some environmental "non-market" goods such as pristine wilderness or endangered species may at first seem "priceless." Nevertheless, people will have conflicts that involve environmental goods without markets. Imputing no value at all for environmental goods or declaring them priceless does not allow for negotiation. However, valuing environmental goods is routine for environmental economists, who are equipped with a "toolbox" of valuation and statistical approaches. While damage compensation awards often reflect loss of use, for legal purposes, a complete economic valuation may also include a good's "indirect use," "nonuse," and "existence" values.

This article serves to inform legal professionals about methods that can be used to value the environment, including non-market goods. An in-depth discussion about how to use "stated preference" valuation methodology, is also provided. The take-home message is that accounting stance (that is, who is viewing the problem) matters. For full accounting of an environmental or nonmarket good, both use and non-use values should be considered. However, each case is different, and it is up to the legal professional to decide what additions and subtractions to make to the ledger and to which side the adjustment should be made.

Use, Nonuse, and Option Values

Environmental goods consist of "use" and "nonuse" values. There are a variety of different methods that can be used to measure each of these dimensions. General examples are provided in Figure 1. Figure 1 is further described in the text that follows, and the concepts described in Figure 1 are provided in a threaded example using petroleum.

Figure 1. Use Values and Nonuse Values.

Use Values

Direct Use

  Petroleum extraction
  Harvesting plants

Indirect Use
Carbon sequestration
Clean air
Clean water

Non-consumptive uses
Wildlife viewing
Passive recreation

Nonuse Values

Option Values

Conservation of
Petroleum reserves
Future recreation

Existence Values
Natural areas (intrinsic value)
Pristine wilderness
Natural wetlands

Bequest Value
Passing a resource to future

Use Values

Use values reflect the most intuitive measure of an environmental good. As shown in Figure 1, the use dimension is divided into two classes: direct use and indirect use. It is critical to recognize that environmental economists use the terms direct and indirect slightly differently when they are dealing with an ecosystem, rather than a regional or national economy. (1) This article refers to "use value" the way it is presented in Figure 1, and in a manner that is consistent with the environmental economics literature.

Direct use in environmental economics occurs when humans utilize a resource. Direct use can be either consumptive or non-consumptive. Economists value direct uses when raw materials are extracted, developed, or cultivated for human ends. (2) Use value is measured as the quantity of the good produced multiplied by the price of the good. (3) A simple example is a forest, where the value of the property is reflected in the number of trees that are harvested multiplied by the price per tree. Determining a good's direct use value is relatively straight forward when there are prices and quantities that are associated with the resource.

The concept of direct use should be relatively intuitive to legal practitioners, who often use this method to determine lost income or wages in damage claims. In the BP oil leak in the Gulf of Mexico, environmental damages could be calculated by lost revenues to BP, whose commodity skimmed the Gulf's shores rather than filling fuel tanks. Likewise, lost income to shrimpers who are no longer able to catch shrimp could also be calculated as damages. …

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