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[MUSIC] The next method is production function. This is the method that I like to say that is
probably the most interdisciplinary of them all. Because we need two components. We need
an economic component of course, but also we need to be backed up by the knowledge that
scientists provide us with. In this method, what we do is just to see how a change for instance
in an ecosystem asset is then translated in a change in the productivity or in the income, or in
other measure of interest to us. The classic example is, for instance, what happens if we have
a reduction in the number of species in an ecosystem? In other words, what is biodiversity
worth? Agricologists tell us that the number of species plays a very important role in
determining plant biomass. In other words, there is a very important relationships between
the number of species we have in the system, and the productivity of this very system. Now, if
the productivity of this very system is in fact expressed in a unit, or in the type of crops that
has a market value. Then we can do evaluation because we can measure how much the
change, for instance, in the number of species will be translated in the number and change in
the productivity of the system itself. In this paper by Tilman and his associates for instance,
you can see how the relationship between the number of species and the productivity of the
system is actually estimated. Now, we, environmental economists may take this intuition,
may take this idea, and estimate the very same function in different systems. Systems
probably are not under the control of the experimenters, but they are the systems that exist
out there. So in the next paper by Di Falco and Chavas, for instance, we estimated the value of
the number of species in an agricultural system. More specifically, we asked ourselves how
much having spatial diversity in a system is corresponding to increasing levels of productivity.
This is an extremely important question because especially for systems like agriculture, we
experience more and more levels of monoculture. So if we lose a species and we turn from an
agriculture which is more diverse to an agriculture which is more characterized by
monoculture. We may lose not only species, but also the productivity which is attached to it.
In this paper, we take data for more than 20 years from the South of Italy and we may
estimate the same relationship that Tilman has estimated with his quarters in his paper in
2005. And we find that the value of having more species is indeed very large. And this value is
larger both in the short run and then in the long run. An increase in 10% of spacial diversity
was associated with an increase of 8% in productivity. And the very same increase would
deliver an increase in productivity in the longer run which will be close to 30%. So these are
very large benefits that nature provides and that we can estimate using the production
function method. Before we move into the methods, we use to evaluate non-use values, let's
have a very quick critical assessment of these methods. I tried to persuade you that this
methods we discussed that they are very powerful and very useful. On the other hand they
are not problem-free and before anyone embarks in evaluation exercises, it's very important
that appreciates what the possible shortcomings of those methods are. Specifically when we
think about the hedonic price model, the very important thing to keep in mind is that we are
using a surrogate market to capture an environmental value. So there is a market that
indirectly provide us information about an environment assets. Now, if this market is not very
well functioning, or is imperfect, or absent, then the data we obtain out of it are not good
data to use in evaluation. In other words, we are in a situation which we have biased
estimates of the analysis. When on top of that, we consider the production function
approach, the production function approach, besides the problem with the data in itself, also
has an extra problem. Or an extra, if you like, condition that needs to be met. And this
condition is that we need to know what the relationship between the environmental assets
and the outcomes we are interested in is to begin with. In the example I provided the
relationship between biodiversity in agriculture and productivity in agricultural system.
There, we started from a very important strand of literature in agricology that will tell us what
the causal relationship between these two things is. And then, we estimated that relationship
using different data. Now, if we don't have that kind of knowledge, then it would be very
difficult to apply any model. The next method in the list is contingent valuation. Contingent
valuation is very useful and very powerful because it can be applicable when other things
cannot be applicable. For instance, when we want to elicit things like existence value or
bequest value. What contingent evaluation does is a very simple thing. It creates a
hypothetical market, creates in fact a market that does not exist. And it has been applied to
parks, and fisheries, endangered species, then more recently it's been also been used to value
things like the quality of water, if you like. Again, this method which relies a lot on doing
surveys. You go around, you ask people how much they will be willing to pay, for instance, for
preserving an environment where this species or this other species exist. So in a survey, we
ask individual to evaluate hypothetically a species or an environment, or an ecosystem. By
eliciting directly what their willingness to pay to conserve, to preserve that existing, that
specific environmental asset of goods. Now imagine you can ask many people basically the
same question. How much are you willing to pay to preserve this environment where a panda
will survive. How much are you willing to pay to conserve the habitat in order to have this
type of species surviving for instance? You can ask that question in a single shot, you can ask
that question in different iterative fashion. But the sense and the idea, and the length of the
evaluation is exactly the same. Eliciting directly by asking people on a situation which is
purely hypothetical. The fact that this method is hypothetical, allow us to go where we kind of
go otherwise. On that end, the fact indeed is hypothetical is also the main potential problem
with the use of this methodology. For instance, when we are in hypothetical environment, are
we really individuals? Are individuals really telling us what they really want, what the real
benefits of that is? Is the number they going to tell you, is that $100, 50 francs, 20 euros, going
to be a true measure of their benefits? So if the answer is yes, the question then we're in
business. If the answer is no, unfortunately then the entire exercise evaluation is flawed. This
is called the hypothetical bias. And this is one of the main things we have to be very aware
when we do evaluation using contingent evaluation. A second very important bias would may
incur when we use a contingent evaluation is what is called the information bias. What people
do know? In essence we are asking them things about something which is completely
hypothetical. In a way, one way to get around this problem is to create a survey in which there
is a very important section in which all the information to the respondent are provided. But of
course, when you randomly stop people on the street, you don't really know what's in their
head. You don't really know what kind of knowledge they have, what their priors. If they are
some activist, for instance belonging to some NGO, environmental NGO and so forth. So, one
of the key problem with that is to make sure that through a carefully worded questionnaire, in
a section in which base information are homogeneously provided to individuals. We can at
least assume that the base of decision and the base of the answer is indeed the same.
Another important source of bias is, in fact, what is called the strategic bias. When we are in a
setup in which there is an interviewer and a respondent, some things can happen. People
may change their attitude. They may start giving answers, not because they really believe in
them, but they want to attach, there is some strategic behavior in that answer. I may want, for
instance, to answer to you in a way because I think I want to please you. I want to please the
interviewers. I want to give any major of myself which is not necessarily the truth. This is
another thing that we need to keep in mind when we do contingent evaluation. There are
many other biases in contingent evaluation potentially. But for the time being, I stopped
there and I let you read what's in the material. Evaluation methods are a great way or a great
tool to attach value to ecosystem services. However, these methods are all subject to a larger
set of assumptions, and therefore must be really handled with care. These are very powerful
tool that we can use, but we can also unfortunately misuse. I hope I persuaded you that the
possibilities are there, but that at the same time, a very critical approach when we choose this
method is always required. [MUSIC]