Contrasting Values in the Sustainability Debate: Limitations of Economic Valuations and their Role in Decision-making

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Andrew L. Fanning, (2012), Contrasting Values in the Sustainability Debate: Limitations of Economic Valuations and their Role in Decision-making, World Economics Association (WEA) Conferences, No. 2 2012, Sustainability – Missing Points in the Development Dialogue, 24th September to 21st October, 2012

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Abstract

This paper explores some of the more controversial conceptual issues surrounding ecosystem valuations in monetary terms along with their role in the greater decision-making process. I argue that there is an urgent need to be explicit about the underlying social goals being pursued by any given policy/action and that the degree in which a given policy makes trade- offs between achieving each goal should also be transparent. In the context of the sustainability debate, economic valuations of ecosystems can provide missing information necessary for achieving the goal of allocative efficiency, but they must be accompanied by a similar ‘conversion’ of how much economic activity ‘contributes’ to the goal of ecological sustainability.


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3 responses

  • petersoderbaum says:

    Your paper is clearly written but I think that you have to discuss the role of the analyst in relation to democracy and also the meaning of ‘economic’ in ‘economic valuation’. Are ecological impacts part of that which is ‘economic’ or does ‘economic’ stand for ‘monetary’ as part of your argument?
    In a democracy people are guided by their ideological orientations. The debate over the years about CBA tells us that no consensus can be expected about the values built into CBA. I think therefore that we have to deal with competing ideological orientations that appear relevant to decision-makers and among ideological orientations, different interpretations of sustainable development. The conclusions in terms of ranking can then only be conditional in relation to each ideological orientation considered. Reference to ‘allocative efficiency’, if used at all, can not be given a general meaning but only be understood in relation to the ideological orientation of a specific individual (understood as a political economic person). This means that the role of the analyst is to illuminate an issue rather than solve it. Only democratically elected politicians can bring things together in terms of a final decision. In your Figure 1 (from Norton) I therefore think that the first reflective level should be followed up in a different way from indicated in Tier 2.
    Peter Söderbaum

  • Nandan Nawn says:

    Thanks for the paper. I would suggest a somewhat higher emphasis on the role of information/knowledge on the processes involving valuation of any kind, monetary or other numeraires. For example, ecological sustainability and utility maximisation may not be contradictory (sec 3.1), if the agents concerned receive utility out of actions towards conservation/regeneration of natural endowments. This issue is reflected in the long standing debate on farmer’s knowledge vis-a-vis the ‘optimum resource utilisation’ pattern in a given scenario.
    Similarly, while ‘information obtained via economic valuations’ (sec. 4.0) may influence the societal decision making in some way, so will be the information that results in economic valuations.
    Finally, more we talk about numeraires other than money, more complex becomes the process of evaluation; but such difficulties shall not deter us to pinpoint the problems. An alternative may not be immediately available, but we must explore.

  • Andrew Fanning says:

    Thank you Peter and Nandan for the comments.

    Peter, your thoughtful remarks are much appreciated. With respect to your first question, I was mainly using the term ‘economic’ with the mainstream environmental economics concept of ‘Total Economic Value’ in mind. As such, I argue that ecological impacts can certainly be considered ‘economic’ but this misses the whole story because only limited instrumental uses of the ecosystem by humans are represented (even in the neoclassical world of perfect information where the monetary price is representative of economic value). Your second point gave me lots of food for thought for which I am grateful, especially with respect to how ideological orientations shape the social goals discussed in my paper. Many thanks, as well, to you and Malgorzata for all your hard work putting together this interesting and important conference.

    Nandan, I agree that utility maximization and ecological sustainability goals are not necessarily contradictory but I do think that it’s worthwhile for policies designed to accomplish both (e.g. win-win policies) to be explicit about how much each goal guides the policy formulation. While multiple indicators do make evaluations more complex, I agree that we must explore, indeed, the current human-ecological predicament compels us as analysts and as citizens to do better.
    Best,
    Andrew