CBA

Question 1

What is value?

Answer 1

Value - the quality (positive or negative that renders something desirable or valuable

Question 2

What is economic value?

Answer 2

Economic Value of Ecosystem Services

• expressed as exchangeability for other goods, taking into account all relevant costs of the good and social benefits provided by it.
• but it, of course, doesn’t encompass the whole value
• Financial ( for institutions) vs. economic (for individuals)

Question 3

What is maginal value?

Answer 3

Marginal Value - the value of the last piece that you consume.

Question 4

What are the difficulties/problems with valuation of ES?

Answer 4

Problems with valuation of ES
Many ES not traded on market because they are either
- public goods: non rivalrous and non excludable
or
- no market exists for the ES (e.g. no market for clean air)
BUTES provide benefit to people so as such they do have an economic value. But it is just difficult to value it properly. Ecocentric value, non-market value and market value.

Question 5

Why value ES?

Answer 5

• to enhance decision-taking
• to explain the benefits of environmental policies ( in terms of fiscal account and public support)
• BUT there is always a risk in valuing ES as it can never capture the whole value of ES

Question 6

What are the ES value types?

Answer 6

Value types

• use value
• non-use (existence value)
• option value
• total economic value = UV+NUV+OV

Question 7

What is the total economic value?

Answer 7

• total economic value = UV+NUV+OV

Question 8

What are the types of use values?

Answer 8

Direct value (provisioning services, cultural services) vs. Indirect value (regulating services, cultural services) vs. Non-use value (ecocentric value e.g. cultural service) vs. Option value (provisioning/regulating/cultural services)

Question 9

What is the process of valuation of ES?

Answer 9

Step 1. specification of the boundaries of the systems to be valued.
Step 2. Assessment of ecosystem services in biophysical terms
Step 3. Valuation using monetary, or other indicators
Step 4. Aggregation or comparison of the different values

Question 10

What are the 2 different types of valuation methods?

Answer 10

Revealed preferences ( indirect):
- hedonic pricing (how environmental factors affect the price of a home)
- travel cost method (TCM) - sum of all travel costs by each individual to the recreational site
Stated preferences (direct):
- price data (if there is any)
- contingent valuation method (CVM) - survey which asks how much money is someone willing to pay to maintain the existence of an ES.
- choice modelling - deriving data from the choices of the attributes of an ES that people are willing to pay for.

Question 11

What is hedonic pricing?

Answer 11

hedonic pricing (how environmental factors affect the price of a home)

Question 12

What is the travel cost method?

Answer 12

travel cost method (TCM) - sum of all travel costs by each individual to the recreational site

Question 13

What is contingent valuation methods?

Answer 13

contingent valuation method (CVM) - survey which asks how much money is someone willing to pay to maintain the existence of an ES.

Question 14

What is choice modelling?

Answer 14

• choice modelling - deriving data from the choices of the attributes of an ES that people are willing to pay for.

Question 15

What could be a value indicator for groundwater infiltration?
What could be a value indicator for wood production?

Answer 15

Avoided costs. Net revenue for the park

Question 16

What is the cost benefit ratio (NPV)?

Answer 16

net present value of costs / net present value of benefits

Question 17

What are amortized costs?

Answer 17

translating one-off investment into an annual cost ( e.g. morgage)

Question 18

What are the net annual benefits?

Answer 18

Net annual benefits = annual revenues - (operation + maintenance + other recurring costs)

Question 19

What is payback period?

Answer 19

Payback period - number of years required to pay back for the investment costs. (costs / net annual benefits)

Question 20

What are the opportunity costs?

Answer 20

Opportunity costs - costs related to foregoing an investment

Question 21

What is NPV?

Answer 21

NPV -net present value - reflects the monetary value of an investment on the basis of its cash flow during a discounting period and a discount rate

Question 22

What is IRR? And how high should IRR be for a company to invest?

Answer 22

Internal Rate of Return (IRR)is the exact discount rate that makes NPV equal 0.
The higher the risk the higher the IRR should be. For the investment to proceed the IRR should be of atleast 15%

Question 23

What is economic value resulting from a market transaction or the supply of an ecosystem service?

Answer 23

The sum of consumer and producer surplus.

Question 24

What about inflation when doing CBA?

Answer 24

Usually, inflation is ignored, so work in constant prices and indicate which from which year the prices were taken. Though CPI can also be used as an alternative.

Question 25

How can costs and benefits be compared in CBA?

Answer 25

Through CB-ratio, NPV, IRR

Question 26

How to value biodiversity?

Answer 26

Can only be done through contingent valuation and related methods.

Question 27

How can the function related to the ecosystem service fisheries be defined? And how can they be calculated?

Answer 27

The function is ‘capacity to support fisheries’, which can be defined on the basis of the sustainable fish harvest levels of coral reef. Calculation of sustainable fish harvest levels requires fish population models, based on water temperatures, food availability, foodwebs, predation, etc