LIMITATIONS OF MONETARY VALUATION
The limitations of economic values must be fully appreciated when using the resulting
dollar figures. Ethical and technical limitations are especially important in
environmental management.
Ethical issues
It is not always feasible or desirable to convert all environmental benefits and costs
into dollar values. Some benefits and costs may be difficult to identify because of a lack
of knowledge about ecosystems. Driver and Burch (1988) argue that information could be
lost in the process of translating the diverse benefits of a resource into a single
monetary value. Other people argue that the benefit to society of environmental resources
is too complex to be captured by a single dollar value and to attempt to do so is to
trivialise the importance of the environment (Cameron 1992, p.159). Other benefits and
costs may be controversial, such as the value of life, and tend not to be measured in
dollars.
The main moral limitations to economic valuation of the environment are as follows:
- Certain conventions about equity and morality are assumed in an economic analysis. For
example, most economic studies assume that the values given to a resource should be
limited by people's ability to pay for them, and that the current distribution of wealth
is acceptable. Some people's economic votes therefore have a higher value than others
because a rich person is more likely to be willing to pay more to protect (or degrade) an
environment than a poor person. In consequence, some individual's preferences count a
great deal and others' hardly count at all.
- Any valuation implies that natural resource attributes are of relative and not absolute
importance-a judgement that is not shared by all. Furthermore, for some people no amount
of money can compensate for damage to environmental resources.
- Whose values should be assessed? Do we take into account only human values, only the
values of Australians or only the values of current generations? Even a perfect valuation
of the preferences of existing consumers cannot provide any indication of the preferences
of people in the future.
- Individual economic preferences are not necessarily preferences that are moral or proper
from society's perspective. In an economic framework, ethics is reduced to the efficient
satisfaction of human demands.
- Monetary valuation is generally part of an assessment undertaken in a cost-benefit
framework. Cost-benefit analysis focuses on efficiency in a narrow economic way and does
not address issues of social equity or other social concerns.
Technical issues
Despite advances in the sciences and economics, there remain a number of unresolved
technical problems with monetary valuation:
- Monetary information is usually required on complex and poorly understood effects, such
as the full value of ecological services.
- The comparability of dollar values for different goods is limited by distortions in
markets because of various forms of government intervention. For example, tariffs on parts
for imported tractors and on the tractors themselves cause their market price to diverge
from their true scarcity value. As a consequence, the monetary value of the repair and use
of tractors cannot easily be compared with other costs of agricultural production.
- Like most quantitative information, dollar values provide no more than an estimate for a
single point in time. Shifts in social attitudes, improved information, and a declining
resource base can all lead to large changes in valuations.
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