PROBLEMS FACING THE VALUATION OF THE TOTAL ECONOMIC

PROBLEMS FACING THE VALUATION OF THE TOTAL ECONOMIC

Roczniki Akademii Rolniczej w Poznaniu – CCCLXXVII (2006)
JAKUB GLURA
PROBLEMS FACING THE VALUATION
OF THE TOTAL ECONOMIC VALUE
OF MULTIFUNCTIONAL FORESTS
From Department of Forest Economics
of The August Cieszkowski Agricultural University of Poznań
ABSTRACT. The value of various un-priced (non-wood) outputs or services from forests is becoming an increasingly important component of management planning. Managing natural resources
requires timely access to the information on the economic value of the resources. The Contingent
Valuation method offers a further advantage: it has the potential to estimate both use as well as
non-use values associated with environmental amenities. Applied research in this area will improve our understanding of non-market forest values in WPN. However, a complete revelation of
underlying, social preferences for un-priced values remains problematic.
Key words: forest economics, values of forest, valuation of forest, non-wood functions
of forest
Introduction
Forest is one of the sources which fulfil social requirements for rest or leisure and
contribute to the improvement of life quality in clean environment since all environmental functions, together with other economic goods and services, exert a direct or
indirect influence on social well-being. Traditionally, forestry has been equated with the
production of timber raw material and, by its valuation, benefits or advantages resulting
exclusively from forest production functions have been determined. Incomes from timber production and value of forest property can be determined precisely in a relatively
simple way. Advantages and benefits gained from forests in the form of timber raw
material and products of secondary utilisation or forest as the workplace characterise
very clearly the value of the forest from the point of view of its users. On the other
hand, advantages as well as the value of forests associated with their non-productive
functions are difficult to estimate unequivocally bearing in mind evaluation subjectivity
of the assessment of these benefits as well as the free access to them by the entire society.
Rocz. AR Pozn. CCCLXXVII, Ekon. 5: 91-99
© Wydawnictwo Akademii Rolniczej im. Augusta Cieszkowskiego w Poznaniu, Poznań 2006
PL ISSN 1731-0261
92
J. Glura
Environmental functions, in contrast to conventional economic goods and services,
are not always linked with market transactions in the course of their utilisation. Consequently, it is usually not possible to ascribe to them definite measures of value or price
determined by the market. That is why they are referred to as non-market goods as they
are not determined by the market on which demand and supply forces operate. According to the theory of economy, extra-economical goods and services provided by the
forest should be referred to as public goods. These non-market goods are sometimes
called “external effects of the economical activity” and are treated as a by-product (additional) of forest management whose main focus is on timber production.
For reasons mentioned above, there is no doubt that forest resources bear the hallmarks of public goods which means that nobody can claim the exclusive ownership title
barring others from utilization. If a public good is accessible to somebody, then it must
be accessible to everybody (the feature of “non-exclusiveness”). Another important
characteristic feature of free-access goods is that such goods are characterised by an
easy and, usually, uncontrolled access with any number of users being able to fulfil their
requirements simultaneously in a given place (the feature of “lack of competitiveness”).
However, despite the fact that there are no prices attached for public goods “flowing
out” of forests, it is necessary to determine their value because of the steadily growing
demand for them and in order to determine the level of possible subsidies paid to
units/organisations involved in their production.
Development of the notion of value in forest valuation
A lot of difficulties in the valuation process of forest multifunctionality arise from
the ambiguity of the concept of value which constitutes the content of each and every
valuation. It is well known that the notion of value falls within the area of interest of
philosophy as well as economy. Philosophy as a science is concerned with unrestricted
or absolute values in the form of certain ideals (in terms of perfection, eternity etc.). On
the other hand, economy as a science is confined to economics and deals exclusively
with relative values (Molenda 1945). Opinions about value underwent changes in different periods of the development of economy. From the point of view of development
of the science of forest property valuation, some basic periods can be distinguished.
The beginnings of the 19th century witnessed the development of classical economy
in which the then economists assumed manufacturing costs as the direct cause of value
(Smith), labour (Ricardo and Marks) and production costs (Mill and Carey) (Stankiewicz 2000). This theory of object value was applied to the science of forest evaluation
and forest statistics by the representatives and followers of the Pressler school (German
school). The classical theory failed to explain the act of exchange of goods and price
establishment because it presented extreme object approach to goods valuation. The
value depended on the amount of hours of the applied labour necessary to produce a
given product and, because the levels of costs vary and the obtained price frequently
failed to reflect them, hence the adopted approach to valuation assumed wrong economic basis (Bartkowiak 2003). The beginnings of forest value assessment within the
framework of forestry economics which occurred at this period of time were initiated in
the form of the so-called forest statics as a method of forest valuation based on the
Problems facing the valuation of the total economic value...
93
achievements of general economy. The factual base of the method was the model of
normal forest, that is to say, a forest characterised by appropriate model structure, i.e.
normal relation of the class age surface and hence normal volume of growing stock,
increment, yield etc.
The end of the 19th century witnessed the development of the “subjective” theory of
neoclassical economy and subjectivistic attitude to value which reduces the notion of
value to usefulness, i.e. looks at it from the subject point of view (Schullern, Liefmann,
Studniarski – after Molenda 1945). The subjective value of a given good came to be
identified with the theory of “ultimate usefulness”. The notion of usefulness used in the
neoclassical economy radically changed the optics. The valuation analysis was transferred from the sphere of production to the sphere of consumption. However, the subjectivistic theory was unable to explain the fixing of prices on the basis of ultimate usefulness and was forced to accept also the influence of production costs on the establishment of value. The effect of the subjective theory of value on the valuation science of
forest property found its expression in the development of the estimation of forest value
from income (Molenda 1945).
The valuation of forest public functions was helped by the next school of economic
thought which developed from previous theories and which is known under the name of
the theory of prosperity. The development of this theory was assisted by such economists as Marshall, Pareto and Pigou and, later on, also by Hicks (Blaug 1994). The goal
of this theory was to maximise social preferences and to optimise allocation of natural
resources in order to ensure maximum values of social prosperity for future generations.
However, in the discussed theory, special attention was paid to public property. Prosperity is defined most commonly by the consumption of goods which can be purchased and
sold on markets. Nevertheless, human prosperity also depends on many non-market
goods and services. These goods and services may influence man directly – on air and
water cleanliness, recreational possibilities etc. or indirectly, for instance, when they are
utilized as expenditure in production processes. The usefulness of a given public good
for the consumer affects its price, therefore, despite the absence of a real market, the
consumer ascribes a price to each and every good. This price is referred to as non-market value which, in general, can be divided into use or non-use values.
At the present time, the economic value of a given good is most commonly defined
as the sum that an individual would be inclined to spend in order to obtain the given
good in such a way that he/she would maintain the same level of prosperity as in the
situation when they would not have this good but money (Opaluch 1996).
Estimation of the total economic value of forest
The concept of the total economical value of forest is inextricably connected with
the multifunctional model of forest management. Because the continuous increase of the
importance of the protective and recreational services provided by the forest exerts
influence on the decreasing profitability of timber production, this can result in the loss
of economical independence by a forest management unit and the need to subsidize
forest economy. That is why it is essential to be able to assess the value of all advantages and benefits resulting from forest multifunctionality because this will allow us to
94
J. Glura
present comprehensively the role and importance of forestry in social and economical
life.
In order to realise the concept of the full economic value of the multifunctional forest, it is essential to present the way forest economic values are perceived today. At the
present time, the following non-market types of economic value are distinguished
(McKenney and Sarker 1994):
– direct use value which stems from the direst utilization of a good in the place of its
occurrence; the direst practical value may have consumption or non-consumption character,
– indirect use value (surrogate) – visit in a given place, pictures, descriptions and
books, i.e. available different media,
– non-use value, i.e. it does not derive from the utilization of a good; within this
value, the following sub-values can be distinguished:
– bequest value – a constituent of the non-use value resulting from the wish to
pass the environment to the future generations in a shape possibly undamaged,
– existence value – refers to the preference of humans who wish to maintain resources in their original conditions since for them they represent a value in
themselves,
– option value – many people wish to keep resources for future consumption
which reflects a change in preferences towards future needs; the value resulting
from maintaining possibilities of utilisation of the resource which may turn out
valuable for the consumer one day.
Apart from the direct practical value, the group of non-use values classified as the
value from the bequest, existence and option is also very important and significant. It is
difficult to estimate the money value of individual kinds of non-use values because of
factual and practical problems connected with methods applied to determine them.
Some of the methods of valuation of environmental goods as, for example, the method
of travelling costs or the method of hedonic price constitute the basis for the determination only of the use value resulting from the in situ consumption of a given good or the
direct utilisation of its environmental value. So, although we do know the manufacture
costs of public goods, the main difficulties arise, primarily, from methodological problems associated with the valuation of advantages/benefits from non-market goods. The
value resulting from these benefits, in other words, the usefulness the consumers obtain
in return for the “consumption” of a given good or service finds its reflection in their
readiness to pay a specific price. This predilection of real or potential consumers can be
taken as a measure of the relative value of this good expressed in monetary terms. It is
exactly this assumption that serves as a basis for the method of conditional valuation
employed to determine non-use values. In this questionnaire method, thanks to interviews, we gather information about people’s preferences about how high they value a
given environmental good or service (Georgiou 1996). The interviewees say how much
they are willing to pay (WTP) for environmental benefits, improvement of its quality or
what compensation they are willing to accept (WTA) for losses in environmental quality. The method of conditional valuation has a fairly wide range of potential applications. It is used most frequently when other ways or methods of value determination of
a given area fail. The method can be employed to assess the value of different social
functions of forest management – forest aesthetic-recreational value, water and air quality, protection of wild nature or biodiversity.
95
Problems facing the valuation of the total economic value...
Empirical investigations from the valuation of non-market value
Economists involved in forest environment employed the above-mentioned methods
to valuate some forest environment elements. The Table 1 provides information about
how the society perceives values which resulted from certain gained benefits/advantages. In addition, it should be emphasized that the method of travelling costs does not
take into account non-use values (low values of the examined objects), i.e. advantages
gained by people who never visited a given place. However, it is based on observed
behaviours of people and it makes it relatively reliable in comparison with other methods of valuation of similar values.
Table 1
Examples of un-priced valuation studies (McKenney and Sarker 1994)
Przykłady badań z zakresu szacowania wartości nierynkowych (McKenney i Sarker 1994)
Authors
Autorzy
Valuation
method
Metoda
wyceny
Value
measured
Rodzaje wartości
Value
per person
Wartość
na osobę
Year
Rok
Domain valued
Zakres wyceny
Bennett
1984
Forest preserve
protection
Ochrona rezerwatu
CVM
Existence value
Egzystencji
WTP 27 $
Willis and (i)
Benson
1987
Forest recreation
Rekreacja leśna
TCM
Use value
Użytkowa
1.69-2.51 £
Flion et al.
(i in.)
1990
Forest recreation
Rekreacja leśna
CVM
Use and non-use value
Użytkowa i nieużytkowa
WTP 268 $
WTP 122 $
Echeverria
et al. (i in.)
1995
Biodiversity
of forests
Bioróżnorodność
lasów
CVM
Use, optional and WTP 121.05 $
existence value
Użytkowa opcyjna i egzystencji
Scarpa et al.
(i in.)
2000
Forest recreation
Rekreacja leśna
CVM
Use value
Użytkowa
WTP 22-37 £
In the year 2003, the author carried out valuation of extra-economical forest functions in the Wielkopolski National Park (WNP) (Glura 2004). The WTP (willingness to
pay) measure was obtained with the assistance of the following two methods of disclosure of its value: dichotomous choice (DC) (yes/no) questions to the initial offer of 100
PLZ and using an iterative bidding (IB) with the same opening offer. On the other hand,
the WTA (willingness to accept) measure was determined using the open-ended question. The obtained mean values are presented in Figure 1 and, on their basis, it is possible to conclude that the WTP values obtained in the DC question are less stable and
burdened with a greater error than in the bidding question (IB) in which the series of
successive questions assess more precisely the predisposition to pay. The declared WTP
and WTA sums reveal preferences of respondents reflecting use and non-use values of
96
J. Glura
185.71
200
PLN per person – zł na osobę
180
150.77
160
132.62
140
120
76.90
100
80
54.89
64.77
60
40
20
0
DC with 0
DC z C
IB with 0 WTA with 0 DC without 0 IB without 0 WTA without 0
IB z 0
DC bez 0
IB bez 0
WTA bez 0
WTA z 0
Choice format – Format wyboru
Fig. 1. Mean declared by respondent values of WTP (DC and IB) and WTA estimates
(with and without regard to zero values)
Ryc. 1. Średnie wartości deklarowanych przez respondentów kwot WTP (DC i IB)
oraz WTA (z uwzględnieniem lub bez uwzględnienia wartości zerowych)
the examined experimental object. The obtained mean values of individual measures
multiplied by the number of persons who visited the WNP indicate the level of advantages derived from fulfilling forest extra-economic functions by this particular forest
object.
Figure 2 presents the percentage distribution of individual types of values as perceived by interviewees. The determination of these values is a very helpful instrument
during the process of determination of the total economical value of a given object. The
obtained data regarding the importance the investigated object presents to the interviewees allow to establish their preferences towards the above-mentioned values, including
also non-use ones, linked with forest extra-economical functions. On the basis of the
performed studies, it was concluded that the total forest value perceived by the interviewees consisted, primarily, of the bequest value (39.8%), existence value (26.9%),
option value (17.6%) and use value (15.7%).
The obtained levels of individual kinds of value ascribed by respondents to the examined object depend mainly on the distance of their permanent residence from this
object. Differences between the perception of the WPN concerning its value also derive
from the different attitude of the interviewees to the object in question. It is clear from
the performed studies that the highest importance for the respondents lies in the heritage
value which is corroborated by the results of other investigations and which is also in
keeping with culture expectations of the society, since passing a given place on to future
generations constitutes one of the bases of altruistic attitude to life.
Problems facing the valuation of the total economic value...
16%
Use value
Wartość użytkowa
97
39%
Bequest value
Wartość dziedziczenia
18%
Option value
Wartość opcji
27%
Existence value
Wartość istnienia
Fig. 2. Share of particular value types preferred by respondents
Ryc. 2. Udział poszczególnych rodzajów wartości preferowanych przez ankietowanych
Closing remarks
The search for the answer to the problem of valuation was present at all stages of the
development of the theory of economy. The determination of value, either too objective
or too subjective, based on labour or usefulness failed to ward off mistakes and blunders. In the neoclassical theory, the market place (market value) should eliminate, to
some degree, the impact of preferences and tastes of various consumers, while the usefulness of a good was associated with its exchange value. This kind of approach can be
illustrated by Marshall’s words in his “Principles of economics” that: “money provides
a sufficiently good measure of the strength of influence of the majority of motifs which
people follow in their everyday life choices” (Blaug 1994). While classical economists
maintained that “income arises as a result of utilization of natural resources, human
strength and capital”, their neoclassical followers treated natural resources in their
analyses and models marginally referring only to their usefulness (Woś 1995).
One of the important tasks of modern forestry science is to elaborate monetary
methods of evaluation of extra-economic forest functions. The social awareness of the
potential value derived from providing by the forest non-market goods and services is
certainly not new but attempts to determine the value of extra-economic forest functions
are relatively modern. The most convincing form of valuation is to show the population
the real value of public goods that it obtains from a forest management unit in return for
increased taxation and/or in return for its acceptance to pay higher prices for some forest
goods and services. The increased demand for timber and remaining forest goods, accompanied by declining forest areas calculated per capita indicates the need to integrate
processes of decision-making in the area of management of natural resources and to
develop effective links between forest economy and other sectors of national economy
(Płotkowski 1996).
98
J. Glura
Since the determination of the use and non-use value of some environmental elements is not fixed on the basis of economic transactions, they are difficult to identify
but they are, nevertheless, possible to calculate employing for this purpose a hypothetical market – conditional valuation method (Kotchen and Reiling 2000). Investigations
in this field provide arguments for the correct valuation and contribute to a general
process of disclosure of the non-market value of environmental services. Attempts to
market these services increase the social awareness about the significance of nonproduction forest functions which, in future, may make it easier to apply for more financial resources from the budget for the maintenance of protection forests.
The total economic value of a natural object constitutes a sum of the use and nonuse values. Therefore, in order to prepare a reliable and honest valuation of forest complexes, frequently characterized by different importance for the society, it is essential
not only to know the general valuation of, for example, extra-economic forest functions
but, equally importantly, to recognize percentage proportions of individual kinds of
values.
Literature
Bartkowiak R. (2003): Historia myśli ekonomicznej. PWE, Warszawa.
Blaug M. (1994): Teoria ekonomii. PWN, Warszawa.
Georgiou S. (1996): Metoda wyceny warunkowej. In: Ekonomiczna wycena środowiska przyrodniczego. Eds. G. Andersen, J. Śleszyński. Ekonomia i Środowisko, Białystok.
Glura J. (2004): Merytoryczne i praktyczne problemy określania społecznej wartości lasu. Typescript. Department of Forest Economics, The Augst Cieszkowski Agricultural University, Poznań.
Kotchen M.J., Reiling S.D. (2000): Environmental attitudes, motivations, and contingent valuation of nonuse values: a case study involving endangered species. Ecol. Econ. 32: 93-107.
McKenney D., Sarker R. (1994): An overview of non-wood valuation efforts in Ontario. For.
Chron. 70, 1: 47-54.
Molenda T. (1945): Wycenianie nieruchomości leśnych w ekonomii i w technice. Koło Leśników U.P., Poznań.
Opaluch J.J. (1996): Rynkowe metody wyceny ekonomicznej. In: Ekonomiczna wycena środowiska przyrodniczego. Eds. G. Andersen, J. Śleszyński. Ekonomia i Środowisko, Białystok.
Płotkowski L. (1996): Koncepcja wielosektorowych powiązań w modelu wielofunkcyjnej gospodarki leśnej. Przem. Drzewn. 12: 4-10.
Stankiewicz W. (2000): Historia myśli ekonomicznej. PWE, Warszawa.
Woś A. (1995): Ekonomika odnawialnych zasobów naturalnych. PWN, Warszawa.
PROBLEMY W SZACOWANIU CAŁKOWITEJ WARTOŚCI EKONOMICZNEJ
LASÓW WIELOFUNKCYJNYCH
Streszczenie
Wkład leśnictwa w życie społeczeństwa wykracza poza produkcję drewna. Wartość różnych
niewycenionych (niedrzewnych) dóbr i usług leśnych jest coraz ważniejszym elementem składowym zarządzania. Zarządzanie bogactwem naturalnym wymaga dostępu do informacji o ekono-
Problems facing the valuation of the total economic value...
99
micznej wartości tych zasobów. Podczas gdy ekonomiczna wartość drewna zależy od cen na
rynku drzewnym, pozagospodarcze funkcje lasu nie mają ceny rynkowej, określającej ich wartość, jednak też powinny być brane do rachunku, kiedy chce się ocenić leśnictwo ze społeczno-ekonomicznego punktu widzenia. Takie podejście jest wymagane wobec dóbr środowiskowych.
Dzięki metodzie wyceny warunkowej istnieje możliwość oceny wartości użytkowej i nieużytkowej, określanej przez atrybuty środowiskowe.
Metoda wyceny warunkowej jest oparta na założeniu ujawnienia przez respondentów preferencji wobec zmian w jakości albo ilości dóbr publicznych poprzez wywiady ankietowe. Respondenci są pytani o zdolność zapłaty (WTP) albo zdolność przyjęcia rekompensaty (WTA) dla
bezcennej użyteczności leśnej.
Badania empiryczne mogą być bardziej przydatne w analizie korzyści, kiedy wyszczególnione są kategorie wartości.