Economic Valuation of Ecosystem Services: A Review of Concepts and Methods

Ecosystems, if properly managed, provide a vital variety of services such as the production of goods for human beings. Therefore, they need to be protected and developed as a fundamental solution to achieve sustainable development and ensure the well-being of generations. Ecosystem services are natural activities and functions necessary for human well-being. Understanding the value of natural property as one of the preconditions for sustainable development reveals the significance of valuation. In fact, valuing ecosystem services is one of the main tools for protecting the environment and natural resources. Using economic valuation ways in actual policy making is a rare phenomenon. Analyzing the valuation studies shows the need in future to strengthen the sectors that affected by economic valution regading decision making.

Topics presented in this article are based on a review of the scientific literature on the economic valuation of ecosystem services, concepts of ecosystem services and classification of services based on the Millennium Ecosystem Assessment (MEA, 2005), interviews with experts from various academic and research centers and library studies and Internet sites.

Monetary arguments for recognizing the relative importance of different forms of ecosystem services and natural capital may not be universally accepted, but they can be useful and convincing for decision makers. In other words, if they do not value the benefits provided by nature, they are considered worthless and the current trend in the decline and destruction of natural systems will continue. In environmental policies and natural resources, economic evaluation involves determining the monetary value of changes in services and the functions and shares of natural capital. A valuation of natural resources and the environment by economists contributes to understanding the benefits of the environment, helps decision makers and planners become cognizant of the environmental issues, and specifies the relationship between economic policies and natural incomes. If the valuation of environmental services and natural resources is based on units that are not comparable to other goods, it is supposed that these services are free.In factoverlooking the value of these services, at the level of decisions, leads to the adoption of unsustainable policies. Thus, the economic valuation of natural resources helps managers plan the protection and sustainable use of the environment and natural resources by raising the quantitative value of ecosystem goods and services.

Evaluating ecosystem services is an effective way for managers to evaluate how costs are allocated to valuable ecosystem services. Given that many natural ecosystem services are not traded in the market and the willingness of people to pay for receiving these services is not clear, methods of valuing natural ecosystem services and goods have always been considered by experts as a central issue in natural resource economics. According to the review of economic valuation methods, it can be said that researchers are focusing on the Contingent Valuation (CV) method due to its simplicity and flexibility to apply. Nevertheless, one of the chief criticisms of the CV method is that results are generally inflated as respondents do not face a real budget constraint and tend to say yes. This often leads to loss of validity and exaggeration. Therefore, the use of Choice Experiment (CE) and Benefit Transfer methods are preferable. The benefit transfer method is an effective method for developing countries. In fact, this method will be suitable when there is sufficient time to conduct economic evaluation or studies on the cost of environmental damage. Although the purpose of economic valuation, regardless of how it is done, is to assist decision makers in implementing public policy and environmental and natural resource planning, However, due to the new approach of the selection test method and its optimal ability to evaluate ecosystem services, it is suggested that more studies be carried out with this method. Therefore, due to the importance of economic valuation of ecosystem goods, the scientific community in Iran should continue further research on economic valuation. These studies can help shift from hypothetical to real markets and highlight the vital role of ecosystem services in society.