If you’re anything like us, you occasionally feel dwarfed by the incomprehensible awesomeness of the natural world. Our planet contains some incredible environments, inhabited by thousands of perfectly-adapted species—with such wonders surrounding us, it might seem vulgar to think of nature as a commodity that humans can put a price tag on.

Yet in some situations, economists do find it helpful to think of nature in financial terms. There’s no doubt that an industrial estate and a national park hold very different values: one is designed to make as much money as possible for the benefit of humans while the other remains intentionally untouched to preserve the abundance of precious non-human life within it.

The former should never replace the latter—that much is obvious. Financial value and ecological value are incomparable. So why do economists sometimes use monetary terms to assess the value of the natural world around us? We chatted with Professor David Maddison, an economist at the University of Birmingham specialising in the environment and natural resources, to find out.

Hi David. Why is it useful to consider nature in economic terms?

We sometimes find it useful to represent the value of nature in monetary terms in order to make decisions about projects which either incur some monetary outlay or alternatively involve foregoing some market benefit.

An example might be the recreational benefits of a mountain versus the creation of a quarry. The stone extracted from a quarry has a price from which its value might be established, whereas stone recreational experiences do not always have an observable price. We would therefore need to monetise the recreational experience in order to facilitate a cost-benefit calculus of the proposal to create a quarry.

What approach do economists take in order to determine the value of wildlife?

There are a variety of methods that can be employed to value changes in the quantity of wildlife or the quality of some environmental good. One way might be to infer how far people are willing to travel, thereby incurring a cost, in order to enjoy a recreational experience.

Another way is to see how much more people are prepared to pay to live in areas with good environmental qualities—for example, with low noise levels and good air quality. Often economists will use surveys where they ask people how much they are willing to pay in order to secure an environmental improvement, such as an increase in the number of a particular species.

What factors might make an animal’s perceived economic value increase or decrease over time?

The value of an additional unit of a species depends on how many there are left. If there are lots then the value of an additional unit is probably quite low. But if there are only a few left then an extra one could be quite valuable.

How might certain species be perceived as more valuable to the economy than others?

We need to be careful about what we mean by the economy. Some species might be useful in the production of marketed goods, such as bees for honey and wild animals that are valued for their skin or meat which is then sold.

Even if a species is not useful to the market economy, it might nevertheless be valued by humans simply because of the pleasure or educational value it brings, or the thought that this animal has a right to exist. These non-use values can be very large.

Could the introduction of a new species in the UK potentially affect the economy?

The species may or may not be useful to the economy, but it might independently be something that brings people pleasure to see. It could also have an impact if it interacts with other species that people care about, for example if there is a predator-prey relationship.

What kinds of economic policies have been considered recently that might affect UK wildlife?

Every agricultural policy usually affects wildlife. The most recent example that springs to mind is the banning of chemical sprays that are thought to harm bees.

From a purely financial and non-moral standpoint, would it make sense to eliminate all wildlife and natural parks from the UK to make more space for industry?

Most if not all economic valuation exercises are undertaken as a consequence of some policy question being considered. For example, what happens if we implement a measure that will result in a small increase in the stock of this particular species?

As far as I know there have been no policy question that would result in the loss of all Britain’s wildlife or the destruction of all Britain’s national parks. It might boost GDP, but no economist thinks that GDP is a good measure of welfare – it is a component of welfare, but it is not everything.

In your opinion, what is the best approach for the UK to ensure that economic growth and biodiversity coexist?

I think that the owners of sites containing a lot of biodiversity need to be compensated for maintaining that level of biodiversity, dissuading them from converting the land for intensive forms of agriculture. This is pretty much what happens with the CAP (Common Agricultural Policy) these days.

Thanks David!

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