Browsing by Author "Rantanen, Jyrki"

As public concern over the state of biodiversity has increased, demands for incorporating biodiversity and its value into already existing notions of capital and decision-making can be expected to rise as well. Since there are no markets for the state of biodiversity, non-market valuation methods need to be employed. Ecosystem services can serve as a link connecting nature and human well-being, and they can be viewed as sources of economic value of biodiversity. Key valuation methods can be divided into two groups: stated preference methods and revealed preference methods. The former employ surveys, bidding formats, open-ended questions, and hypothetical scenarios to determine how much respondents value various aspects of biodiversity. While stated preference methods are appreciated for their applicability to hypothetical and future scenarios, especially when market-based data is unavailable, they are prone to potential biases around experiment design. Revealed preference methods, on the other hand, rely on market data to derive preferences for different aspects of biodiversity. Two primary approaches involve using data either from travel costs or property markets. Hedonic pricing is part of the revealed preference methods, and it centres around a notion that value of a good consists of the attributes of the good that provides utility to consumers. Hedonic prices represent the implicit prices of these attributes. The method is commonly applied to housing markets where the attributes can be, for example air and water quality or variety of neighbourhood’s urban green spaces. Rosen's hedonic model employs a two-stage approach. In the first stage, market prices are regressed on the attributes to establish the hedonic price function. In the second one, the hedonic price function is used to derive marginal willingness to pay function for the attribute. However, the second stage has faced scrutiny due to endogeneity concerns. It is thought that unobserved taste parameters influence both consumer consumption patterns and the hedonic price of the attribute. There are various approaches to try to overcome this endogeneity issue. Alternatively, the model can be used in its first stage only, excluding valuations of non-marginal changes from the analysis. The range of methods for valuing biodiversity is broad, providing a diverse set of starting points for creating estimates. Because biodiversity is a versatile concept, its value can arise from various sources. It is crucial to understand the limitations and possibilities of each method when deriving valid estimates for the value of biodiversity. Without careful consideration, the estimates may fail to provide value to anyone.