What’s Nature Done for You Lately: Measuring the Value of Ecosystem Services

The natural world generates a range of valuable goods and services that support human well–being. !ese goods and services, collectively called ecosystem services, are typically provided free of charge and often have characteristics of public goods. Like other public goods, ecosystem services will not be provided optimally by aggregating the decisions of individuals motivated by self–interest. For example, an individual farmer gains the benefits of increased yields from the application of nitrogen fertilizer but often bears an insignificant portion of the costs from additional release of nitrous oxide, which is a powerful greenhouse gas, increased air pollution from emissions of nitrogen oxides and ammonia, and increased water pollution from release of nitrates into ground or surface water. In such cases, the sum of individual actions may result in the disruption of the flow of valuable ecosystem services thereby making all individuals collectively worse off. Even in cases where ecosystem services provide localized benefits, if individuals are not aware of the consequences of their actions they may still take actions that unknowingly damage ecosystem services on which their long–term welfare depends. !e presence of both incentive problems and information problems means that ecosystem services are often not provided efficiently. !ere is an important role for economists to play in improving the provision of ecosystem services, which includes understanding how management choices affect ecosystems and the services they provide, understanding of the relative value of ecosystem services to different groups in society and designing appropriate incentive mechanisms for the efficient provision of ecosystem services. !e recent focus on ecosystem services grew out of efforts, led primarily by ecologists, to highlight the importance of ecosystems and the natural world to human welfare. Just over a decade ago, the publication of Nature’s Services: Societal Dependence on Natural Ecosystems (Daily 1997) and a controversial article published in the journal Nature entitled !e Value of the World’s Ecosystem Services and Natural Capital (Costanza et al. 1997) brought significant attention and research focus to assessing ecosystem services. !e Millennium Ecosystem Assessment, a major international research effort to summarize the current condition and potential future trajectories of the world’s ecosystems and biodiversity, used ecosystem services as its major organizing principle and emphasized the link between ecosystems and human well–being (MEA 2005). Major research efforts on ecosystem services are underway in government agencies such as the U.S. Environmental Protection Agency, international organizations such as the World Bank and nongovernmental organizations such as !e Nature Conservancy and World Wildlife Fund. Many of these efforts are being led by natural scientists and there is a compelling need for greater economic input.