Research on non-market valuation – what is it good for?

Environmental managers and intangible values in policy decisions

How much is a beetle worth? Non-market valuation is one technique used to assign dollar values to non-market components of the environment.

How much is a beetle worth? Non-market valuation is one technique used to assign dollar values to non-market components of the environment.

The Australian Government’s Best Practice Regulation Handbook is “committed to the use of benefit-cost analysis to assess regulatory proposals to encourage better decision making”. But how do you factor in the value of a bird, a beetle or an area of bush in a benefit-cost analysis? Coming up with dollar values for ‘non-market’ components of the environment has always been challenging. One technique that is commonly used to obtain a value for these things is non-market valuation (NMV), and there’s been a lot of research on how to do it (thousands of peer-reviewed publications in Scopus since the 1960s). With so much effort being devoted to it, you’d expect that NMV research would be having a significant influence on environmental decision making in Australia, but does it? We (a group of researchers in the Centre for Environmental Economics and Policy at the University of Western Australia) decided to find out what influence the research has had.

Non-market valuation is an economic technique to estimate the intangible values of the environment through hypothetical markets. For example, it might aim to elicit how much people are willing to pay for a particular conservation program that might save an endangered animal (for example, see the box “NMV and the sawfish”).

NMV is usually done through extensive community surveys where individuals state their preferences. The resulting values can then be used in benefit: cost analysis or other tools which contribute to decisions on how to get value for money in conservation or restoration projects.

Are decision makers using non-market valuation?

So, how did we determine the influence of research on NMV to environmental policy? We asked people involved in environmental policy how they used it. Telephone interviews were conducted with decision makers in Australian environmental organisations and agencies towards the end of 2012. We also conducted an online survey of NMV experts, including academics and consultants, from Australia and New Zealand. The survey and interviews provided information about: (a) the extent to which NMV results are used by decision makers in environmental programs; (b) reasons for the use or non-use of NMV; and (c) differences in perceptions about these matters between NMV specialists and environmental decision makers.

We found that:

When researchers were asked to provide information on their studies which they perceived had influenced policy, tangible evidence of impact on policy could only be provided in 20% of the cases (most commonly, the evidence was that values were included in a benefit: cost analysis). In 32% of cases, the researchers conceded that they were not aware of the study having made a clear difference to a decision.

  • 37% of decision makers had used NMV at least once, while 63% couldn’t name a single NMV technique.
  • Around 50% of environmental decision makers had never used information from any type of economic analysis.
  • 76% of decision makers perceived NMV to be a potentially useful decision support tool.

Our findings suggest that NMV is mostly used to support decisions ex post (after the fact), rather than to inform the decision making process a priori (before the process). For example, results may be used to “…justify additional expenditure on protecting native species…” or “…support limits on water allocations…”.

Barriers to better usage

While ‘justifying’ decisions after the fact can be important, it’s clear from these results that the full value of using NMV research in the decision making process is not being realised. Why is it that the results of NMV are only being used in a minority of situations?

Based on the results of our surveys, important barriers to using NMV in environmental decision making were the general lack of awareness and understanding of NMV; lack of time and resources; and general opposition to using economics or monetising the environment (consider the story “Objections to decision science” in Decision Point #74). For example, one interviewee stated that “many people within environmental agencies are highly sceptical of the value of economic studies”.

Interestingly, communication was mentioned by researchers as an important instrument to improve decision makers’ awareness of NMV. Although some researchers understood ‘communication’ as engagement with the decision body during the research, or presenting results to the decision body, there were also researchers who reported communication in the form of peer-reviewed publications. In reality, academic papers in peer reviewed journals are rarely read by policy decision makers.

Our study revealed little evidence of NMV studies making a difference to environmental decision making in Australia. The majority of environmental NMV studies are not used in ‘real-world’ decisions. Where they are used, they tend to justify existing decisions, rather than inform a decision making process. Using NMV as a justification is unlikely to generate the social benefits that can potentially be achieved if NMV results were used instead as an input to choosing the most efficient environmental project. By that we mean choosing the investment of scarce environmental funds that result in the greatest (tangible and intangible) net benefits.

On the other hand, some decision makers were positive about NMV. For example: “I’m increasingly impressed by the value in undertaking these studies. It’s really good evidence for us to help influence decision makers”; and “the [decision makers’] understanding and appreciation for these techniques continues to increase”.

Given that the use of NMV in policy is not a requirement, an obvious question arises, “how do decision makers account for intangible environmental values?” Our view is that the tools of economics – including benefit-cost analysis and NMV – provide useful decision frameworks to incorporate environmental values into environmental planning.

Increasing the use of NMV in decision making

Accounting for nonmarket costs and benefits should be encouraged to enable a more systematic, rational process for allocating government funds. We acknowledge that NMV results are not precise, and that uncertainties about environmental values remain. However, uncertainty is present in all information inputs to decision making. Fortunately, as discussed in Decision Point #74 (“Objections to decision science”) we have many ways of accounting for uncertainty in decision-making. Thus, uncertainties in all aspects of environmental projects (such as risks that management actions are not fully effective at improving environmental outcomes) will need to be considered when evaluating the best use of scarce government funding.

“Tangible evidence of impact on policy could only be provided in 20% of the cases.”

Our results highlight a lack of knowledge on both sides of the researcher-policy divide. Many of the decision makers interviewed had a profound lack of knowledge about NMV. However, an encouraging result of our study is that the interviewed decision makers do generally have a positive attitude towards the concept of NMV, which may improve with increased awareness of the methodology.

If we can increase the knowledge about NMV techniques within decision making bodies, there may well be an increased appreciation for these techniques, and the rigour that NMV can bring to decision making. Based on the findings of the study, we have drawn a number of recommendations that researchers can follow to improve the use of their NMV research in decision making (see the box on “Making more of NMV”).

One thing is certain: if NMV researchers aim to make a difference in environmental decision making, it will be necessary to reach out and engage with the decision makers who they envisage using the results.

More info: Abbie Rogers abbie.rogers@uwa.edu.au

Reference

Rogers AA, ME Kragt, FL Gibson, DJ Pannell, MP Burton & EH Peterson (2014). Non-market valuation: usage and impacts in environmental policy and management in Australia. Australian Journal of Agricultural and Resource Economics DOI: 10.1111/1467-8489.12031 http://onlinelibrary.wiley.com/doi/10.1111/1467-8489.12031/abstract

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