Abstract
In outlining how “valuing the environment as input” could be applied to a number of contexts in low and middle-income countries, Karl-Göran Mäler laid the foundation for many additional applications of the production function approach as reported (Mäler in Valuing environmental benefits in developing countries. Special Report 29, Michigan State University, pp 11–32. 1991). The following review traces how his contribution has helped spawn a large literature on valuing ecosystem services as applied in low and middle-income countries. We examine a number of case studies illustrating such approaches. We also note growing interest in two important applications in low and middle-income countries: the hydrological function of forested watersheds and the storm protection provided by estuarine and coastal ecosystems. Using the example of storm protection by mangroves, we further explore the role of spatial characteristics in influencing the value attributed to this benefit.
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Notes
At the time, there were a growing number of studies in low and middle = income countries that had begun extending cost–benefit analysis to include environmental impacts, including on production activities. See, for example, Hufschmidt et al. (1983), Dixon and Hufschmidt (1986), Barbier (1988) and Dixon et al. (1988).
As pointed out by Sterner and Coria (2012), the growing number of case studies of environmental valuation has been important for policy making in low and middle-income countries.
Note that, for the purposes of this review, the overview of the methodology of the production function approach in this section is necessarily succinct and basic. It should also be recognized that the “production function” method encompasses a larger suite of interrelated functions, including cost, profit, output supply and input demand functions. More comprehensive and advanced descriptions of the general methodology can be found elsewhere (e.g., see Freeman and Harrington 1990; Point 1994; Huang and Smith 1998; McConnell and Bockstael 2005; Freeman et al 2014). For more detailed discussion of the application of this methodology to ecosystem services and other environmental impacts in developing countries, see Barbier (1994 and 2007) and Vincent (2011).
See Bockstael and McConnell (2005) and Freeman et al. (2014) for an overview of the methodology and various applications of valuation techniques based on the household production function approach. One early application of this approach has been to the problem of fuelwood collection by poor rural households in Nepal; see Amacher et al. (1993 and 1996), Bluffstone (1995) and Cooke (1998), and for more recent applications, Adhikari et al. (2004) and Baland et al. (2010).
Note that this compensation is in terms of the conditional expenditure function, which is the minimum expenditure that the individual needs to obtain the optimal amount of goods and services consumed \(q_{1} ,...,q_{n}\), given their prices, initial utility level \(U^{0}\) and some initial level of the ecosystem service input \(S^{0}\). The other welfare approach for valuing quantity changes is equivalent surplus. See Freeman et al. (2014) for further details.
For further discussion, see Bockstael and McConnell (2005) and Freeman et al. (2014). For examples of the importance of applying dynamic production functions methods to valuing mangroves support for off-shore fisheries in developing countries, see Barbier (2000 and 2007), Sanchirico and Mumby (2009) and Sanchirico and Springborn (2011). For an application to forest-based ecosystem services from a watershed in Panama, see Fenichel et al. (2019).
According to Mahmud and Barbier (2016, p. 768), “Self-protection expenditures are actions that decrease the probability of a hazardous storm event occurring that inflicts property damages, whereas self-insurance expenditures are actions undertaken by the household to reduce its losses in the event of storm-inflicted damages.
For coastal households in Bangladesh, examples of self-protection include converting a mud-built house to brick, raising the height of the homestead, moving the house inside an embankment, and locating further away from the shoreline to a safer place. Examples of self-insurance include income source diversification, crop and plot diversification, private transfers in terms of remittances and charities, reciprocal gift exchanges, and inter and intra-household income transfers (for informal risk sharing).”.
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We are grateful to Thomas Sterner, Ian Bateman and two anonymous reviewers for their helpful comments.
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Barbier, E.B., Mensah, A.C.E. & Wilson, M. Valuing the Environment as Input, Ecosystem Services and Developing Countries. Environ Resource Econ 84, 677–694 (2023). https://doi.org/10.1007/s10640-021-00570-0
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DOI: https://doi.org/10.1007/s10640-021-00570-0