The Economics of Natural Environments: Studies in the Valuation of Commodity and Amenity Resources

By John V. Krutilla; Anthony C. Fisher | Go to book overview

PART II
APPLYING THE ANALYSIS: SELECTED CASE STUDIES

INTRODUCTION

In part I of this volume we have attempted to put in the framework of economic theory those aspects of environmental concerns that have their roots in the aesthetic dimensions of the environment. These concerns have found expression in a growing body of legislation applicable to public lands. This speaks to the importance of these lands in providing the amenity services for which an affluent society has exhibited an increasing demand. The implications of this legislation are extensive, since the natural environments under the administrative jurisdiction of public agencies represent vast areas of largely undisturbed land.

Except for specific land reservations designated for primary purposes (allowing only compatible related uses), most of the public land is still subject to allocation among alternative competing demands. On notable occasions one of the competing demands may be incompatible with another in perpetuity, i.e., it may destroy the substance of an amenity resource, eliminating access to its usufruct for all time. In chapter 2 we noted a problem in this connection in the assessment of the relative value of alternative uses of open access resources of the public lands. Where the beneficiaries of the flow of services from amenity resources are required to assume liability for the opportunity returns forgone from a prohibited destructive use, the benefits so measured are smaller than if they were measured as compensation for damages resulting from a destructive use of the environment. The reason for this turns on the difference between monetary income, on which the ability to pay depends, and real income, which depends as well on final consumption benefits derived from common property resources not necessarily matched by monetary income. Applied to nationally significant environmental modifications, these differences could be very large. Accordingly, any evaluation of benefits based on a willingness- to-pay criterion, under such circumstances, provides potentially only a lower bound estimate, depending on the assignment of property rights.

Results having somewhat the same implications are obtained from an analysis in chapters 3 and 4 of optimal investment planning (of a development project in a natural environment) under conditions including irreversibility of the investment and uncertainty as to its consequences. For example, we find under these conditions that there is likely to be a value, which we call option value, beyond the conventional (expected) consumers' surplus associated with preserving a natural environment. These theoretical considerations are worth exploring because they provide val-

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