K

1. Valuation of renewable natural resources
Guided by
Dr. A K Gauraha
Prof. Deptt. Of Agril. economics
Presented by
Leelesh kumar sahu
M.Sc. (Ag.) Prev.
Deptt. Of Agril. economics

2. Valuation of renewable natural
resources
Definition:
Natural Resources are those resources that
are not man-made, including all of the earth’s
natural elements and environmental forces.
• Renewable resources:-
•Non renewable resources

3. • Natural resource valuation obviously
incorporates various public goods such as
common land, water, forest etc.
• This makes the valuation process more
complex
• In case of most of the environmental goods
,management is in the hands of non market
institutions like government or community or
jointly by government, community and NGOS.
• The institutional set up influences the benefit
flow to the users.

4. • The preservation benefits, in turn, may be
either user benefits or non user benefits.
• User benefits include recreational benefits,
option value benefits ,and supply of certain
private goods like forest products.
• Whereas, non user benefits consists of
existence and bequest value benefits.
• Though different valuation methods or
techniques are available for valuing natural
resources, they do not reflect the users
perceptions with regard to resource use

5. • Methods used in the valuation of renewable
natural resources can be broadly grouped as direct
and indirect
• Indirect methods use actual choices made by to
develop models of choice for market and non
market goods.
• These include most importantly, travel cost
methods and hedonic pricing method.
• Direct methods ask consumers regarding their
maximum willingness to pay towards a possible
change [improvement] in the environmental
amenities.

6. figure: valuation technique for renewable natural
resources
Use value
Direct Indirect
1. Land – food - social status
- asset
2. water – basic need - micro-climatic
control
-food [water based]
3. Forest - wood products - watershed protec.
NTFP nutrient cycling
human habitat pollution control
4. Grazing a- fodder watershed protection.

7. Methods of analysis
Indirect methods Direct methods
Travel cost contingent
valuation method
Hedonic price contingent
approach ranking or
contingent
behavior

8. • Indirect methods
1. Travel cost method[TCM]:
• Travel cost method uses peoples actual behavior
and hence captures the actual use values.
• Travel cost models are based on an extension of
theory of consumer demand, with specific
reference to value of time.
• This method is based on the assumption that the
households source choice decisions depend upon
the at least two sets of explanatory variables:
I Source attributes which affects the households
utility

9. ii. Households characteristics which reflects
difference in taste and preferences
Utility function is estimated with two sets of
variables i.e. source attributes and
households characteristics
Uh = F[Xih, Zih]
Where
Uh = utility derived by households “h” using source site “I”.
Xih = represent source attributes like distance between source and
income, time spent money paid for collecting water
Zih = represent households characteristics like income, social status,
education level, preferences, etc.

10. 2. Hedonic pricing method:
• Hedonic pricing method uses surrogate market
to impute values of non market goods.
• It estimates the implicit price of the non
market characteristics which differentiate
closely related or explicitly similar products.
• This method is wisely used to value
environmental amenities or dis-amenities
associated with a good using their market
values i.e. property valuation approach or
wage differential approach.

11. • The functional form of the equation may be specified
according to the good that is being valued.
• In the present context, hedonic pricing method is appropriate
to derive the users’ valuation of land/soil degradation, access
to ground water, etc. the functional form
PLi = F[STi, SQi, AGWi, DGWi, Spi]
Where
PLi = price of the land
STi = soil type
SQi = soil quality
AGWi = availability of ground water
DGWi = depth of ground water
QGWi = quality of ground water
Spi = size of the plot
i = index of properties ranging from 1…………n.

12. b) Direct method:
1. Contingent valuation method:
• CVM may be termed as the modern name for
survey method.
• Only difference being that CVM elicits how
people would respond to hypothetical changes in
some environmental resources.
• CVM deploys direct valuation questions relating
to individuals willingness to pay for certain
environmental changes.
• In this the true willingness to pay is expected to
lie between positive and negative responses
rather than a single point.

13. 2). Contingent ranking or contingent behaviour:
• This is an indirect approach with in the direct
methods.
• In contingent ranking respondents are asked to
rank some non market resources in order of their
preferences.
• These non monetary preferences are then
‘anchored’ by simultaneously asking respondents
some of the familiar items like hand-pump or bore
well.
• Then respondents are asked for their WTP for the
familiar items.

14. • In the case of contingent behaviour approach,
respondents are provided with alternative
scenarios of environmental amenities from
which they have to make a choice.
• This facilitates the explanation for the choice
of one alternative over others as a function of
attributes which include travel distance etc.

15. 1)Market Price Method
Estimates economic values for ecosystem products or services
that are bought and sold in commercial markets.
2)Productivity Method
Estimates economic values for ecosystem products or services
that contribute to the production of commercially marketed
goods
3)Hedonic Pricing Method
Estimates economic values for ecosystem or environmental
services that directly affect market prices of some other good.
Most commonly applied to variations in housing prices that
reflect the value of local environmental attributes.
4)Travel Cost Method
Estimates economic values associated with ecosystems or sites
that are used for recreation. Assumes that the value of a site is
reflected in how much people are willing to pay to travel to
visit the site.

16. 5) Damage Cost Avoided, Replacement Cost, and Substitute Cost Methods
Estimate economic values based on costs of avoided damages resulting
from lost ecosystem services, costs of replacing ecosystem services, or
costs of providing substitute services.
6)Contingent Valuation Method
Estimates economic values for virtually any ecosystem or
environmental service. The most widely used method for estimating
non-use, or “passive use” values. Asks people to directly state their
willingness to pay for specific environmental services, based on a
hypothetical scenario.
7)Contingent Choice Method
Estimates economic values for virtually any ecosystem or
environmental service. Based on asking people to make tradeoffs
among sets of ecosystem or environmental services or
characteristics. Does not directly ask for willingness to pay—this is
inferred from tradeoffs that include cost as an attribute.
8)Benefit Transfer Method
Estimates economic values by transferring existing benefit estimates
from studies already completed for another location or issue.

17. • REFERENCES:
• Altaf, Anjum; Jamal Haroon and Dale
Whittington (1992) Willingness to pay for water
in rural punjab, pakistan UNDP World bank water
and sanitation program, the world bank
washington DC.
• Amin, Samir [1992] “Can environmental
problems be subject to economic calculations”
world development vol 20, no. 4.
• Bardhan P and Ashok’ Rudra [1978] inter linkages
of Land-Labour and credit relations –An analysis
of village survey data in east India Economic and
Political Weekely , Annul Number February