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Economics of Incorporating Ecosystem Services into Water Resource Planning and Management

Angelos Alamanos and Phoebe Koundouri

No 2211, DEOS Working Papers from Athens University of Economics and Business

Abstract: The broad economic notion of Ecosystem Services (ES) refers to the benefits that humans derive, directly or indirectly, from ecosystem functions. ES are directly related with Water Resources Management (WRM), as any catchment's degradation is in fact a degradation of ES, and the opposite. The concept initially had a pedagogical purpose, later it started being measured with economic methods, and has policy extensions, such as markets and payment schemes. ES's valuation is an essential process for achieving environmental, economic and sustainability goals, The Total Economic Value (TEV) of ecosystems includes market values (priced) and mainly non-market values (not explicit in any market), hence the different valuation methods for their explicit valuation. This process involves also human preferences regarding the perception of the nature's contribution to the economy, services, or production processes. ES concept and relevant policies have been criticised on the technical weaknesses of valuation methods, the description of the human behaviour, the interdisciplinary conflicts (e.g. ecological vs economic perception of value), and ethical aspects on the limits of the economic science, nature's commodification, and the purpose of the policy extents. Since valuation affects the policies (markets and payment schemes), it is important to understand the way that humans decide and develop preferences under uncertainty. Those preferences are changing, our behaviour is unpredictable under deep uncertainty (i.e. unknown policies, impacts, unknown probabilistic events, and under climate change) particularly over longer-term important WRM decisions. Behavioural Economics attempt to understand human behavior and psychology, and in a way model our valuation system, under uncertainty. The purpose and use of concept must be based on solid principles, aiming to the development of policies that will improve our ecosystems and lives, achieved by scientific and stakeholder collaboration.

Date: 2022-02-16
New Economics Papers: this item is included in nep-agr and nep-env
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