This document discusses the concept of total economic value in environmental management. It defines total economic value as the aggregation of use values and non-use values provided by an ecosystem. Use values include direct use values from tangible goods and indirect use values from ecosystem services. Non-use values include existence, bequest, and option values. The document outlines the total economic value framework and procedures for valuation, including identifying valuation goals and functions, choosing valuation methods, and valuing functions in physical and monetary terms. It also describes revealed and expressed willingness to pay methods for valuation, including market prices, productivity, hedonic pricing, and survey techniques.

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THE CONCEPT OF TOTAL ECONOMIC VALUE IN
ENVIRONMENTAL MANAGEMENT
BY
CAXTON GITONGA KAUA

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THE CONCEPT OF TOTAL ECONOMIC VALUE IN
ENVIRONMENTAL MANAGEMENT
1.0 INTRODUCTION
Total economic value refers to the value derived by people from a natural
resource, a manmade resource or an infrastructure system as opposed to
not having it. In environmental economics it appears as aggregation of the
values provided by a given ecosystem, including its use and non -use
values (Pant, et al 2015). However the market is only able to reveal one
component of the total economic value i.e. the direct use value. This is
despite the fact that most natural resources are also valued for their
indirect use and non -use values (Pant, et al 2015).
Economic value expresses the degree to which a good or service satisfies
individual preferences. This actually forms the basis of the theory of
economic valuation (Ghani, 2006). In economic valuation, economists
assume that people and not the government are the best judges of what
they want (Ghani, 2006). People normally express their preferences
through the choices and trade-offs they make given certain constraints
(Ghani, 2006).
The economic value of a good is therefore measured by the maximum
amount of things that a person is willing to give to obtain it (Ghani,
2006). It is measured by the amount of money an i ndividual is willing to
pay for a good or service or the amount of money he is willing to accept
as a compensation for foregoing a good or service (Pant, et al 2015).
Total economic value can also be simply defined as an attempt to put a
monetary value to environmental goods and services or to a natural
resource (Emerton 1999). It is the sum value of all service flows that
natural capital generates both now and in the future (Muradyan and
Pascual 2010). This value is expressed using a common unit of account
(Muradyan and Pascual 2010). This refers to money or any market based
unit of measurement that allows comparisons of benefits of various goods
and services by expressing the relative preference (Muradyan and Pascual
2010).
Total economic value is based on the utilitarian paradigm. This paradigm
is based on the principle of human welfare (M.A. 2003). According to this
paradigm, it’s thought that people derive utility from the use of an
ecosystem either directly or indirectly. Within this paradigm people may
also value an ecosystem s use that they are currently not using i.e. the

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non-use value. The benefits that human beings derive from an ecosystems
services can either be gained or lost (Emerton 1999).
The benefits that accrue from an ecosystem to society are analyzed
through the concept of the ecosystem function (Kasina 2007). It defines
the capacity of an ecosystem to provide good and services that satisfy
human needs (Kasina 2007). Ecosystem functions are the attributes o f an
ecosystem that contribute to its maintenance. Ecosystem services on the
other hand are the beneficial outcomes that result from the ecosystem
functions. In order for an ecosystem to provide services to human beings
some interaction or atleast some level o f appreciation by humans is
needed. Thus the functions of ecosystems are value neutral while its their
services that have value to society (Ghani, 2006).
According to the Millennium Ecosystem Assessment (2005) the benefits
of an ecosystem include provisioning services such as food and water,
regulating services such as climate regulation and biological pest control,
supporting services such as pollination a nd nitrogen fixation and cultural
services such as recreational and spiritual benefits. It’s on the basis of
these services that the total economic value of an ecosystem can be
derived (Ghani, 2006).
2.0 TOTAL ECONOMIC VALUE POLICY CONTEXT IN KENYA
The Convention on Biological Diversity COP decision IV/10
acknowledges economic valuation of biodiversity and biological resources
as an important tool for well targeted and calibrated economic incentive
measures. It encourages parties to take into account econo mic, social,
cultural and ethical valuation in the development of relevant incentive
measures (Christie, 2012).
The national resource development and management policy of 2012 is
majorly concerned whether the people of Kenya are getting the value and
net worthiness of the rich reso urce base when components there of are
harnessed, exploited, used, utilized, conserved, protected and managed by
the state on their behalf. It raises the question as to wh at the total value
of Kenyas’ entire natural resource base is and the exact types of natural
resources Kenya has, who values and who audits all resources that are
extracted from Kenyas resource base (Republic of Kenya 2012).
The forest policy of 2014 has t he valuation of environmental goods and
services as one of its key issues. The policy recognizes that the
undervaluation of forest resources has been a key factor in their
sustainable use. Total economic value is therefore one of its key guiding
principles (Republic of Kenya 2014) .

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The national environment policy 2013 recognizes natural capital as the
extension of the economic notion of capital to goods and services relating
to the national environment and thus it ’s the stock of natural ecosystem
that yields a flow of valuable ecosystem goods and services into the
future. It goes on to recognize the challenge as being a reliable way to
assess the true value of services provided by ecosystems i.e. their worth,
what their loss would cost and what can be done a bout the loss. It thus
recommends undertaking of total economic valuation of national capital
as key to improving the efficiency of natural resource use of which is
vital to their future competitiveness and wellbeing. This, according to the
policy would lead to a green economy (Republic of Kenya 2013).
3.0 ELEMENTS OF TOTAL ECONOMIC VALUE
These form the compon ents of total economic value. There is however an
inconclusive consensus in academic circles as to what set of categories is
truly exhaustive and conclusive in capturing the different elements of
total economic value (Pant, 2015). The values of an ecosystem can
broadly be defined as use and non -use values. Use values constitute some
human interaction with the resource while non -use value does not
(Republic of Kenya 2013) . Use values are associated with actual use of
the environment while non-use values, also referred to as passive values
are not (Ghani 2006).
Use values include the direct use values and the indirect use values.
Direct use values are those that can be obtained through a tangible
removable product e.g. timber and fish whereas indirect use values are
those that are obtained as a non -removable product such as aesthetic value
and erosion control (Pant, 2015).
The non-use components of the total economic value of a resource
captures those elements of value that are unrelated to current, future and
potential use (Pant, 2015). This element was first proposed by John
Krutilla in 1967 (Pant, 2015). Non-use value is a major component of the
value derived from environmental goods and often contributes 50% or
more of all the benefits provided by some natural resources (Pant, 2015).
The non-use values constitute various components (Pant, 2015). Firstly
we have the existence value which reflects the benefits we derive from
simply knowing that a certain good or service exists. E.g. people derive
satisfaction by knowing that certain endangered species are protected
against extinction and some are even willing to pay for their protection of
their habitats even though these may be located in remote hard to access
areas that they will never visit (Pant, 2015). Another nonuse value is
bequest value. This refers to the benefit derived from ensuring that

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certain goods will be preserved for the future generations. E.g. people
may be willing to pay to prevent global warming even though its serious
predicted impacts will be felt long after t heir generation is gone (Pant,
2015).
In addition to these we have option value. Th is was introduced by
Weisbrod in 1964 (Pant, 2015). Option value is the value of a resource
reflected by its potential to be available in future (Pant, 2015). This
potential future benefit contributes an option. It may be construed to
mean a kind of insurance premium one may be willing to pay for
preservation of an ecosystem good or service in future. Within this
component we also have quasi option value. This reflects the willingness
to avoid irreversible commitment of a resource to development now given
the expectation of future growth in knowledge relevant to the implications
of development (Pant, 2015).
Option value is however a controversial element of total value with some
quotas considering it as a use component that could have direct or
indirect use in future while other interpret it as a nonuse value since it
does not constitute current use. Others still argue that option value should
be considered as a completely separate value category so as to allow it to
capture both its future use and non -use benefits (Pant, 2015).
These form the Total economic value framework shown in figure 1.2
TOTAL ECONOMIC VALUE
USE VALUE NONUSE VALUE
DIRECT USE
VALUE
INDIRECT USE
VALUE
OPTION
VALUE
BEQUEST
VALUE
EXISTENCE
VALUE
Outputs that can
Be consumed
directly
Functional
benefits
Future direct
And indirect
use
Value of leaving
Use and nonuse
Values to offspring
Knowledge of
Continued
existence

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Fig 3.1: The total economic value framework
4.0 THE TOTAL ECONOMIC VALUE PROCEDURE
The decision on which elem ents to take into account in total economic
value depends on what kind of natural resources are being evaluated
(Mburu, n.d). The purpose of the valuation also dictates the appropriate
analysis to use (Ghani, 2006). Environmental economists have however
developed a range of techniques to capture some or all elements of total
economic value and purposes (Grafton, et al 2011).
Once the purpose of the valuation is clearly set, the first step of the total
economic valuation procedure involve choice of the right method
depending on the resource to be assessed. Secondly you choose the
functions to be assessed. These functions are then valued in both physical
and monetary terms. Valuation in physical te rms may involve
quantification in per ton or per hectare. Valuation in monetary terms may
employ one or several of the economic valuation methods depending on
the resource and the functions themselves. Both physical and monetary
valuation must however be v ery flexible so as to allow the most
appropriate choice for each specific case (Ghani, 2006).
There is however need to take note of the fact that over time more sources
may become available and better e stimates could be calculated as
valuation methods improve. This could yield different results for the
valuation of a similar resource. The method presented may also vary. This
is best shown by figure 5.1
Identify the economic valuation goal and scenario
Identification of the functions to be valued
Choice of the valuation method
Valuation in physical terms
Valuation in monetary terms

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Fig 5.1: Total economic value procedure
5.0 METHODS OF TOTAL ECONOMIC VALUATION
Research in the field of environmental economics has brought together an
extensive array of methods for ecosystem valuation. The methods differ
from each other significantly in terms of reliability, validity and
applicability. In addition some methods are more costly and time
consuming than others. However all these methods have their own merits
and demerits and hence it is up to a researcher to decide which method is
best to apply to a respective scenario or considerations subject to the
limitations, local circumstances and environmental settings (Schuyt, et al
2004).
There are three generally accepted method of total economic valuation.
These include: market prices (revealed willingness to pay), circumstantial
evidence (imputed willingness to pay) and surveys (expressed willingness
to pay) (Ghani, 2006).
5.1 Revealed willingness to pay methods
The revealed willingness to pay uses various methods. These include:
5.1.1 Market price method.
This one estimates the economic value of an ecosystems products or
services that are bought or sold in commercial markets (Anon). It can be
used to value changes in either the quantity or quality of a good or
service. It uses standard economic techniques for measuring the economic
benefits from marketed goods based on the quantity people purchase or
supply at different prices. The standard method of measuring the use
value of resources traded in the market place is the estimation and then
summing up of the consumer surplus and producer surplus so as to get the
total economic value using market price and quantity data (Anon).
The consumer surplus is derived by first estimating the demand function.
This requires time series data on the quantity demanded at different
prices plus data on other factors that may affect demand such as income
and demographic factors. To derive the producer surplus, data on variable
costs of production and revenues received from the good is required so as
to get the difference between the two variables (Anon).
Aggregations of the functions values as per best criteria

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The loss resulting from damage to a resource such pollution of a river
leading to a reduction in fish stocks can also be computed using this
method This would involve adding the loss in consumer surplus and the
loss in producer surplus. Such an estimate can be used by an agency to
justify its use of financial resources to control pollution (Anon).
5.1.2 Productivity method
This is also referred to as the net factor income or derived value method.
It is used to estimate the economic value of an ecosystems goods or
services that contribute to the production of commercially marketed
goods. In this case the products and services of an ecosystem are used
together with others to produce the marketed good. An example is
whereby a watershed acts as the source of municipal water. In this case
the economic benefits of improved quality of its water can be measured
by a reduction in purification cost and hence cost of providing clean
drinking water. The productivity method can thus be used to compare the
benefits of achieving different levels of water qua lity through invested in
watershed conservation with the cost of such conservation action. This
could be done by comparing the purification costs incurred when
degradation is eliminated or reduced and when this is not controlled. The
difference in these w ould be a reflection of the conservation action
benefits. This can be considered with the investment needed in watershed
conservation so as to justify the expense (Anon).
Therefore if a natural resource is a factor of production, changes in its
quality and quantity will cause changes in production costs and or
production of other inputs which may in turn affect the quality or price of
the final good supplied and more so the economic returns of other inputs.
Of great importance is the effect on consumer surplus and producer
surplus. To apply the method data must be collected regarding how
changes in quality and quantity affects: cost of production of the final
good, supply and demand of the final good and of other factors of
production. This information can be used to estimate changes consumer
surplus with changing prices and producer surplus with changing
productivity cost (Anon).
5.1.3 Hedonic pricing method
This is used mostly applied to value variations in housing prices that
reflect the value of local environmental attributes. It can be used to
estimate economic benefits or costs associated with: environmental
pollution including air pollution and water pollution, environm ental

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amenities such as aesthetic views or proximity to recreational sites
(Anon).
Its basic premise is that the price of a marketed good is related to its
characteristic or the services it provides. E,g. the price of a car is a
reflection of its characteristics and thus we can value the individual
characteristic of a car by looking at how the price people are willing to
pay for the car changes when this individual character changes. May be
how much are they willing to pay with it and how much without it (Anon).
Hedonic pricing is mainly used to value environmental amenities that
change with the price of residential properties. In this case the relative
change in the value of the residential property relative to changes in the
characteristics of open spaces can be used to value the open spaces. The
researcher can be able to estimate the value of preserving an open space
by looking at how the value of the average home changes when the
amount of open space changes.
The results of such analysis can be used to e valuate an agencies
investment in open space preservation. E,g. if specific parcels are under
consideration for protection. The hedonic value function can be used to
benefit of preserving each parcel, which can then be compared to the cost
so as to determine the variability.
The hedonic pricing method is thus used to estimate the value of
environmental amenities that affect the value of marketed goods. Most of
its applications use the price of residential buildings. To estimate the
value of environmental amenities. The method is based on the assumption
that people value the characteristics of a good or the services it provides
rather than the good itself. Thus prices will be a reflection of a set of
characteristics including environmental characteristics tha t people
consider important when purchasing the good. The method is relatively
straight forward and uncontroversial to apply because it is based on
actual market prices and fairly easily measured data. It is relatively easy
to apply when data is available (Anon).
5.1.4 Travel cost method
This is used to estimate economic values associated with ecosystems or
sites that are for recreation purposes. The method can be used to estimate
the economic benefits or costs resulting from: changes in access cost for a
recreation site, elimination of a recreational site, addition of a new
recreational site and changes in the environmental quality of a
recreational site (Anon).

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The basic premise of the travel cost method is that the time or travel
expenses that people in cur to visit a site are a reflection of the price of
access to the site. Therefore the people willingness to pay to visit the site
can be estimated based on the number of trips they make at different
travel costs. This is analogous to estimating people willingness to pay for
a marketed good based on quantity demanded at different prices (Anon).
The travel cost method applies various approaches. These include: the
simple zonal travel method using mostly secondary data with some simple
data collected from vis itors, an individual travel cost approach using a
more detailed survey of visitors and the random utility approach using
survey and other data and more complicated statistical techniques (Anon).
5.2 Imputed willingness to pay method s
This one also employs various techniques. These include the cost damage
avoided, replacement cost and substitute cost methods. These three are
related methods that estimate values of an ecosystems services based on
either the cost of avoiding damage due to lost services, the c ost of
replacing the lost ecosystem services or the cost of providing substitute
services (Anon).
These methods do not provide strict measures of economic va lues which
are based on people willingness to pay for a product or service. They
instead assume that the cost of avoiding damage or replacing ecosystems
or their services provide useful estimates of the value of these ecosystems
or services. This is based on the assumption that if people incur costs to
avoid damages caused by lost ecosystem services or to replace the lost
ecosystem services then those services must be worth atleast what people
paid to replace them. Thus the methods are mostly applied where damage
avoidance or replacement expenditures have actually been made (Anon).
Examples of where these methods might be used include: valuing the
water purification service of a wetland by measuring the cost of filtering
and chemically treating water, valuing erosion protection services of a
forest by measuring the cost of removing sediments in downstrea m dams.
Another example would be where an agency is considering restoring some
degraded wetlands to protect the surrounding areas from flooding. The
agency in this case could value the benefits of improved flood control by
measuring the monetary value of the property damages avoided or of
providing substitute flood control services. This would provide an
estimate of flood protection benefits of restoring the wetlands. This
benefit when compared against the wetlands restoration costs would
determine whether it is worthwhile to restore the wetlands or not. These

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can be subjected to capital budgeting tools such as net present value to
make a more informed decision (Anon).
5.3 Expressed willingness to pay methods
These are used for those services of an ecosystem that cannot be traded in
a market nor related to any marketed goods. The people thus cannot reveal
what they are willing to pay for them through their market purchases or
actions. Surveys are thus conducted to ask people directly what they are
willing to pay based on a hypothetical scenario. Alternatively t hey can be
asked to make trade-offs among different alternatives from which their
willingness can be estimated. This includes:
5.3.1 Contingency valuation method
This is to estimate the economic value f or all kinds of ecosystem and
environmental services. It can also be used to estimate both use and
nonuse values and mostly for the nonuse values. It involves directly
asking people in a survey how much they would be willing to pay for
specific environmen tal services. In some cases people are asked how
much compensation they would be willing to accept to give up specific
environmental services. It’s called contingent valuation because people
are asked to state their willingness to pay contingent to a speci fic
hypothesis scenario and description of the environmental service. It is
also called stated preference method because people are asked to state
their values rather than referring to values from actual choices as in
revealed willingness to pay methods (Anon).
This aspect of being based on what people say they would do as opposed
to what people are observed to do is the greatest strength and also the
greatest weakness of this method. The fact that it is based on asking
people questions as opposed to their actual observations of their behavior
is the source of great controversy (Anon).
The contingent valuation involves firstly defining the valuation problem.
Secondly preliminary decisions are made about the survey itself including
whether it will be conducted by mail or in person. Thirdly the survey
design is developed of which forms the most important part of the
process. Fourthly the actual survey is implemented. The final step then
involves compiling, analyzing and reporting the results (Anon).
5.3.2 Contingent choice method
This can also be used to estimate the economic value for virtually any
ecosystem or environmental service. It can also estimate both use and

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nonuse values. The method is also hypothetical since people are a sked to
make choices based on a hypothetical scenario. It however differs from
contingency valuation method since instead of asking people directly to
state their value in monetary terms, the values are inferred from the
hypothetical choice of tradeoffs that people make. It also differs in terms
of the valuation questions and the data analysis (Anon).
The contingency choice method asks a respondent to state a preference
between one group of environmental services or characteristics at a given
price or cost to the individual and another group of services or
characteristics at a given price or cost. Because it focusses on tradeoffs
among scenarios with different characteristics, contingent choice method
is especially suited to policy decisions where a set of possible actions
might result in different impacts on environmental services or natural
resources. In addition despite only coming up with estimated monetary
values it can also be used to rank options without focusing on the
monetary values.
Various formats of contingent choic e methods exist. These include
contingent ranking, discrete choice and paired rating (Anon).
5.4 Benefits transfer
Benefits transfer is an economic evaluation method that estimates values
by transferring existing benefit estimates from studies already done for
another location. It could be used to estimate benefits obtained from
tourists viewing wildlife in one park using values obtained from a study
conducted in another park (Mburu, n.d)
The simplest benefit transfer method is the unit day approach where
existing values for activity days are used to value the same activity at
other sites. A more rigorous one involves transferring a benefit function
from another study that statistically relates people willingness to pay to
characteristics of the ecosystem a nd the people whose values are elicited.
This can be done using the regression analysis technique (Mburu, n.d)
The benefit transfer method is applied when the commodity or service
being valued are very similar to those of the site where the original
estimates were applied. Secondly the population affected should have
very similar characteristics for the two sites (Mburu, n.d)
Benefit transfer as a process involves various steps. The first step
involves identification of existing studies or values that can be used for
the transfer. Secondly you decide on whether the existing values are
transferable. You then evaluate the quality of the studies being
transferred. Finally you adjust the existing values to better reflect the

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values for the site under considerat ion using whatever information is
available and relevant (Mburu, n.d)
5.5 Dose response function and valuation of morbidity, mortality, loss
to crop and real estate
This is a valuation method that is often used in studies that aim to
estimate the monetary value of environmental degradation e.g. through
pollution of the air. It has been successfully used in European Union
studies on air pollution. It requires large data sets and establishment of
dose response function (for mortality, health, loss of crop and real
estate). It however requires valuation of mortality putting a monetary
value on life which is often disputed (Jantzen, 2006).
Application of the method requires various information. These include
emissions of certain substances and the resulting ambi ent air
concentration. It also requires information on the exposed population (or
crops, or buildings) by the different ambient air concentrations. Another
information required is the dose response functions describing the
relationship between exposure to certain ambient air concentrations and
morbidity (illness) and mortality (death) or reduced crop yield and the
additional costs of maintaining buildings. In addition to these information
is also required on examinations of costs of morbidity and mortality or
costs of crops (Jantzen, 2006).
5.6 Participatory valuation methods
5.6.1 Participatory environmental valuation
This method of total economic value shares some characteristics of
contingency valuation method but the main difference lies in the fact that
it does not use cash amounts directly to express resource values. It is
used in communities that don’t mainly use cash as a means of exchange.
Instead it asks people to value products in terms of either locally
important products or categories of value (Mburu, n.d)
It allows respondents to choose a numeraire (a common measure of value)
for comparing values. A marketed and valued product for example a cow
or a sack of maize is used to express the worth of different natural
resource products in terms of this numeraire using participatory rural
appraisal techniques such as ranking and proportional piling. In Kenya the
method has been successfully value forest products in Oldonyo Orok
forest along the Kenya and Tanzania border and also in Tharaka. In both
occasions young castrated bullock was used as a numeraire (Mburu, n.d)
The participatory environmental evaluation method uses a three stage
approach. The first involves getting the idea of relative importance of

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different products through a ranking exercise. Th e ranking is done using
pictures of various products. The second stage is to establish the value by
asking respondents to distribute counters such as seeds or stones between
cards and the numeraire commodity The third stage is to ask the
respondents to state the purchase price of the numeraire which provides a
means of translating the numeraire into cash value (Mburu, n.d)
5.6.2 Deliberative monetary valuation
This method aims to combine stated preference valuation with elements of
deliberative processes from political science. It originates from criticisms
of stated preference method which argue that focused group discussions
and stakeholder involvement are already incorporated in stated preference
studies. Deliberation is included as a method of addressing the combined
issues of preference construction and low level public knowledge of
complex environmental goods (Christie, 2012).
It provides an alternative more participatory, inclusive and deliberative
approach to valuation in which emphasis is placed on the quality of the
social process used in the valuation exercise. Deliberative monetary
valuation is administered through small g roup workshops and has benefit
of buy in from participants. This in turn can increase the quality of
participants’ contributions, enhance participant learning and capacity
building through sharing of perspectives (Christie, 2012).
5.6.3 Mediated modelling method
This method uses computer models of complex systems to support
decisions concerning environmental problems. For the models to be
effective, they need to be developed through a consensus building process
across relevant academic disciplines as well a s between the science and
policy communities and the public (Christie, 2012).
It involves all stakeholders from the scoping stage through to
development and implementation of the model. It can help build mutual
understanding, solicit input from a broad ra nge of stakeholder groups and
maintain a substantive dialogue between members of these groups
(Christie, 2012).
6.0 RATIONALE FOR TOTAL ECONOMIC VALUE
Total economic valuation helps identify and quantify the contribution of
ecosystem services to human well being. Determining the total flux of
benefits that ecosystems generate and the effects of specific policies and
projects can support better management of the environment (Pant et al
2015)

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Total economic value enables pricing of environmental costs in
production of goods and services. This in turn allows for full costing
through various economic instruments such that the prices paid for goods
and services reflect the environmental value of resources used or
degraded in the process of their production an d consumption. This makes
sure that producers and consumers take into account the real value of the
environment and the real cost of environmental damage when making
decisions. This helps deal with market failure where by externalities are
passed to society who have to bear their damages and also encourages
conservation (Emerton 1996).
Total economic valuation therefore helps managers deal with the effects
of market failure. This can be done by measuring their costs to society in
terms of lost economic bene fits. The cost to society can then be imposed
through various mechanisms to those responsible such as charges and
taxes. It can also be used to determine the value of actions needed to
reduce or eliminate the environmental impacts associated with the costs
(Ghani, 2006). It thus helps in developing and choosing economic
instruments and incentives for environmental conservation such as taxes
and subsidies (Emerton, 1999).
Total economic value can help management agencies in making difficult
spending decisions that involve tradeoffs in allocation resources (Pant et
al 2015). In doing this it thus helps in allocation of financial resources in
environmental conservation by evaluating the competing alternatives and
leading to the right prioritization (Kasina, 2007). In so doing it helps
optimize natural resource based investments and ecosystem values.
Total economic value therefore helps decision makers during conservation
work decisions in comparing quantitatively the results of implementing
alternative management actions (Ghani, 2006). It can provide a way to
justify and set priorities for programs, policies or actions that protect or
restore ecosystems and their services (Pant et al 2015)
By valuing the environment in monetary terms. Total economic value can
be used to quantify the impact of a change in environment e.g to
biodiversity. It may help to measure the level of harm to biodiversity and
to assign a value to the current state as well as the altered state. It does
this by valuing the biodiversity from a sociocultural, economic and
ecological perspective. I.e. in terms of sociocultural value, in terms of
value to society and in terms of biology (Kasina, 2007).
Total economic value help s incorporate public attitudes in environmental
projects and policies decision making. This is through aspects such as the
willingness to pay and to accept compensation (Kasina, 2007).

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Total economic value enables integration of environmental values i nto
national accounts. This atte mpts to give a more realistic definition of
income and growth which takes into account resource depletion and
degradation as economic costs, environmental conservation as an
economic benefit and natural resource capital stocks as economic capital.
It therefore supports green accounting which provides measures of
national welfare in environmental terms and provides information which
can be used to design policies to ensure sustainable growth in future.
Valuing environmental goods a nd services provides important information
for greening a countries systems of national accounting by incorporating
environmental values into measures of national income (Emerton, 1996).
Total economic value therefore provides a mechanism for incorporating
environmental aspects in financial planning by adjustment to national
accounting. It helps in revision of national accounting to take into
account environmental goods and services (Mburu, n.d). This is through
capture of nonmarket goods and services often left out in national income
accounting that mostly focusses on the market goods and services
(Mwakubo, et al 2015). In so doing environmental stocks and flows of a
country re captured in nation al incomes (Emerton, 1996).
This is imperative given the fact that such nonmarket activity are
widespread in an economy and if ignored when ignored in national data
systems, the systems are not able to support accurate analysis of
economic behavior. Lack of data on nonmarket activities especially those
leading to economic externalities such as pollution produces a distorted
view of the likely benefits of actual and proposed development projects.
Such a view is likely to result in sub -optimal allocation and unsustainable
extraction and use of natural resources (Mwakubo, et al 2015).
Total economic value can improve as well as influence decision making in
environmental resources development and conservation. It can or example
help value a particular ecological service offered by a particular species
such as pollination by bees hence creating awareness about it and
garnering efforts towards its conservation and that of its habitat (Kasina,
2007). Understanding the economic value of a service such as pollination
therefore creates an incentive for implementing policies required to
conserve species and their habitats e.g. for bees in this case (Kasina,
2007).
Total economic value can aid in environmental legislation and
governance. This is by informing legislation by providing a strong case
based on evidence hence influencing decisions made . It guides a
government to make informed decisions on the management of ecosystems

17. 17
since this is guided by how it rates their services vis a vis other
competing needs (Emerton, 1999)
Information generated through total economic value methods can be
accepted as part of evidence in courts of law and forms a strong basis for
compensation within the context the law of torts. An example is the
Exxon Valdez oil spill that employed cont ingent valuation (Emerton,
1999). Total economic valuation therefore helps inform penalization of
people who degrade the environment to the full cost and this could serve
as deterrent against degradation or help raise enough funds to reverse the
damages caused (Emerton, 1999)
This is possible because total economic value helps in valuing impacts on
ecosystems by human activities and hence determining the losses incurred
through liability regimes. It can assist in determination of the extent of
damage to be paid in cases of environmental degradation and also provide
a platform for the design of mechanisms aimed at providing incentives for
biodiversity conservation (Christie, 2012).
Total economic also enables and guides capture of a reasonable level of
funds from the people who benefit from the use of ecosystem services for
commercial purposes. This can lead to raisi ng of much needed funds to
cover the direct and indirect costs associated with the management of
resources (Emerton, 1999)
Total economic value th erefore also helps answer many questions that are
pertinent to sound environmental planning and management. This is
because it can help to answer questions such as would be the value of
conserving a certain natural resource, to who does the value accrue, i n
what way does degradation of the natural resource lead to costs to
different segments of society and who gains and who loses what when a
natural resource is conserved or degraded (Emerton, 1999).
More so it can also help tell how natural resource conserv ation can be
effectively and equitably financed, how people could be motivated to take
into account natural resource benefits and costs of its losses in their
course of their activities and how policy, planning and decision making
with regard to natural re sources can best be influenced (Emerton, 1999).
Total economic valuation can act as a means of demonstrating the full
advantage and economic importance of a natural resource conservation
decision not only based on its ability to compete with other land uses and
investment opportunities but also its ability to simultaneously generate
multiple economic and development benefits at both national and local
levels (Mburu, n,d). It also helps in recognition of the socioecomic

18. 18
benefits of an ecosystem in addition to the ecological benefits (UNEP,
2011).
Helping recognize and value the full benefits of a resource boosts the
resolve to conserve it (Mburu, n,d). This can also influence st akeholders’
attitudes towards an ecosystem hence attracting support e.g through
funding and investments in and around the sites. E.g. the economic
analysis of the benefits of maintaining forest cover and the losses
associated with its degradation has provi ded a powerful arguement for the
conservation of Mount Kenya (Mburu, n,d).
Total economic valuation enables capture of all the economic benefits of
a resource as real financial benefits to enable redistribution to the cost
bearers of whom mostly are the lo cal communities. This would also help
in charging the offsite consumers of the resource whose consumption
contributes to the cost borne by these local communities (Mburu, n,d).
Such a valuation and redistribution forms the basis of payment for
environmental services schemes (Emerton, 1999b).
Total economic valuation leads to capture of both market and nonmarket
off site and on site benefits of a resource enabling capture of their full
value. It enables identification and recognition of all the services off ered
by an ecosystem leading to a more accurate valuation of its benefits . This
is very important since the full value of ecosystems is often not
recognized leading to their assumption in planning. This may due to the
fact that many of the goods and servic es provided by these ecosystems are
not traded in markets and thus do not have an observable value. Secondly
many of these goods and services occur offsite and are therefore not
readily acknowledged as being related to these ecosystems (Spanniks and
Beukering 1997).
It is thus often concluded that ecosystems such as mangroves should be
developed for uses that generate direct marketable products such as
aquaculture. Such decisions are made in ignorance of the opportunity cost
of development. Total economic valuation avoids this by offering a more
comprehensive valuation of the many goods and services provided by the
mangrove ecosystems and thereby contributing to a more sound and
informed decision (Spanniks and Beukering 1997).
Total economic value therefore can also support the concept of cost
benefit analysis in environmental management. It enables identification of
all the costs and benefits associated with a policy decision thus allowing
making of sound policy decisions. It also enables identification and
valuation of all the costs and benefits associated with a conservation
project or programme and alternatives (Grafton, et al 2011). The process

19. 19
of cost benefit analysis involves defining the different options available,
identifying and valuing the costs and benefits of each alternative and
eventually making a comparison between these. A benefits to cost ratio is
then used to arrive at a decision where by a project is viable if the ration
exceeds one (Jantzen, 2006).
Total economic value is also important in cases where communities are to
be resettled to pave way for development activity or for establishment of
protected areas. This is through estimation the level of compensation th at
should be given to the affected communities who henceforth will not have
access to their land or resources. This involves the quantification in
monetary terms of all the benefits that a community derives from their
land and thus all the costs they are b ound to incur upon displacement
(Grafton, et al 2011).
However it is important to note the fact that some costs of displacement
such as landlessness, joblessness, food insecurity and marginalization
cannot be fully quantified in monetary terms. In such cas es even monetary
compensation may be inadequate to mitigate the losses incurred by such
local communities (Grafton, et al 2011).
Total economic value helps in deciding the most sustainable and wise use
of a resource by comparing the various uses in monetar y terms. By
incorporating capital budgeting tools such as net present value it is
possible to tell which resource use will yield the greatest benefit in the
long run (FAO, 2003). It assigns an economic value to a certain use of
biodiversity and by comparin g this with other alternative use options the
best alternative can be arrived at. By providing an indepth knowledge of
the various values attributed to biodiversity within may be a protected
area total economic value can help to ensure optimal resource all ocation
(Grafton, et al 2011).
Total economic value by enabling more effective and efficient allocation
of resources can also come in handy in resolution of conflicts between
resource users. This can also be enabled by its ability in coming up with
adequate compensation for aggrieved parties and supporting methods for
equity such as payment for environmental services (Grafton, et al 2011).
It also does this by enabling redistribution of benefits of resource use to
the cost bearers of the production process hence promoting equity.
Total economic value by allowing valuation of all sectors of the economy
avoids the frequent marginalization that is often associated with some
sectors of the economy such as pastoralism. This occurs due to lack of
appreciation of the full benefits associated with such sectors. This is due
to use of conventional valuation methods based on the weak sustainability

20. 20
view leading to a very narrow definition of benefits (Muewa and Ndae
2007). It can also help to understand the full econom ic benefits associated
with various marginalized indigenous communities to the environment.
Valuing of the economic value of the services and goods that come about
from their knowledge can increase their appreciation and avoid their
marginalization either politically or socioecomically (Muewa and Ndae
2007).
Total economic value provides an avenue for raising conservation
resources. This involves the transfer or redistribution of funds between
environmental beneficiaries and environmental cost bearers. It also
involves a range of mechanisms that can be used to compensate the people
who bear the costs of environmental conservation and degradation thus
generating conservation funds. This can involve economic instruments
such as taxes, user fees, charges, gree n funds, grants and technology
transfer. Total economic value helps this process by providing a means
for valuing environmental costs and benefits hence providing important
information for determining the magnitude of such instruments and
mechanisms for financing (Emerton, 1996).
Total economic value also supports project planning and design. This is
because it enables incorporation of environmental costs and benefits in
economic project analysis thus their consideration in making decisions as
to how projects are identified, planned and chosen and in deciding as to
whether to implement, modify or cancel projects. This also enables
understanding the economic implications of environmental damage or gain
so as to inform policy decision making and practice. This involves
highlighting the full value of environmental damage of a project which
must be weighed against project benefits in environmentally damaging
projects and also highlighting the full value of environmental gains which
must be weighed against project costs in environmentally beneficial
projects (Emerton, 1996).
Total economic value also helps in environmental impact assessment of
projects. This is achieved through identification of environmental impacts
and measuring and valuing them in monetary terms . The information can
then be applied to the wider aspects of project decision making and
practice. Economic environmental impact assessment as a process
involves: identifying the environmental impacts in terms of what they are
and where they occur, measuring and valuing the environmental impacts
i.e. their magnitude, assessing the distribution of environmental impact
i.e. to whom they accrue and mitigating negative impacts while
maximizing the positive impacts (Emerton, 1996).
7.0 CHALLENGES FACING TOTAL E CONOMIC VALUE

21. 21
Despite its wide acclaim as a tool for valuation. Total economic value
still faces considerable challenges. Firstly t otal economic value has a
handicap in that it can only be able to give a monetary value but not the
whole values. It cannot be able to capture the intrinsic value (Kasina,
2007).
Total economic valuation does not lead to a constant unchangeable figure
or results. This problem is brought about by differing views towards a
resource based on differing circumstances. Also the wide diversity of
methods and their evolution over time (Kasina, 2007).
Total economic value is often faced with the problem of lack of data
availability and quantifiable knowledge regarding some ecological
relationships. Where data is available or can be colle cted it may be
inaccurate or subject to bias (Spanniks and Beukering 1997).
There is also often the problem of lack of sufficient information on
important ecological processes that underpin the various values generated
by an ecosystem e.g. a wetland. This is especially in the nonmarket use
values that form an important component of the valuation process. This
thus frequently necessitates the need for addition scientific and
socioeconomic analysis so as to identify all processes and provide true
estimates (Barbier, et al 1997).
Some scientists have also criticized total economic value due to its
inability to capture the full value of an ecosystem. They have thus
proposed other additional value categories not currently taken into
account in valuation. Some of these values categories that are not be
captured include inherent value i.e. values that support other values in
ecosystems including natural selection and evolution, contributory value
which focusses on the fact that species can only survive in interactive
relationships and thus each species contributes to the survival of the other
and psychological values which determine the perception of nature as
opposed to ecological which determines its proper functioning
(Makandrya, et al 2008) .
Total economic value often doesn’t address distributional implications of
resource use. Therefore even though a resource use may be portrayed to
have a net benefit and hence deemed desirable in efficiency terms. The
principle beneficiaries may not necessarily be the people wh o bear the
cost arising from the particular use. This calls for management and policy
decisions not to be assessed in terms of efficiency but also in terms of
their distributional implications (Schuyt, et al 2004).
Valuation techniques are also often affected by uncertainty stemming
from gaps in knowledge about ecosystem dynamics, human preferences

22. 22
and technical issues in the valuation process. There is thus a need to
include uncertainty issues in valuation studies and to acknowledge the
limitations of valuation techniques in situations of radical uncertainty or
ignorance about regime shifts (Muradian and Pascual 2010).
There has not been a proper comprehensive review of the methodological
and practical challenges of applying method of economic valuatio n in a
developing country context (Christie, 2012).
8.0 CASE STUDIES
8.1 TOTAL ECONOMIC VALUATION OF WETLANDS PRODUCTS
AND SERVICES IN UGANDA – 2013
This study was conducted to determine the economic values of wetlands
resources and their contribution to food security in three agroecological
zones of Uganda. Th value of wetlands was estimated using primary and
secondary data. Market price, productivity method and contingent
valuation method were used.
The study was conducted in eight wetland systems locate d in areas
representing the five agroecological zones of Uganda. These were:
Nangabo, Mabamba and Manda in Wakiso district representing the Lake
Victoria crescent zone; Rucece, Mbarara and Lake Nakivale in Isingiro
representing Southwestern farmlands; Limo to and Gogonyo in Pallisa and
Kibuku districts representing Kyoga plains zone. These wetlands have
different biophysical characteristics, experience varied socioeconomic
conditions and are faced by dissimilar management challenges.
The market price method was used to quantify direct use values by
estimating commercial market prices for wetland resources such as:
papyrus, pastures and fish. The productivity method was used to quantify
use of water. Respondents made an estimate of nonmarket goods by
utilizing direct survey to solicit responses reflecting each user’s
valuation of nonmarket goods. Contingency valuation method was used to
value nonuse values such as flood control, water recharge and supply,
habitat and breeding.
Initially meetings were held with environment and wetland managers of
the areas to seek their opinion of the most important wetland resources to
communities, challenges and opportunities for their management.
Following the discussions important wetland resources for valuation were
selected based on: whether the resource met the basic needs of
communities, whether the resource represented a range of uses to the
different users, number of users harvesting the resource and the

23. 23
likelihood of obtaining sufficient quality data on the resources to enable
computation of economic values.
The study found spawning habitats for fish to have a gross value of USD
1,091,444 per year
The economic value of wetlands through crop production to be USD 25.8
million
The economic value of grass mulch to be USD 8.6 5 million per year
The economic value of wetlands from pasture for livestock to be USD
4.24 million per year
The gross annual value of wetlands to milk production to be USD 1.22
million per year
The gross annual value for domestic water supply to be USD 13 .9 million
per year
The economic value of wetlands through papyrus to be USD 4.63 million
p.a.
The value addition of papyrus through mat making to be USD 11.5 million
p.a.
The estimated economic value of wetlands through water recharge and
regulation was USD 7.06 million p.a.
The value of flood control was USD 1.7 billion
The value of climate regulation was USD 62.33 million
The value through habitat and refugia was USD 103.25 million
The cultural value was 414.21 million
The economic cost of wetland manag ement for year 2011/2012 i.e the
previous year was USD 48,668
The opportunity cost of limiting access to wetland was in the range of
USD 11.34 million based on Karanja et al who estimate average benefit of
maintaining biodiversity in Uganda to be USD 48.2 4 per Hectare per year.
This considered if current use was stopped before any modification or
conversion i.e foregoing all benefits
On deducting the management and opportunity cost from the gains, the net
economic value of wetlands was found to be USD 2,52 1,694,666. This was
then divided by the total area studied i.e. 240,367 hectares to get the net

24. 24
economic contribution of wetlands as being USD 10,491 per hectare per
year.
8.2 ECONOMIC VALUATION OF MANGROVE FORESTS; A CASE
STUDY IN GAZI BAY, KENYA
The study was undertaken as part of UNEPs efforts to promote forests as a
significant green economy for Kenya in 2010. Mangrove forests are
among the most productive and valuable ecosystems on earth yet they are
not put into consideration in national economic decision making. The
study thus aimed to quantify the value of mangroves and the goods and
services they provide so as to promote their significance in the Kenyan
economy and also ensure their conservation.
The mangrove forest values are divided into direc t use, indirect use and
nonuse values. The direct use values include fisheries, ecoto urism and
timber and constitute 20% of the total economic value. The indirect us e
values include shoreline protection, carbon sequestration and biodiversity
and constitute 255 of the total economic value. The nonuse values i.e. the
value of mangroves in an unharmed state account for 55% of the total
economic value.
The study used various methods. Direct uses were measured using the
market value of the products. The damage c ost avoided was used to value
shoreline protection function of the mangroves. Biodiversity and
existence value were valued using benefit transfer method.
The results of the direct use values were: fisheries USD 44.1/Ha/year,
sustainable wood income USD 4.2/Ha/year, fuel wood USD 16.8/Ha/year,
ecotourism based on income from Gazi women board walk estimate was
USD 6.5/Ha/year, research activities, funding and education USD
184/Ha/year, aquaculture USD 4.3/Ha/year and apiculture USD
14.7/Ha/year. The total economic value for direct use was thus USD
275.2/Ha/year
The results of indirect use were: shoreline protection USD 91.7/Ha/year
(this assumes the major thre at to be the active Kartlala volcano in the
Comoros which would affect 5% of the houses in Gazi bay with the value
of housing being USD 1557500. Mangroves would offer 73% protection in
case of a tsunami from the explosion that would hit the Kenyan coast in
30%), carbon sequestration USD 126/Ha/year (based on Gazis mangrove
ability to sequester 18 tons/Ha/year carbon benefit potential at a price of
USD 7/Ton, the value of biodiversity was USD 5/Ha/year using benefit
transfer method. The total indirect use va lue was thus USD 217.7/Ha/year .

25. 25
The results of nonuse values of the existence of mangroves at Gazi bay
based on WTP by the local population was USD 524.19/Ha/year and that
of visitors was USD 70.2/Ha/year giving a total of USD 594.39/Ha/year.
The total economic value for the Gazi bay mangrove forest was thus
1092.3/Ha/year.
8.3 TOTAL ECONOMIC VALUE OF BERMUDAS CORAL REEF
The project was carried out in 2007 by the department of conservation
services in collaboration with other partners. It sought to address the lack
of environmental considerations in current policy and other decision
making processes for the marine environm ent. This was through
recognition and promotion of a range of ecosystem services provided by
Bermudas coral reefs.
The approach in this study focusses on six key ecosystem goods and
services namely: reef associated fisheries, amenity and coral associated
surplus value on real estate, reef associated recreational and cultural
values and research and education values . The sum of these would
constitute the total economic value of Bermudas coral reef. It is however
good to take note of the fact that the analysi s in this study does not take
into account all goods and services provided by the ecosystem and that
some of its aspects may be invaluable such as the intrinsic value.
The study found the values of the various uses based on per annum values
as at the year 2007 data and prices to be:
SERVICE AVERAGE
VALUE
(Millions USD)
Contribution to
TEV (%)
Tourism 405.9 56
Coastal protection 265.9 37
Recreational and cultural 36.5 5
Amenity 6.8 1
Fishery (commercial and
recreational)
4.9 0.7
Research and education 2.3 0.1
TOTAL ECONOMIC VALUE 772.4 100
The high average value of the coral reef shows that the ecosystem is
highly valuable and worth conserving from an ecological, social and
economic perspective. In recognition of uncertainties surrounding
economic analysis the study generated upper and lower values at 488
million to 1.i billion USD. The total economic value arrived at for the

26. 26
coral reef is equivalent to 12% of the Bermudan GDP OF USD 5.85
Billion in 2007.
8.4 VALUING SUBSISTENCE USE OF OLDONYO OROK FOREST
Oldonyo orok is an 11,783 Ha forest. It lies on the slopes of Oldonyo
orok Hill, a 2548M hill that straddles the Kenya -Tanzania border. The
rural community adjacent to the forest are the Umatapata section of the
Maasai tribe. The forest adjacent are a is primarily a subsistence economy
where cash exchange and trade are under developed and the monetary
economy plays only a little role in local production and consumption
systems.
Thus the overriding difficulty in valuing domestic forest use in Oldonyo
orok forest is the absence of any prices that can be applied to forest
products because they are used for subsistence purposes only and are
never bought nor sold. Markets in the area are underdeveloped and cash
prices are not a useful frame of reference for most households. This made
it necessary to use valuation methods that do not rely on the market
paradigm.
Participatory environmental valuation method was therefore used in order
to value subsistence forest among the forest adjacent community. The best
local indicator of value (numeraire) was considered by the population to
be a young castrated bullock. Almost all households own cattle which is
seen as a basic indicator of wealth as well as being readily convertible
into cash income. The forest values wer e identified to include among
others wild food, fuel wood, honey, construction material, utility items,
hunting, and shealter and most importantly as a dry season refuge for
livestock in this arid and climatically uncertain area.
The method used firstly involved ranking the major forest products using
pictorial cards representing them. To evaluate the worth of the different
forest products to the household, cou nters were allocated as points or
value indicators and distributed among the pictorial cards rep resenting
forest products and one representing the numeraire. This was done so as
to be able to compute the relative value of the different products
compared against the numeraire. This would enable valuation of the
products as numeraire equivalents.
Respondents then gave a monetary value of the choosen numeraire which
provided a means for the forest products to be given a monetary value
also by multiplying their numeraire equivalent value by this monetary
value. These cash amounts were discounted to give t he average annual
household value at today prices.

27. 27
The annual values for the products was arrived through the formulae:
I/T∑V/T(1+R( T - t )
) where T is the lifetime of the numeraire, V is the value
for the forest activity and r the discount rate and t the yea r. This is used
to calculate the average values per item.
Using this method the domestic forest use for a forest adjacent household
was found to be KShs 5000 and KShs 2.4 million for the entire forest
adjacent community. This thus justifies the need to con serve this forest.
8.5 ECONOMIC VALUATION OF NATURAL RESOURCE
MANAGEMENT; A CASE STUDY OF BENUAQ DAYAK TRIBE IN
KALIMATAN, INDONESIA
The Benuaq Dayak people are a sub group of the Luangan who belong to
the Barito River language family. This study was carried out so as to
ensure recognition of the role of indigenous people in sustainable forest
management. This is so as to ensure their recognition and stop their
barrage from residing in their ancestral homes in Indonesian forests.
The rejection of thes e people right to reside in these forests has been
created by the unavailability of total economic values of indigenous
people in Indonesia. The tribes ’ total economic value in sustainable forest
management was expressed by estimating the direct use values , indirect
use values and nonuse values of their activities. The study used the
methods of benefit transfer and survey methods such as contingency
valuation using questionnaires to estimate the tribes ’ total economic
value in sustainable forest management. Other methods included
replacement cost method and total cost method.
The estimated total economic value according to the study was USD
6028/Ha/year. This was arrived at by summing up the direct use values
(USD 0.028/Ha/year), Indirect use values (USD 315 6/Ha/year) and nonuse
value (USD 2870/Ha/year). It was therefore concluded that the Benuaq
Dayak people sustainable forest management has an economic value. This
value was then compared with economic values generated by forest
concessions and plantation companies to justify the need for recognition
of the important of the Benuaq Dayak tribe.
9.0 CONCLUSION
Total economic value is therefore a vital concept in natural resource
management. This is because it enables us value all the elements of an
ecosystem or resource thus giving an estimate of its value. The many
methods that have been developed, tried and tested for use in total
economic valuation makes the concept very versatile. It also enable us
solve the many problems that mark natural resource manageme nt

28. 28
including resource use conflicts, equitable distribution, externalities and
unsustainable use.
It enables bring attention to all forms of ecosystems, their resources and
management practices as well as roles of communities in conservation
work. It therefore also brings attention to conservation creating a greater
need to invest in their conservation and enabling recognition in national
accounting. The concept can support all activities based on resource use
including project management, environmental ass essment and resource
allocation decision making.
The concept is however subject to many challenges that need to be
addressed in order to make it more effective. These include the fact that it
only leads to estimates and not an accurate figure which is not absolute.
The method has not been fully developed within the context of the
developed countries. These challenges do not however in any way surpass
the many strengths the concept has for environmental management.
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