09 August 2006

The Price of Everything, the Value of Nothing

One of the reasons it took a while for people to accept free software is that there is a traditional diffidence in the face of things that are free. After all, if something's free, it can't be worth anything, can it? The same infuriating obtuseness can be seen writ large when it comes to the environment: since the air and sea are all free, they can't be valuable, so polluting them isn't be a problem.

Against this background, it is no wonder that traditional economics pays scant regard to the value of the environment, and rarely factors in the damage caused to it by economic activities. It is also signficant that the seminal work on valuing all of Nature goes back to 1997, when Robert Costanza and his co-authors put the worth of the planet's annual contribution to mankind at a cool $33 trillion per year, almost certainly an underestimate.

So it's high time that this work was updated and expanded, and it's good to see that the Gordon and Betty Moore Foundation is providing some much-needed money to do precisely that:

Over the next year, with an $813,000 grant from the Gordon and Betty Moore Foundation, Costanza and his team will create a set of computer models and tools that will give a sophisticated portrait of the ecosystem dynamics and value for any spot on earth.

"Land use planners, county commissioners, investment bankers, anyone who is interested," Cosntanza said, "will be able to go on the Web, use our new models, and be able to identify a territory and start getting answers."

For example, if a town council is trying decide the value of a wetland--compared to, say, building a shopping mall there--these models will help them put a dollar value on it. If a country wants to emulate Costa Rica's program of payments to landowners to maintain their land as a forest, they'll better be able to figure the ecosystem value of various land parcels to establish fair payments.

This is a critically-important project: let's hope its results are widely applied, and that we can use it as a step towards paying back the debt we owe Nature before it - and we - go environmentally bankrupt. (Via Digg.)


Anonymous said...

Really interesting...of course it's the setting of the discount rate that can make or break such models. It will be interesting to see if the modelers choose a rate (5% is typical at the US Forest Service) or if it allows the user to set one....better to keep such things quiet from some city councils (What rate would you LIKE me to choose?)

I have to agree on the point of things being "worthless" without a price. I manage a group of public sector economists who are usually ignored by policy makers since they are not highly paid consultants (who incidently use our data anyhow).

Anyhow, thanks for the great posts. Always interesting!

Glyn Moody said...

Yes, the business about people being valued according to how much they have the cheek to demand rather than how much they know is very worrying.