Economic Valuation of Natural Resources and Ecosystem Services Lesson


Environmental benefits and costs are often expressed in monetary terms.  Economic valuation methods are used to derive monetary values.  It is useful for environmental researchers to understand these methods, the data they use, their limitations, and how monetary values should be interpreted and applied.  

Assumed Prior Knowledge
Advanced undergraduates or graduate students studying environmental issues and systems with some background in statistics.
Learning Objectives
  • Understand why monetary environmental benefit estimates are used in decision making and public discourse
  • Learn to interpret what monetary valuations represent and what they don’t represent
  • Develop basic knowledge of various valuation methods and the data they use
Key Terms/Concepts
non-market valuation; revealed preference methods; stated preference methods; hedonic analysis; travel cost method; contingent valuation
The “Hook” (suggestions for quickly engaging students)

Have participants read one or both of these articles:

1. Putting a Price Tag on Nature's Defenses 
Zimmer, Carl. “Putting a Price Tag on Nature’s Defenses.” The New York Times. June 5, 2014.

2. Pandanomics: What Is Giant Panda Conservation Worth? Billions Every Year
GrrlScientist. “Pandanomics: What Is Giant Panda Conservation Worth? Billions Every Year.”  Forbes. June 29, 2018.

Teaching Assignments

Instructors can use the diagram below to organize and differentiate the variety of non-market valuation methods, distinguish between revealed and stated preference methods, and provide examples and illustrative data associated with each distinct method.

Economic Valuation Diagram

The following are suggested assignments/exercises that may be used prior to or following the instructor’s presentations or discussion sessions.

  1. How would you define the term “value,” and what could be confusing about it? Give examples of how we express the value of something.

  2. Explore the “paradox of value” (the “diamonds and water paradox”) and how it relates to monetary environmental values.  Explore the related concept of marginalism. 

  3. What kinds of data are required to conduct a 1) hedonic and 2) travel cost analysis of environmental benefits?

  4. What kinds of value are not captured by a 1) hedonic and 2) travel cost estimate of environmental benefits?

  5. Create a set of simple stated preference choice scenarios that would allow you to rank or assign a value to an environmental good or service based on how participants in the experiment respond.

  6. Additional materials:

Background Information for the Instructor
  1. Valuation of Ecosystem Services

  2. A Primer on Nonmarket Valuation

    • Covers the main nonmarket valuation techniques in depth, but at a level appropriate for individuals who do not have a PhD in economics.

    • Champ, Patricia A., Kevin J. Boyle, and Thomas C. Brown. A Primer on Nonmarket Valuation. Springer: Dordrecht, Netherlands.

  3. Ecosystem Valuation Website

    • Site provides non-technical explanations of ecosystem valuation concepts, methods, and applications for non-economists. 

    • King, Dennis and Marisa Mazzotta. Ecosystem Valuation (Website). 2000.

  4. Measuring Economic Values for Nature

    • An article-length overview of valuation approaches, methodological frontiers, the role of ecologists in valuation, and disagreements within economics.

    • Bockstael, Nancy, A. Myrick Freeman, Raymond Kopp, Paul Portney, and V. Kerry Smith. “On Measuring Economic Values for Nature.” Environmental Science and Technology 34 (8): 1384–9.