ABSTRACT
A critical challenge for environmental economics is how to impute monetary values to the many aspects of ecosystem (environmental) services that are not traded in markets. The chapter explores the difficult conceptual and methodological issues involved in valuing the environment. In particular, the chapter discusses the following two issues: (1) the theoretical foundation of economic methodologies used in the ‘valuation’ of the environment, with a focus on revealing what exactly is being valued; and (2) the major alternative direct and indirect methods standard economists use to elicit preference (willingness-to-pay) for various aspects of the environmental services. While providing a ‘critical’ appraisal of the standard approaches of environmental valuation, the chapter also highlights the advances in the past three decades that economists have made in their techniques to impute the value of environmental goods and services. It is critically important to further improve the valuation methods in order to secure sustained use of the natural ecosystem.
