The Economics of Nature

We went for the first time this year to the Orono Bog Boardwalk on Monday morning.  This is an absolute gem of a resource for the Penobscot Valley community, giving people easy access to a part of our Acadian landscape that is not often so easily visited.  If you have never been there you will be “blown away” by the natural beauty of this resource and will quickly forget that you are still in the confines of the City of Bangor, a stone’s throw from the sprawling retail strip developments of the Bangor mall.  The closeness of bird, plant, and water will remind you what is so special about Maine and how fortunate we are to be here.

The visit got me thinking about the many ways that economists have come to think about nature and about the human-built resources like the Bog Boardwalk that allow us to get closer to our natural world.

In conventional economics, nature was little more than a “resource,” something to be used with labor and capital to make the stuff of everyday life.  In this perspective, a bog is a source of natural inputs in a “production function.”  The goal would be to find a way to mine the bog and extract its peat moss for sale to gardeners as a soil amendment.  (Once I realized that those bags of peat moss were hiding the destruction of other bogs like the Orono Bog I was no longer comfortable using peat this way.)  In pre-industrial societies that did not have the benefit of coal, oil, and natural gas, peat was a source of household energy.  Think of it as coal before it got to be a fossil.  In this way of thinking about the economics of nature, the value of nature was determined by markets where the products of nature were bought and sold to fuel economic activity.  Places without market value were considered “waste lands.”

By the 1960s, economists were beginning to understand that markets did not always value nature fully or correctly.  An explosion of research by economists focused on values not captured by the interaction of classical market supply and demand.  This became a part of the environmental economics movement known as non-market valuation.

In this view, the Orono Bog and the walk that gives you access to it are “public goods.”  No private market will produce public goods so they have to be provided by the government or, as in the case of the Orono Bog Boardwalk, by a community of committed volunteers and donors.  Once provided, it is impractical to restrict access to those who want to enjoy the nature of the bog, so it is available to all.  Economists developed non-market valuation as a way of estimating what people’s value was for such goods by trying to determine what they would be “willing to pay.”  Presumably such estimates would provide a justification for keeping access to nature available and to protecting the very natural processes that make it possible, i.e. environmental protection.

At the same time, other economists looked to justify protected resources like the bog by estimating the “economic impact” of facilities like the boardwalk.  Economic impact is fundamentally different from the concept of economic value.  Studies of impact simply ask, does the investment in protecting the bog and providing access to it through the boardwalk stimulate spending and employment that would not otherwise occur in the economy?  This was a case of economists arguing that environmental (nature) protection is good because it makes the larger economy more active, a very different idea from that of nature is good because people get value from it.  One problem with economic impact analysis as support for the protection of nature is that an activity does not need to be good to stimulate economic activity.  Car crashes and outbreaks of the measles virus both create jobs and stimulate spending, but that does not mean we would want more of them.

In the 21st Century, these two arguments, non-market valuation and economic impact analysis, have become intertwined in the idea of ecosystem service valuation.  Here, bogs are good because they provide services to humans that would otherwise have to be engineered.  So nature cleans water, makes people less anxious, removes greenhouse gases from the atmosphere and otherwise does things of economic value relieving us from having to pay for these things to be done by direct human activity.  Ecosystem service valuation has become almost a fetish in the environmental community.

Think about this.  What a visit to the Orono bog in early June reveals is that there are two more values to nature that are impossible to capture through economic thinking of any variety.  First, nature just makes people feel good in ways that are not translatable into monetary language.  There is something in the natural world that is different from let’s say toothpaste.  Recent research by behavioral economists suggests that talking to people about nature in terms of dollars and cents actually makes them less concerned about the environment.  So much, then, for ecosystem service valuation.  There are parts of nature that are just different from the things we trade in markets that dominate our economic system.

Second, nature surely has intrinsic value.  It is valuable in and of itself without reference to humans.  There is a magical spot on the bog boardwalk where you emerge from the forest and head onto an open bog covered in moss and flowers.  Monday a White-throated Sparrow sat in a dead larch tree at this spot and sang away, the sweet, plaintive song of the white throat.  Perhaps he was setting his territory or was advertising to attract a new main squeeze.  In any event, he didn’t need my appreciation of his beautiful singing to be valuable and his song carried on, I am sure, after I moved along.  This was his spot and he didn’t need me to justify his presence.

Mark W. Anderson

About Mark W. Anderson

I am proud to be a Mainer, born in Caribou and schooled at Brewer High School, Bowdoin College, and the University of Maine. I am grateful for a 35 year career at UMaine, the last decade in the School of Economics.