Topic 2: Economic Valuation of FES

Background Information

Economic valuation refers to the assignment of monetary values to economic goods and services. Biological resources are considered to be economic goods and services. Pricing for most of these goods and services is normally determined by the market, whereby consumers and producers pay the price at the equilibrium level. However, for most biological resources, they have no market price and are normally called “non-market determined goods and services”. For example, the aesthetic value provided by the forest is not traded in the market. Thus, there is no market or explicit signals to illustrate the economic value of changes in the flow of aesthetic value to the consumer. As a result, biological resources tend to be understated over market or private benefits.

However, recent phenomenon has shown that public support for biodiversity conservation is widespread not only in developed countries, but also in developing countries. In fact, biodiversity loss can lead to ecological unbalance, social disharmony, and reduce the potential for economic investment. The willingness to pay to conserve biodiversity implies that the maintenance of these resources for long term economic benefits is highly valued. It is true that biodiversity loss is due to human activities, however, it is fundamentally the failure of the market itself to provide a true value for biological diversity. This market failure has causes several adverse consequences, such as bias against conservation, reduced government and public income, depletion of biological resources, and increases in environmental pollution.

Lecture Presentation

Read and understand the following presentation:

Economic Valuation.

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Additional Resources


Read the following articles:

Bishop, J. T. (Eds.) (1999). Valuing forests: A review of methods and applications in developing countries. London: International Institute for Environment and Development.

Bann, C. (1998). The economic valuation of tropical forest land use options: A manual for researchers. Singapore: Economy and Environment Program for Southeast Asia (EEPSEA).

Kengen, S. (1997). Forest valuation for decision making: Lessons of experience and proposals for improvement. Rome, Italy: FAO.

Pagiola, S., von Ritter, K., & Bishop, J. (2004). Assessing the Economic Value of Ecosystem Conservation. Environment Department Paper No.101. Washington, D.C: The World Bank.


Watch the video:

Sukhdev, P. (2011, July). What’s the price of nature [Video file]. Retrieved from

Self-Reflection Questions

Please answer the following self-reflection questions. After formulating your answers, you may post them online at the Knowledge Café for this course as a way to share your ideas and glean knowledge from other students’ responses.

SrQ#2.1: Explain the approach used in economic valuation.

SrQ#2.2: Explain the concept of willingness to pay in relation to economic valuation.