Professor Nathan Chan was featured on Vox's Unexplainable podcast in their recent episode titled "Can You Put A Price On Nature?" This episode discusses how economists put economic values on environmental amenities, like landscapes, clean air, and wildlife. Although the practice of environmental valuation may sound odd, many economists and scientists argue that this kind of calculation is crucial for protecting our environment.
This episode begins by focusing on recent research that quantifies the value of a wild bat. Bats eat insects which help farmers and their crops, but they are increasingly threatened by “White Nose Syndrome,” which is a fungus that grows on their faces during hibernation. The fungus can be fatal to bats and has been decimating their populations, with deaths numbering in the millions. There are ways to help the bats, but the solutions are expensive. Hence, the critical policy question is: “What should be done about White Nose Syndrome, and how much should be spend on these efforts?” Environmental valuation is critical to answering this question.
The hosts speak with one of the study authors, Amy Ando, to understand the research methodology. She explains that bats provide valuable labor to farmers by eating insects that attack and damage their crops. Ando rationalized that by having bats do free labor on the land, eating the insects, it will make the land more valuable. After looking at the numbers, Ando discovered that losing bats in a county caused land rental rates to fall by almost $3 an acre, with a total value of $420 to $500 million a year.
These types of analyses are an important part of the public policy process, as they provide important inputs for regulatory cost-benefit analyses. In 1981, Ronald Reagan signed an executive order that provides for the effective and coordinated management of the regulatory process. Later, Bill Clinton signed another executive order that made it so that regulations passed must go through a cost-benefit analysis.
The hosts interview Nathan Chan about the theory and practice of cost-benefit analysis. One issue that Chan points out is that environmental values are typically based on “willingness to pay” measures. However, the amount people are willing to pay to save the environment depends on how much money they have. If someone only has $10,000 then that is the amount they can afford. The problem with this is that by using this technique, the value depends on the resources available, and these values can be skewed by disparities in income. Other things like the social environment—including systemic racism—can impact the perceived value of different environmental amenities. These are issues that Chan and Ando, in collaboration with other researchers, tackle in their paper titled "Environmental and Natural Resource Economics and Systemic Racism". In the podcast, Chan also raises questions about where and when cost-benefit analyses should be applied. In some cases, it may not be appropriate to put a dollar amount on nature at all. For instance, if a developer wants to convert land that has sacred or historical value to a group of people, no dollar amount can change the fact that the land has deeper heritage significance. Hence, while environmental valuation studies can be important for conservation efforts, there are also natural bounds in terms of where they should be applied.
The work that Professor Chan and economist Amy Ando do is important. When policy makers weigh the costs and benefits of a project, nature's project might come up as zero. Chan, Ando and other environmental economists help put a value on nature.