Valuing ecosystem services in general equilibrium
We explore the consequences of treating the multiple, non-market benefits associated with improvements in ecosystem health and the market economy from which damage to these ecosystems stems as an integrated system. We find that willingness to pay measures of use-based ecosystem services are impacted by the changes in demand for complementary market goods. Demand for these goods shifts due to the introduction of pollution regulations that deliver improvements in ecosystem services. As a result, partial equilibrium estimates of these use values may be measured with substantial error if they fail to account for the general equilibrium adjustments caused by the regulation. We also find that the basic physical/biological connections between the resources underlying use and non-use values for ecosystems may have important implications for the measurement of these values.
The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. Partial support for this project was provided by EPA STAR grant #RD-83092301-0.