Food, Fuel, Forests, and the Pricing of Ecosystem Services

Summary

Concern about degradation of natural resources has led in the ecological community to the concept of “ecosystem services.” The intent is to identify more fully what environmental economists would refer to as “use values” of ecosystems, concrete goods and services that have value, albeit perhaps unrecognized, to the market economy, as opposed to “non–use values” such as the pleasure of knowing that a natural system exists. The ecological community has also coined the term “agroecosystems,” recognizing that agricultural lands are, albeit modified through management, ecological systems. As such, conventional food and forest products are the products of ecosystems. Biofuels may be another important ecosystem service. Conventional economic analysis can be applied because these are goods that enter markets in the conventional sense.

The values of other ecosystem services are not so explicit in economic data. Here we extend an economic model to explicitly represent the recreation value of ecosystems and their carbon storage value. Our interest is how demand for these various ecosystem services may be complementary or competitive and how pricing of all new services may affect land use, food prices, and the prospects for biofuels production.