Appendix B: Monetary valuation methods

A variety of methods can be used to estimate the monetary value of ecosystem goods and services (EGS), each with its own advantages and limitations. Different methods can be applied based on the type of policy use and amount of resources available to practitioners. Monetary valuation is often classified according to the following three categories: ¹ 

1. Revealed preference methods use observations of individuals’ choices in existing markets to estimate monetary values of goods and services. Individuals are said to ‘reveal’ their preferences through their choices; for example, travel costs can be used to estimate willingness to pay for recreational services. Similarly, real estate market data comparing property values close to and far from parks can be used to measure the value individuals place on this amenity.
2. Market-based approaches, a subset of revealed preference, rely on direct, observable market interactions to estimate monetary values of goods and services. For example, market prices may be used to estimate the value of EGS that are not traded in a market (e.g., non-marketed timber, forest products and fish). Costs that would have been incurred in the absence of an ecosystem service can be used to estimate EGS values (e.g., flood prevention services). Similarly, the costs of substitutes, required mitigation or restoration expenses can be used as indicators of the value of EGS.
3. Stated preference valuation methods gather information concerning environmental preferences through the use of surveys, questionnaires, or interviews. For example, the contingent valuation method, asks people’s willingness to pay for improved environmental protection or to accept compensation for a reduction in environmental quality.

Benefit transfer or value transfer is a secondary approach that can be used when site-specific information is not available. This approach transfers existing valuation work from well-studied sites to new areas, as an alternative to conducting original research at the new site. Value transfer is discussed in more detail in Section 4, textbox 3.

Monetary valuation techniques—like non-monetary valuation, physical ecosystem function and services measurements and mapping techniques—are affected by uncertainty. This stems from gaps in knowledge about ecosystem dynamics, human preferences and technical issues in the valuation process. Where ecosystems are assessed or studied using any of these methods, acknowledging uncertainty and limitations in the techniques used is important. ² 

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