The Market Value of Biodiversity

Market value is the monetary worth of a commodity relative to other commodities available to individual consumers. The value of a commodity is determined by how much consumers want it (demand) and how much of it is available (supply). Of course the total value of all biodiversity on the planet is infinite, since without it we could not survive. But its direct market value is limited, because most of the essential features of biodiversity are not traded in markets. Things like ecological resilience, evolutionary potential, or the oxygen produced by photosynthesis, do not have direct market value, even though they are essential to the survival of the human species. Consumers cannot express a "market demand" for these and many other features of biodiversity.

The modern market economy has served us well in guiding the use of natural and human resources and has provided a dazzling array of consumer goods to much of the world's population. Markets have proven to be so successful as a way of allocating scarce resources that it is sometimes difficult to accept any alternative. There is a real danger, however, in using monetary values to determine the proper use of the essential features of nature upon which all life depends.

Using market values, estimates have been made of the economic value of specific plants and animals. For example, wild plant species are an important source of pharmaceuticals. A frequently mentioned example of biodiversity value is the rosy periwinkle of Madagascar, which is used to produce drugs to treat Hodgkin's disease and leukemia. The income from the sale of these drugs is estimated to be around $200 million per year. The market value of yet-to-be-discovered drugs from rain forest species has been estimated to be between $3 and $4 billion.

Another important market value of biodiversity is tourism. For example, it is estimated that the direct economic benefit of Wyoming's big game animals, from tourism and hunting, is about $1 billion, or $1,000 for every large animal. The total value to the tourism industry of wildlife in all North American national parks is estimated at more than $70 billion. Estimates of the value of biodiversity may be made using survey techniques or by what is called hedonic pricing. Hedonic pricing imputes the value of an attribute by comparing cases in which it is and is not present. For example, a house on a lake without loons may be valued at $200,000, and a similar house on a similar lake with loons may be valued at $210,000. The presence of loons on the lake, then, adds $10,000 to the value of the second house. Economists can use this and other such hedonic values to piece together an estimate of the economic value of loons on that lake.

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