We're starting our study of valuation. Valuation means figuring out what something is worth, usually in dollars.
It is important to note that economic value involves much more than market transactions. People value things that are not traded in markets and people value things that they never use. Another important point is that economists don't just go around trying to place a value on things for no reason. We engage in valuation when understanding what something is worth can help inform the policy process. Any time there is a tradeoff involving environmental quantity or quality, valuation can serve an important role in terms of helping us understand what is at stake.
One situation where valuation is useful is in determining the monetary value of a fine or fee to impose on a responsible party in the case of natural resource damages. For example, BP will pay about $4.5 billion in criminal and civil penalties for the Deep Water Horizon spill. Transocean (the owner of the rig) will pay $1.4 billion.
What are some other scenarios where valuation might be useful for informing policy?
I sometimes encounter hostility when I first present the idea of valuation to people who have never been exposed to it. One line of reasoning is that valuation somehow "cheapens" the environment by expressing its worth in dollars and cents. My response to this objection is that the default value is typically zero. That is, most people treat the environment as if it were free, and you can't get much cheaper than that. Valuation often helps people realize that the environment is extremely valuable, despite it being available for "free".
Another thing to realize is that we are constantly engaging in valuation anyway, through our actions. For example, when society chooses to spend a certain amount of money on highways, healthcare, and social security and NOT spend that money on environmental protection, are we not indirectly placing a value on the environment relative to those other things? On a micro level, when you choose to drive your car instead of walking, are you not revealing that you value your own convenience more than you value the environmental damage from your emissions?
Here are some links to more reading about valuation:
The National Ocean Economics Program
NOAA's State of the Coast
Economic Values without Prices (Loomis, Choices, 2005)
FAO Fisheries Valuation Summary
Here is a pdf version of a presentation that I put together for SocMon Caribbean