Topic 1: Market-based Techniques

Background Information

The conventional markets are valuations that used market prices with and without alterations. When the market for a particular biodiversity does exist, the market price will be used. However, if the market is distorted (due to market failure, externalities, etc.) shadow prices have to be estimated and calculated.

This approach takes into account the impacts of economic activities on production values of goods and services. The economic activities will either increase or decrease the production values, which are traded in the marketplace. The effects of economic activities can be analyzed using conventional cost-benefit analysis. Other measures of estimating the economic impact include the replacement cost of mitigating biological damage, preventive measures, and the damage cost that is avoided. These methods sometimes are classified as cost-based approaches.

Some of the common techniques that fall under the conventional market approach include the following:

  • Production Function or Changes in Production
  • Market prices
  • Replacement cost
  • Preventive expenditure
  • Human capital
  • Benefit transfer method