Ecosystem Goods

1
Ecosystem Goods Services

• Wednesday, February 23, 2005

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Economic Goods and Services

• Economic goods and services are
• things that people need and/or want
• produced by economic systems
• produced through economic production functions
• Q f (M, L, Kn, Km, Kh, Ks)

3
Ecosystem Goods and Services

• Ecosystem goods and services are
• things that people need and/or want
• produced by ecosystems
• produced through ecosystem functions
• Q f (Kn)

Examples?
4
Natural Capital

• Natural capital is the stock of naturally
  available matter and energy that is used to
  produce a flow of transformed matter and energy

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Ecosystem Functions

• Ecosystem functions transform the quality or
  spatial location of natural capital (matter and
  energy)

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Natural Capital, Ecosystem Functions, and.
Ecosystem Goods and services
Ecosystem Goods and Services (Matter and Energy
Transformed)
Ecosystem Functions
Natural Capital
UV Radiation Shielding
Ozone Layer Formation
Ozone Layer
Ecosystem Community
Wildlife Population Control
Food Chain
Biomass Production
Photosynthesis
Trees
Aquifer Recharge
Hydrologic cycle
River channel
Atmospheric Carbon Dioxide
Air Temperature
Climate System
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Other examples?
Ecosystem Goods and Services (Matter and Energy
Transformed)
Ecosystem Functions
Natural Capital
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Economic Valuation of Ecosystem Goods and Services

• When ecosystem goods and services enter the
  economic system (i.e., when people use or enjoy
  them), they have economic value.
  
• Economists can measure economic value.

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The Value of the Worlds Ecosystem Services and
Natural Capital (Costanza et al.)

• Range is 16-54 trillion per year
• Average is 33 trillion per year
• Compare to global Gross National Production 2
  trillion per year

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Common measure of economic value
Consumer Surplus
CSPS Welfare
S
Producer Surplus
D
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Consumer Surplus
Producer Surplus
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Economists can measure changes in economic value.
S
S
D
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New Consumer Surplus
Reduction in CS 4.5 - 3.125 1.375
New Producer Surplus
Reduction in PS 4.5 - 3.125 1.375
Reduction in welfare 2.75
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• Where ecosystem goods and services enter the
  economic system determines how economic value is
  determined.
  

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Intermediate vs. Final Goods and Services
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Intermediate vs. Final Goods and Services
ECOSYSTEM GOODS AND SERVICES
INTERMEDIATE
FINAL
ECONOMIC GOODS AND SERVICES
INTERMEDIATE
FINAL
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Example of Precipitation as an Intermediate
Ecosystem Good
INTERMEDIATE
FINAL
River Water Flow Rate
ECOSYSTEM GOODS AND SERVICES
Precipitation
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Example of Precipitation as a Final Ecosystem Good
INTERMEDIATE
FINAL
ECOSYSTEM GOODS AND SERVICES
Humidity
Precipitation
ECONOMIC GOODS AND SERVICES
Crop Production
Lawn Irrigation
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Valuing a Change in Precipitation When it is an
Intermediate Ecosystem Good
Change
Change
ECOSYSTEM GOODS AND SERVICES
Water Flow Rate
Precipitation
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Precipitation
Intermediate ecosystem good
Final ecosystem good
River water flow rate
Final economic good
White-water rafting
(Increase in demand)
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Marginal benefit shows demand for rafting trips
(final economic good)
Price per trip
10
9
8
7
MC
6
MB
5
4
3
2
1
0
0
1
2
3
4
5
6
7
8
9
10
Rafting trips at the river
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Increase in river water flow increases demand for
white-water rafting trips
Priceper trip
Final ecosystem good is a complement to final
economic good
MC
MB2
MB1
Rafting trips at the river
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Increase in Welfare from White Water Rafting Trips
(value of more river water flow)
Price/ trip
MC
MB2
MB1


Rafting trips
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Precipitation
Intermediate ecosystem good
Final ecosystem good
River water flow rate
Intermediate economic good
Electricity generation
(Increase in supply)
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Increase in River Water Flow increases
Hydro-Electricity Supply (intermediate economic
good)
Price/ kilowatt
MC1
MB
MC2
kilowatts
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Increase in welfare from increased electricity
generation (value of more river water flow)
Price/ kilowatt
MC1
MB
MC2


kilowatts
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Valuing a Change in Precipitation as a Final
Ecosystem Good
Change
ECOSYSTEM GOODS AND SERVICES
Precipitation
Humidity
ECONOMIC GOODS AND SERVICES
Crop Production
Lawn Irrigation
Change in Supply
Change in Demand
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Precipitation as a final ecosystem good is a
substitute for irrigation water, a final economic
good, so demand for irrigation water decreases if
precipitation increases
Price per Gallon
MC
MB1
MB2
Gallons of Lawn Irrigation Water
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Decreased expenditures on lawn irrigation
Increases disposable income and demand for other
products that are preferred
Price/ Gallon
MC
MB1
MB2
Gallons of Irrigation Water
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E.G. Increased income increases demand for movies
(less money spent on lawn irrigation means more
disposable income)
Price/ticket
MC
MB2
MB1


Movies
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Increased precipitation (as a final ecosystem
good) increases crop supply (an intermediate
economic good)
Price/ Bushel
MC1
MB
MC2
Bushels
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Increase in welfare from increased crop production
Price/ Bushel
MC1
MB
MC2


Bushels
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Confusion about Ecosystem Goods and Services in
The Value of the Worlds Ecosystem Services and
Natural Capital (Costanza et al.)

• Gas regulation
• Climate regulation
• Disturbance regulation
• Water regulation
• Water supply
• Erosion and sediment control
• Soil formation
• Nutrient cycling
• Waste treatment
• Pollination
• Biological control
• Refugia
• Food production
• Raw materials
• Genetic resources
• Recreation
• Cultural