Question

discuss at least one pro and con of putting a price on a specific environmental good of your choosing. Using a specific resource or environmental amenity, discuss:

• What characteristics of the good restrict market valuation?
• In what instances would we want to put a price on the good?
• In what cases can a price actually harm the resource in question rather than help it?
• What estimation techniques did the researchers use in this National Park study and is this tool the best tool for estimating the value of your chosen amenity? Why or why not?
• In your response to a classmate's post, offer an alternative valuation method and briefly explain why it would be an acceptable tool for the amenity discussed.

200-400 Words

Answer 1

Nature has a value in itself and biodiversity-rich ecosystems shouldn’t be priced: “their value is priceless.” However, we live in a society where “market” and “finance” are king. Therefore, now there are increasing calls, both from business and from some parts of the conservation sector, for extending market rules to the realm of nature.

Is “pricing nature” a good or a bad thing?

• Proponents of “valuing nature” argue that the “services" nature provides (such as clean air and stopping soil erosion) are not factored into economic decisions because they are not priced (as they are worth nothing). By placing a price tag on these “ecosystem services,” decision-makers will be forced to see the value of nature and save the environment and the people who depend upon it.
• The opponents to this approach says that once you reduce the value of the ecosystems (bee colonies, trees and Sumatran tigers) to a dollar value, their protection stops being an essential duty of us as human beings and starts being subject to cost-benefit analyses.

An example of how dangerous can be a market-based approach on defending ecosystems is given by the so-called “Biodiversity offsetting schemes,” which are growing in popularity. They allow companies to make up for destroying a priceless natural habitat in location A by planting a few trees or promising not to destroy location B. There is an exchange, simply an exchange! It doesn’t matter how important is that land for local territories and people as well as for the entire world.

Therefore, when decisions are made using a simplistic cost-benefit analysis in which the “value” of ancient woodland can be “offset” by a new tree plantation, rather than such decisions being made in consultation with local people and environmental experts, that is a cause of concern.

Opposition campaigns against the financialization of nature

The good news is that a wide range of groups have recognized the financialization of nature as a “threat.” Voices of opposition range from campaign organisations like the World Development Movement and Friends of the Earth to research groups like the Corner House. A recent parody produced by Global Motion and the Nature Not for Sale campaign brilliantly highlights the absurdity of pricing nature.

The values of nature cannot be marketed! Nature must be preserved above all the other interests, because Nature is an essential condition for us to live on the earth.

Characteristics of the good restrict market valuation

Market capitalization

• Market capitalization refers to how much a company is worth as determined by the stock market. It is defined as the total market value of all outstanding shares.
• To calculate a company's market cap, multiply the number of outstanding shares by the current market value of one share.
• Companies are typically divided according to market capitalization: large-cap ($10 billion or more), mid-cap ($2 billion to $10 billion), and small-cap ($300 million to $2 billion).

• The formula for market capitalization is:

  • Market cap = share price x # shares outstanding

In what instances would we want to put a price on the good?

1. Reframe the product’s value. It’s easier to evaluate how much you’re getting out of an $84/month subscription than a $1,000/year subscription, even though they average out to around the same cost.
2. Bundle commonly bought items. Neuroeconomics expert George Lowenstein notes the LX version of car packages as a great example of successful bundling. It’s easier to justify a single upgrade than it is to consider purchasing the heated leather seats and the navigation and the roadside assistance individually.
3. Sweat the small stuff. In another CMU study, trial rates for a DVD subscription increased by 20 percent when the messaging was changed from “a $5 fee” to “a small $5 fee,” revealing that the devil really is in the details.
4. Appeal to utility or pleasure. For conservative spenders, a message focusing on utility is more effective: “This back massage can ease back pain.” More liberal spenders are persuaded by a focus on pleasure: ‘This back massage will help you relax.”
5. It’s either free or it isn’t. “Free” is a very powerful word, as proven in a case study discussed in Dan Ariely’s book Predictably Irrational. In the example, Amazon’s sales in France were drastically lower than all other European countries.