Should we pay for ecosystem service outputs, inputs or both?

Payments for ecosystem service outputs have recently become a popular policy prescription for a range of agri-environmental schemes. The focus of this paper is on the choice of contract instruments to incentivise the provision of ecosystem service outputs from farms. The farmer is better informed than the regulator in terms of hidden information about costs and hidden-actions relating to effort. The results show that with perfect information, the regulator can contract equivalently on inputs or outputs. With hidden information, input-based contracts are more cost effective at reducing the informational rent related to adverse selection than output-based contracts. Mixed contracts are also cost-effective, especially where one input is not observable. Such contracts allow the regulator to target variables that are “costly-to-fake” as opposed to those prone to moral hazard such as effort. Further results are given for fixed price contracts and input-based contracts with moral hazard. The model is extended to include a discussion of repeated contracting and the scope that exists for the regulator to benefit from information revealed by the initial choice of contract. The models are applied to a case study of contracting with farmers to protect high biodiversity native vegetation that also provides socially-valuable ecosystem services.PostprintPeer reviewe

Genuine savings and sustainability

Genuine Savings has emerged as the leading economic indicator of sustainable economic development at the country level. It derives from the literatures on weak sustainability, wealth accounting and national income accounting. We discuss the theoretical underpinnings of GS, focusing on the relationship between changes in a nation's extended capital stock and the future path of consumption. The indicator has entered widespread use propelled by the World Bank's publications, despite its varying performance as a predictor for future consumption. Notwithstanding the extensive body of literature reviewed, promising future research avenues are identified.PostprintPeer reviewe

The Emperor Has New Clothes: Empirical Tests of Mainstream Theories of Economic Growth

Modern macroeconomic theory utilises optimal control techniques to model the maximisation of individual well-being using a lifetime utility function. Agents face choices over current and future consumption (with resultant implied savings decisions) seeking to maximise the present value of current plus future well-being. However, such inter-temporal welfare-maximising assumptions remain empirically untested. In the work presented here we test whether welfare was in (historical) fact maximised in the US between 1870-2000 and find empirical support for the optimising basis of growth theory, but only once a comprehensive view of what constitutes a country's wealth or capital is taken into account

Buying spatially-coordinated ecosystem services : an experiment on the role of auction format and communication

The study was carried out as a part of the NEWFOREX project (New Ways to Value and Market Forest Externalities, FP7-KBBE-2009-3, Project no. 243950). It was also supported by the French National Research Agency (ANR) as part of the "Investissements d’Avenir" program (ANR-11-LABX-0002-01, Lab of Excellence ARBRE).Procurement auctions are one of several policy tools available to incentivise the provision of ecosystem services and biodiversity conservation. Successful biodiversity conservation often requires a landscape-scale approach and the spatial coordination of participation, for example in the creation of wildlife corridors. In this paper, we use a laboratory experiment to explore two features of procurement auctions in a forest landscape: the pricing mechanism (uniform vs. discriminatory) and availability of communication (chat) between potential sellers. We modify the experimental design developed by Reeson et al. (2011) by introducing uncertainty (and hence heterogeneity) in the production value of forest sites as well as an automated, endogenous stopping rule. We find that discriminatory pricing yields to greater environmental benefits per government dollar spent, chiefly because it is easier to construct long corridors. Chat also facilitates such coordination but also seems to encourage collusion in sustaining high prices for the most environmentally attractive plots. These two effects offset each other, making chat neutral from the viewpoint of maximizing environmental effect per dollar spent.PostprintPeer reviewe

Testing for long-run "sustainability": Genuine Savings estimates for Britain, 1760-2000

Genuine Savings has been proposed as an economic indicator of sustainable development, and has been the focus of World Bank sustainability assessments for countries globally. However, whilst the theoretical basis for Genuine Savings is well-established (Arrow et al, 2011; Hamilton and Withagen, 2007; Pezzey, 2004), its ability to forecast long-run trends in well-being remains un-tested. In this paper, we take a first step towards such an assessment by constructing a time series of estimates for produced, natural and human capital for Britain over the period 1760-2000, and use them to derive estimates of Genuine Savings. The next step in the project will be to compare these Genuine Savings estimates with a range of well-being indicators to answer the question: does positive Genuine Savings predict improvements in average well-being

How Environmental Pollution from Fossil Fuels can be included in measures of National Accounts and Estimates of Genuine Savings

In this paper, we examine means to incorporate the environmental effects of fossil fuel use into national accounts and genuine savings estimates. The main focus is on the rationales for the inclusion of carbon dioxide, and its appropriate price tag. We do this in the context of the pricing of historic carbon emissions in United Kingdom over the long run (from the onset of the industrial revolution to the present). Furthermore, we examine the reasonableness of taking into account other greenhouse gases than carbon dioxide. The global effects of carbon dioxide are compared to the local detrimental effects of the production and consumption of coal in the UK

Comprehensive investment and future well-being in the USA, 1869-2000

This paper reports long-run tests of how comprehensive investment (CI) predicts future well-being in the USA. Theory suggests that a country with a positive level of CI should experience non-declining future utility. Despite the widespread uptake of CI, previous tests of its predictive power are for short time intervals. We assemble data for increasingly-comprehensive measures of US capital back to 1869 which are used to predict future consumption per capita. Our results show that with the inclusion of natural and human capital, CI can predict changes in future well-being reasonably well over 20 years into the future. Extending CI, to include measures of intangible or social capital, yield results that closely predict consumption over 20-50 years horizons

SEDP-2014-03-Oxley-Hanley-Greasley-Blum-McLaughlin-Kunnas-Warde

Genuine Savings has emerged as a widely-used indicator of sustainable development. In this paper, we use long-term data stretching back to 1870 to undertake empirical tests of the relationship between Genuine Savings (GS) and future well-being for three countries: Britain, the USA and Germany. Our tests are based on an underlying theoretical relationship between GS and changes in the present value of future consumption. Based on both single country and panel results, we find evidence supporting the existence of a cointegrating (long run equilibrium) relationship between GS and future well-being, and fail to reject the basic theoretical result on the relationship between these two macroeconomic variables. This provides some support for the GS measure of weak sustainability. We also show the effects of modelling shocks, such as World War Two and the Great Depression

Valuing the benefits of improved marine environmental quality under multiple stressors

This study was carried out as a part of the GES-REG project (Good Environmental Status through REGional coordination and capacity building), funded by Central Baltic INTERREG IV A Programme 2007–2013, co-funded by the Environmental Investment Centre of Estonia. MC gratefully acknowledges the support of the Polish Ministry of Science and Higher Education and the Foundation for Polish Science. NH thanks MASTS (www.masts.ac.uk) for funding part of his work.Many marine ecosystems are under increasing pressure from multiple stressors. In the Baltic Sea, these stressors include oil and chemical spills from shipping, nutrient run-off from land and the introduction of non-indigenous species. All of these pressures have been growing over recent years. Increasing pressures lead to reductions in environmental quality, which produce negative effects on human well-being. In this paper, the choice experiment method is used to estimate the benefits to people in Estonia resulting from reductions in pressure from multiple stressors in the Baltic Sea. The main results show that, firstly, respondents have a positive, statistically-significant willingness to pay to reduce each of the three stressors analysed. Secondly, the average willingness to pay for the improvement in the quality of all Estonian marine waters to achieve Good Environmental Status is around 65 euro per household per year, with a 95% confidence interval of 48-77 euro. Thirdly, the greatest share of value of this total economic benefit is derived from the willingness to pay for reductions in the risk of large scale oil and chemical spills.PostprintPeer reviewe

A stated preference investigation of household demand for illegally hunted bushmeat in the Serengeti, Tanzania

This paper originates in a research project “Hunting for Sustainability” supported by the European Commission under the 7th Framework Programme for Research and Technological Development, and the research has been co-funded by Frankfurt Zoological Society.Illegal hunting for bushmeat is regarded as an important cause of biodiversity decline in Africa. We use a ‘stated preferences’ method to obtain information on determinants of demand for bushmeat and two other protein sources, fish and chicken, in villages around the Serengeti National Park, Tanzania. Our study focuses particularly on the impact of price changes, as anticipating and understanding the impact of price changes (whether caused by conservation interventions or market changes) on demand for bushmeat enables effective responses to be planned. We estimate the effects of changes in the price of bushmeat and in the prices of two substitute protein sources – fish and chicken – on household demand for bushmeat. Results suggest that increasing the availability of lower priced protein substitutes would reduce demand for bushmeat, and therefore, potentially pressure on wildlife populations. However, raising the price of bushmeat (e.g. as a result of reducing illegal hunting) would reduce household demand to a greater degree than equivalent decreases in the price of alternative protein sources. In both cases, elasticity of demand parameters are reported, which summarize the relative response to households to these alternative interventions. A 10% rise in bushmeat prices would reduce demand by around 6–7%, while a 10% fall in chicken or fish prices would reduce bushmeat demand by around 3–4%. The response to price changes varied between ethnic groups, and also according to household size (with the direction of the effect depending on whether the substitute was chicken or fish), but was not significantly affected by wealth or income.PostprintPeer reviewe