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INTRODUCTION Environmental economists argue that environmental degradation has resulted from the failure of the market system to put any value on the environment Dobson 1991 Beder 1996 According to the theory of supply and demand if a good is provided at a zero price demand would be higher than if it had a positive value with the danger of being overused Thus as Costanza et al 1997 argue ecosystem services are not fully captured in commercial markets or adequately quantified they are often given too little weight in policy decisions Yet as environmental assets are seen as free goods and have no markets it is necessary to impute a value for which a number of methods have been developed over the years Due to the multidimensionality of the topic this essay will focus on the debate surrounding the current methods of direct monetary valuation After briefly presenting these methods the essay will discuss the various criticisms and problems surrounding these valuations methods It will conclude by attempting to answer the question Are the present valuation methods useful VALUATION METHODS According to Jacobs 1991 there are two broad approaches measuring what people would be willing to pay for the environment in non-market situations the revealed preference and the hypothetical preference approach The underlying principle of the revealed preference approach is that the value of the environment is devised from the analysis of consumer behaviour with respect to goods associated with the environment Jacobs 1991 The consumption of various environmental resources often leaves behavioural footprints from which revealed preferences can be recovered using statistical methods NCEDR 1998 These methods as shown in chart 1 include the travel cost method the hedonic pricing method and the wage risk premia and all rely on the notion that the price of a good is related to its characteristics Jacobs 1991 p204
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