Frank Lupi. Natural Resource and Environmental Economics. Dept of Agricultural, Food and Resource Economics Dept of Fisheries and Wildlife

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1 Frank Lupi Natural Resource and Environmental Economics Dept of Agricultural, Food and Resource Economics Dept of Fisheries and Wildlife Agricultural Economics Recent research areas: Demand and valuation of ecosystem services Recreational fishing and beach use in Great Lakes Conservation adoption Incentive-based environmental policy

2 What s the purpose of Economic Info? Show importance? Make decisions? $11.5 billion in spending $1.5 billion in taxes 117,000 jobs

3 Types of Economic Measures Economic Impacts/Contributions Spending & how it contributes to economy ripple effects, tax revenues, jobs, etc. Economic Value (Change in Welfare ) Economic value TO people/firms, above what they spend i.e., Benefits net of costs

4 Linking ANS to People and Economy How do changes in ANS management link to changes in ecosystem services & link to changes in economy & people s well being? Change in ANS policy or mgmt. action Changes in ecosystem services Changes in economy & people s well being 1. Requires knowledge of linkages 2. Focusses on changes

5 Linking ANS to People and Economy How do changes in ANS management link to changes in ecosystem services & link to changes in economy & people s well being? To: Economy Impacts Change in ANS policy or mgmt. action Changes in ecosystem services Changes in economy & people s well being Money flows Jobs, taxes To: People Value 1. Requires knowledge of linkages Willingness to pay Changes in profits 2. Focusses on changes

6 Linking ANS to People and Economy How do changes in ANS management link to changes in ecosystem services & link to changes in economy & people s well being? Purpose? Change in ANS policy or mgmt. action Changes in ecosystem services 1. Requires knowledge of linkages 2. Focusses on changes Changes in economy & people s well being To: Economy Impacts Money flows Jobs, taxes To: People Value Willingness to pay Changes in profits Shows importance Make decisions BCA NRDA

7 Why care about demand & supply? Gives us info on behaviors $10 8 Price 6 4 Supply Function 2 Expenditure Demand Function Quantity

8 $10 Why care about demand & supply? Gives us info on behaviors 8 Supply Function with higher costs Price 6 4 Supply Function 2 Expenditure Demand Function Quantity

9 Why else care about demand? Gives us info on benefits and costs $10 8 Price Consumers Benefit Expenditure Supply Function Demand Function Quantity

10 Why else care about supply? Gives us info on benefits and costs $10 8 Price Consumers Benefit Profits Producer costs Supply Function Demand Function Quantity

11 Why care about demand & supply? Gives us info on behaviors $10 8 Price 6 4 Welfare measure Supply Function 2 Demand Function Quantity

12 So with higher supply costs, welfare change is change in area $10 Supply Function with higher costs 8 Price 6 4 Supply Function 2 Demand Function Quantity

13 Types of Economic Measures Economic Impacts/Contributions Spending & how it contributes to economy Other peoples income, tax revenues, jobs, etc. Economic Value (Change in Welfare ) Economic value TO people/firms, above what they spend I.E., Benefits net of costs

14 Types of Economic Analyses Economic Impact Economic Benefit Cost Benefit Analysis Cost Effectiveness Net changes in new economic activity associated with an industry, event, or policy in a regional economy A net increase in total social welfare. Economic benefits can be both market and nonmarket values. An economic efficiency analysis that measures net changes in social welfare associated with an industry, event, or policy; includes both market and non market values and accounts for opportunity costs. Determining the least cost way of achieving a goal; a necessary step for economic efficiency Adapted From: Watson et al., Determining Economic Contributions and Impacts: What is the difference and why do we care? JRAP 37(2):1 15.

15 What has Economic Value? Things that people are willing to sacrifice resources for have economic value. Economic values not just for market goods Nonmarket valuation Tools to infer these values Put on par with market costs

16 Types of Economic Values Market Values Values for goods and services exchanged in markets Non market values Use values Non use values Values for non marketed goods and services (e.g., many natural resources and ecosystem services) Market or non market values related to use of a good or service (e.g., drinking water, water based recreation) Values for non market goods & services unrelated to use (e.g., values for others use, for existence or for future generations)

17 Heal et al, NAS 2004

18 Economic valuation methods Market effects Supply functions Demand functions Nonmarket values Recreation demand Hedonics (property values) Avoided costs Mitigation/avoidance Treatment/control/prevention Non use values Referendum Contingent valuation (stated preferences) Benefit Transfer Not a valuation method per se Need data & studies for transferring

19 Collecting data & building model: Can t we just get this from literature? Not much $ goes into these original research studies Challenging to get the behavioral responses Reliability relies on replication in other areas/cases

20 Some past & current nonmarket valuation research Spatially & temporally explicit economic demand models Great Lakes fishing linked to sea lamprey control Great Lakes & inland fishing (ongoing) Trips per site: Most trips Great Lakes beaches (ongoing) Fewest

21 Forecasting biological and economic impacts of aquatic invasive species in Lake Michigan with David Finnoff, Hongyan Zhang, Ed Rutherford, Doran Mason GLFT,

22 The good news Some studies show: Economic benefits of preventing and controlling ANS can be substantial

23 The bad news.. Just because impacts can be large, does not mean each dollar invested is worth it. The Is it worth it? thought experiment: If invested $100 in ANS management, could you get enough people or companies to pay for it so you collect more than $100?