ABSTRACT
The primary objective of this chapter is to investigate the various methods by which economists attempt to measure the benefits of environmental improvement or the preservation of the services of the natural environment. Generally, environmental improvement arises from damages avoided by taking certain well-defined action(s). For example, an environmental ‘project’ undertaken to clean up a lake could trace its benefits from the mere fact that, among others, such action would lead to an improvement (or a reversal of the damages) to the natural aesthetic value of the lake. As another example, the benefits of a public policy measure intended to preserve a wetland area may come from the contributions this action would have on biodiversity, flood control and enhanced environmental amenities. (In this chapter, a project refers to any intentional actions undertaken by a private or public body for the purpose of changing the quality of the natural environment.)
The above discussions indicate that the benefits from environmental improvement are inferred from assessment of avoided environmental damages. However, as discussed in Chapter 4, environmental damage costs are externalities. Thus, in most instances, their monetary values cannot be readily and directly obtained through the usual market mechanism. Despite this apparent difficulty, economists do attempt to measure the benefits from environmental improvement. How this is done is the central theme of this chapter. In the next section the methodological basis for measuring the benefits arising from improved environmental quality is examined. The focus is on understanding the exact context in which economists attempt to measure the value of improved environmental quality or avoided environmental damage.
