Ecosystem Values: A first step in comparing Ecol Econ to Env Econ

Folks at the Environmental Economics blog love to point out the folly of adding up all the so-called nonmarket benefits from nature (often called environmental services) and somehow assigning a monetary value to them. The poster child of this effort is Robert Costanza et al's The Value of the World's Ecosystem Services and Natural Capital , Nature, vol 387, May 15 1997. Another very recent example is here.

Good for them. In a recent criticism, John Whitehead daylighted (new to me) a very good article by Nancy Bockstael and others that answers the question: "Given the [desirable] purpose of the Constanza article, does is matter if the analysis is wrong?" Of course it does. Read Bockstael and others to gain insight into correcting Costanza et al problems as well as other long-standing problems in context-dependent environmental valuation. Costanza and co-authors are certainly not unique in their errors.

Whitehead also uses the post to pigeonhole ecological economists into two camps, saying:

It seems that there are two sorts of ecological economists. The first sort is the environmental economist who grew frustrated with some of the constraints of neoclassical economics but did not reject economics. I think of these types as "economic ecological economists." The work they do is environmental economics with greater integration of ecology and maybe a bit more fire and brimstone. These can all be good things.

The second sort is the ecologist who grew frustrated with economics and rejects neoclassical economics. In fact, this type is happy to stand up at a conference and tell everyone what is wrong with economics and economists. I think of these types as "ecological ecological economists." The work they do is ecology with some economics (and a lot of fire and brimstone) thrown in, and a lot of times the economics isn't always exactly right.

For me, the bottom line is: beware environmental values developed by the ecological ecological economist.

Ok in part. But's let's broaden the focus and say, "Beware environmental values developed by economists." But Whitehead's view is too narrow. There are far more than "two sorts of ecological economists." {For the record, some of us in the ecological economics world were not happy with the Costanza paper when it came out and are not happy that the legacy continues. We are also not happy with a whole lot of other stuff that appears under the banner "economics." But we don't let that stop us from trying to improve the workings of our discipline.}

Ecological economics is a big tent that allows for cross-disciplanary discussion between economists of various stripes, ecologists, and others. For those interested in better understanding what ecological economics is about, and in contrasting it to traditional environmental and resource economics, I recommend Jeroen C.J.M. van den Bergh's Ecological Economics: Themes, Approaches, and Differences with Environmental Economics [PDF]. Here's a sampler:

Van den Bergh's paper begins with a distinction between Ecological Economics and Environmental (and resource) economics:

EE [ecological economics] integrates elements of economics, thermodynamics, ethics, and a range of other natural and social sciences to provide an integrated and biophysical perspective on environment-economy interactions, aimed at contributing to structural solutions to environmental problems. The core of EE can be associated with the goal of sustainable development, interpreted as both intra- and intergenerational equity; the view that the economy is a subsystem of a larger local and global ecosystem that sets limits to the physical growth of the economy; and, a methodological approach based on the use of physical (material, energy, chemical, and biological) indicators and comprehensive systems analysis.

EE provides a forum for multidisciplinary environmental research as well as an alternative view and approach to traditional environmental (and resource) economics (ERE). … On the one hand, ecological economics offers criticism of the ERE approach, and on the other, it tries to develop and apply alternative methods and approaches. …

The core of ERE is the theory of negative externalities or external costs. This considers environmental degradation and the use of unpriced natural resources as a negative effect outside the market by one economics agent or another, without any form of compensation taking place. This implies that the environmental problem is cast in terms of an interaction between people (economic agents), that is, nature is only implicitly described. EE is instead more interested in an explicitly modeling of people-environment or economic-ecological relations, by mapping out cause-effect relationships and dynamic processes within the environment (hydrological, chemical, physical and ecological). …

Another important opposition is between scale and allocation. ERE is aimed at optimal allocation and thus efficiency of use of scarce means (including resources). Environmental problems are translated through the concept "externality" (or external effect: or "external cost"). …

EE has chosen sustainable development as its central concept. This is subsequently approached both qualitatively and empirically, with particular attention for spatial scales (ranging from global to local). Within ERE, sustainable development is usually regarded as being identical to sustainable growth, which is studied with general and abstract models that avoid any reference to historical and spatial aspects, as well as specific characteristics of countries. ERE does not seem to take absolute physical limits to growth as seriously as EE, and regards the problem of a "maximum scale" of the economy as irrelevant. … EE generally assumes a longer time horizon that ERE…. EE is closer in spirit to evolutionary then to neoclassical economics… [EE is] characterized by concepts like path dependence, historical accidents, and irreversibility of changes. … Therefore, EE considers systems, including markets, as adaptive and coincidental rather than optimal.

The main goals and criteria for evaluating developments, policies and projects differ between EE and ERE. The dominant criterion of ERE is "efficiency" (or sometimes a more limited version, such as cost-effectiveness). … [ERE] presumes "more is always better." …[W]hereas in ERE distribution and equity are secondary criteria, EE emphasizes (basic) needs, North-South differences, and the complex link between poverty and environment. In addition EE is best characterised by the "precautionary principle", linked to environmental stability, with much attention to "small-probability-large-impact" combinations. …[P]recautionary principle is closely related to a concern for instability of ecosystems, loss of biodiversity,and environmental ethical considerations…. "Efficiency" is of secondary concern in EE. "Distribution is often considered as a more important criterion for evaluation policies and changes than efficiency. In addition, some argue that it is impossible to analyse distribution and efficiency separately. This would mean that the main tool of ERE: namely, equilibrium analysis, which assumes that efficiency can be assessed independently of distribution, is inaccurate at best.

ERE focuses on value dimensions: namely, utility and welfare in theory, and costs and benefits in practice. Unlike neoclassical economics, EE does not regard a total valuation of changes in ecosystems as the sum of private values. …

Next EE criticizes social objectives such as [ERE's] utilitarian approach to intergenerational welfare. … In addition, EE seems to discard consumer sovereignty when giving priority to the interest of systems above the freedom of choice of individuals, as in environmental movements like "deep ecology".

Table 1 summarises [somewhat simplified] the main differences between EE and ERE. [Iverson note: literature citations and footnotes omitted. See original. Table 1 adapted slightly.]

Table 1. Differences in emphasis between EE and ERE.

Ecological Economics	Traditional Env. and Res. Econ
1.Optimal scale	1. Optimal allocation     and externalities
2. Priority to sustainability	2. Priority to efficiency
3. Needs fulfilled and     equitable distribution	3. Optimal welfare     or Pareto efficiency
4. Sustainable development,     globally and N/S	4. Sustainable growth     [abstract models]
5. Growth pessimism and     difficult choices	5. Growth optimism and     "win-win" options
6. Unpredictable     co-evolution	6. Deterministic optimization     of intertemporal welfare
7. Long-term focus	7. Short to medium term focus
8. Complete, integrative     and descriptive [focus]	8. Partial, monodisciplanary     and analytical [focus]
9. Concrete and specific     [contextual framing]	9. Abstract and general     [contextual framing]
10. Physical, [social], and      biological indicators	10. Monetary indicators
11. Systems analysis	11. External costs and     economic valuation
12. Multidimensional      evaluation	12. Cost-benefit analysis
13. Integrated models with     cause-effect relationships	13. Applied general equilibrium      models with external costs
14. Bounded individual      rationality and      uncertainty	14. Maximisation of utility      or profit
15. Local communities     [soc./institutional frames]	15. Global market and     isolated individuals
16. Environmental ethics     [plus interpersonal ethics]	16. Utilitarianism and functionalism

Comments

[David Jeffery]

Good post Dave. I've been enjoying this discussion here and at the Env-Econ blog.

[J.S.]

1. As I point out repeatedly, since we have no idea what the carrying capacity of the Earth is and I know of no one credible who suggests going down the China path of restricting the number of children people can have the whole focus on "optimal scale" is a red herring with nothing operational at the macro level.

2. Sustainability is generally a fuzzy concept but the best definitions come from Robert Solow and David Pearce- two hardcore economists- not from EE- so how can you all claim to focus on it more

3. EE people love to talk about "fairness" first- who gets to say what's fair? Sure, let's have the discussion but don't call it ecology and while related to economics of course, it's really moral philosophy- let's be precise here

J.S.

[Dave Iverson]

J.S.

When EE folks talk about "environmental ethics" we really are talking moral philosophy. I don't think it is hidden at all.

And David Pearce is one of the mainstays of EE. See, e.g. the fourth paragraph of http://www.ecoeco.org/publica/encyc_entries/Costanza.pdf

Finally, just because no one really knows for sure what the carrying capacity of the earth is, this does not mean that we ought not to talk about it. Negative Population Growth, for example, used to say that we might begin to think about an earth with, say, 2 billion people with a long term goal to try to whittle our presence down to that level. No one, including them, claims to know the carrying capacity of Earth (at what quality of life?). Still, the topic is worthy of some discussion. Otherwise, we have to work up spaceship planetary escape myths, stories, or far-future realities that may not come in time, if at all. Else just stick our heads in the sand. No?

[J.S.]

Acutally, no I don't think a discussion of carrying capacity on the macro sense is really of much value. On smaller scales yes, and of course, to the extent that we want to cap greenhouse gases etc. we need to think macro, but figuring out how many people can live on the Earth doesn't seem like a good use of time since the population is going to settle at about 9 billion relatively soon and those 9 billion are ALL going to want and get the middle class luxuries that we now enjoy. A much better use of time is figuring out how to do that without decimating ecosystems instead of figuring out whether that number should be 8 billion or 8.5- because what do you do with that number anyway? I just don't get the whole obsession with carrying capacity- it's a distraction in my view. As to EE being moral philosophy good- but that's not science, not ecology, and only the normative strand of economics so the EE label in my view is misplaced. Anyway, since I come off as harsh to EE, which I generally am given the tendency of many of its adherents to advocate massive increases in government authority and control and coercive wealth redistribution, let me say that I believe EE is well-intentioned. The problem is that history, and particularly the 20th century, is littered with well-intentioned ideologies that had the opposite effects.

J.S.

[Dave Iverson]

I don't think we ought to obsess over planetary carrying capacity either. As for "...those 9 billion are ALL going to want and get the middle class luxuries that we now enjoy," This IS a real concern, with only one planet to provide for all those "wants," "demands." Hence the need for the EE dialogue.

So, J.S. I admit that EE is not a science. Do you believe economics to be a science?

[J.S.]

Absolutely- economics is one of the most powerful social sciences- it has normative and philosophical elements but yes it clearly meets the criteria of science. Glad we can agree on quite a lot in the end.

J.S.

[Dave Iverson]

OK, J.S. I asked a silly, unanchored question, and provided a flip remark to kick it off: namely that I don't think of ecological economics as a science.

If we look to Dictionary.com for a definition of "science" we get:
http://dictionary.reference.com/browse/science

science 
–noun

1. a branch of knowledge or study dealing with a body of facts or truths systematically arranged and showing the operation of general laws: the mathematical sciences

2. any of the branches of natural or physical science.

3. systematized knowledge in general.

4. knowledge, as of facts or principles;

5. knowledge gained by systematic study.

6. a particular branch of knowledge.

7. skill, esp. reflecting a precise application of facts or principles; proficiency.

This is a "big tent" definition, likely to include "ecological economics" even though I'd rather think of EE as a cross-disciplinary conversation among scientists, managers, and others.

Can economics be viewed both as science and ideology? {Note we could spend a few years here, parsing out distinctions between positive and normative, and chasing other rabbits too. I don't have time or energy to go there. Try, e.g. Mark Blaug's The Methodology of Economics.} Just for fun, here is what Robert Heilbroner said about economics, and economics as a science (in Behind the Veil of Economics):

"Economics is the name we give to a process found in all societies as a precondition for existence. The process consists of both activities of production and distribution, and of the means for orchestrating these activities in accordance with the aims of the social order. This seems an appropriate place, however, to reflect on a double-meaning of the word economics--namely, its reference both to the actual processes of provisioning, and to the ideas and beliefs by which we explain (and justify) those processes. ... [In market economies] Economics then becomes the "science" -- the empirical scrutiny and functional analysis -- of market directed behavior, while remaining an ideology -- a belief system -- insofar as it accepts as final the analysis of social movement in terms of unexamined 'economic forces.'"

"… Despite the unprecedented changes wrought by capitalism, despite the enormously enlarged sphere accorded to the play of self-interest and rationality [relative to societies in which the provisioning process takes place under the aegis of tradition and command] the forces of affect and obedience – the universal products of the socialization of humankind – continue to serve their ignored, but irreplaceable motivational function. Unsupported by these forces, the institution of exchange would be incapable of marshalling and coordinating the activities required for the provisioning of the social order. The 'mechanism' of exchange is therefore not an integrative system free of affect and power, but a system the depends on these ancient modes of behavioral control – incorporating them in ways of extraordinary complexity, unleashing from them a heretofore unknown social dynamic, ignoring their active and essential contribution, but depending on them all the same. There is therefore no mystery involved in the assertion that economics is fundamentally and embodiment of the forces of morality and politics, interpreted broadly. The mystery, rather, resides in our difficulty in perceiving this." (pp 32-24)

[Dave Iverson]

Rob MetCalfe works further on the science question at "Natural Capital." He says that EE may partially fail a Kuhn (Structure of Scientific Revolutions) test to place the discipline in the "normal science" camp. That is what it is, according to MetCalfe and any others who attempt to categorize. MetCalfe's workup is here: http://envecon.wordpress.com/2006/10/20/differences-between-environmental-and-ecological-economics-%e2%80%93-which-is-a-science/

Still, most of us here, I suspect would rather see whether EE fits in as a post-normal science. http://www.eoearth.org/article/Post-Normal_Science

Who will work that up?