Techniques for Measuring Benefits of Protected Areas

There are several ways in which the benefits of protected areas can be measured.13 The first step involves an itemization of the beneficial services derived from protected areas. The second step is to quantify those benefits. The final step is to evaluate these benefits through a common metric

— often dollars.

The monetary measures of benefits can be based on actual market information, related market information, or simulated market information. Market information can be used to estimate actual willingness to pay for an item or service by examining actual market transactions and adjusting for consumer surplus. Related market infolination relies on willingness to pay information obtained in markets that involve either substitutes or complements with the services being evaluated. By

12 Some of the functions of the protected area, such as oxygen production, are not transacted through the marketplace. The benefits (in monetary terms) of such passive uses cannot, in general, be observed from the behaviour of individuals in markets. Hence, these benefits are referred to as nonmarket values and would,,therefore, not be incorporated into the benefits calculation using the IUCN approach.

13 For an overview of different methods for measuring benefits see (for example) Boardman et al. (1996) or Filion and Adamowicz (1994).

Figure 6: Example of Consumer Surplus

controlling for the degree of substitutability of complementarity between these markets, it is possible to obtain an estimate of the benefits associated with the service being evaluated. Simulated markets attempt to determine via surveys and experimental techniques what an individual's willingness to pay would be for a particular service.

Market information provides a direct estimation of the benefits through interaction of individuals in making exchanges. In this case, individuals (jointly) reveal the marginal value of the service through the market place. It should be noted that the market price does not represent the total value to the individual for the good purchased. The price indicates the willingness to pay for the last unit exchanged — Po in Figure 6. To estimate the total value of the service, it is necessary to add up the willingness to pay for each inframarginal unit. The willingness to pay for each unit is represented by the height of the demand line in Figure 6. For example, the marginal willingness to pay for the Ql th unit is PI (ie., Qb). Since the actual price is Po, there is a surplus generated to the consumers of P I Po (or bc) on the Q lth unit consumed. This value in use of, or marginal benefit received on, the Qi th unit (OP1 ) over and above the value in exchange or the purchase price (0P0 ) is referred to as the consumer surplus. The total consumer surplus on 0Q0 units is the sum of the extra value or willingness to pay over and above the market price, as represented by the area PmPoa in Figure 6.

These benefits — the amount actually paid plus consumer surplus — can be estimated using observed market behaviour.

Related markets estimation utilizes information revealed in other markets to estimate the benefits of a nonmarket good or service. An example is the travel cost method.14 Since the true

`price' of a recreational experience enjoyed at a protected area exceeds the entry fee, it is possible to estimate the consumer surplus associated with the amount individuals were actually willing to pay (travel costs) to visit the site. The travel cost method assumes that as individuals travel from further distances, their willingness-to-pay for the services provided by the protected area increases. Through estimation of travel costs, and associated background surveys, the lower bound on the consumer surplus for a nonmarket good, such as recreational activity, can be determined.

Simulated markets include contingent-valuation or stated-preference surveys. Under each of these approaches, a hypothetical market is set up and individuals state their willingness to pay for different scenarios (contingent valuation) or reveal their preferences by ranking or choosing between alternatives (stated preference).' From these responses, it will be possible to estimate consumer surplus or total willingness to pay.

If a market does not exist, an alternative is to set up an experimental market and observe the behaviour of individuals. This method has been used to estimate willingness to pay for tradeable emission permits (Godby et al. 1997) and presumably could be used for other nonmarket valuations.

In some cases, it will not be possible to derive a finite estimate of the total value. An example of this might be biodiversity. Presumably there is some minimum level of biodiversity that is necessary for the continued existence of life on earth — represented by Q„, in Figure 7. Below the threshold level for which life is maintained, the willingness to pay may well become infinite. Hence, it is not possible to estimate the total value of biodiversity. It is possible, however, to use nonmarket

14 For a more detailed and comprehensive discussion of the travel cost method, see Freeman (1979), Chapter 8.

15 Refer to Boardman et al. (1996) for a more detailed discussion of these techniques.

Willingness to pay for

Figure 7: Example of Consumer Surplus for Biodiversity

valuation techniques to estimate the willingness to pay, or marginal benefit, for changes in biodiversity or compare biodiversity of protected areas versus developed areas within the same ecoregion.

The total monetary benefit associated with a change in the quantity of biodiversity from Q1 to Q0 is represented by the area Q1 baQ0 in Figure 7.16

Finally, an alternative that may be used to make policy decisions when it is not possible to determine finite monetary measures of the total value is the safe minimum standard. This is particularly important when decisions are irreversible — such as complete development of a protected area that is the habitat of a rare species. Applying this to the Pine Marten, an endangered species, the safe minium standard would be measured by the minimum habitat area required to ensure its existence.

4.2 Summary of the Benefit Categories for Valuing Protected Areas

The benefits of protected areas categories, `streamlined' for the purposes of this case study,

16 It is not possible to quantify biodiversity in the manner suggested by this simple example. However, the illustration is valid for any particular measure of biodiversity such as community structure.

are outlined in Appendix 2. Under personal benefits are the use and non-use" values. Use values can be direct or indirect. Direct uses of the protected area involve consumptive activities such as fishing or collecting wood for a fire plus non-consumptive activities such as birdwatching, hiking, or photography. Indirect uses, as specified in Whiting (1996, p.28), are "benefits enjoyed by individuals who may have visited/used the asset being assessed, but whose current benefits are derived from offsite activities or deliberations." These would include benefits derived from reading, watching movies or enjoying art about the protected area. Also incorporated under use values is the direct and indirect use of the protected area by future generations. Non-use values are associated with individuals who do not actually visit the protected area. These include option, existence and bequest values.

Business benefits are the net economic benefits attributed to the protected area. This category of benefits is not synonymous with the economic impacts. Many economic impacts tend to be redistributional in nature, meaning that the spending is not an additional benefit but rather has been diverted from another source of spending. In defining the business benefits, care must taken in specifying the social entity from whose perspective the analysis is being evaluated. For example, the business benefits to Canadians of a specific National Park should not include spending by Canadians themselves since this spending will have been redirected from other types of spending within the Canadian economy. In this situation, the economic impacts of spending at the park will be an overestimate of the corresponding economic benefits. However, if the region of consideration is narrowed, to say the provincial level, then spending by Canadians who do not live within the province in which the protected area is located should be included in the calculation of the economic benefits to that province. As the evaluation perspective becomes even narrower, the economic benefits of the protected area correspond more closely to the economic impacts associated with that area. Hence, care must be taken when interpreting the business benefits that are attributable to a

17 Personal non-use benefits are what was referred to earlier as the passive uses attributed to individuals.

protected area. These benefits include nonresident spending on tourism and recreational activities.

The final category of benefits is the societal benefits. These benefits can be divided into four major classifications: ecological integrity (a combination of the ecological processes and the future maintenance of those processes or natural resource integrity), health and worker productivity effects, education and scientific benefits, and business location. The classification of international responsibilities has been dropped from this case study because, although it is true that protected areas such as Gros Morne National Park allow Canada to meet its responsibilities under such agreements as the Convention on Biodiversity, the World Heritage Convention and the Convention on Climate Change, the benefits derived by Canadians from meeting these responsibilities are captured already under the other passive use values such as existence value and ecological integrity.

The categories of benefits for protected areas are: personal, business, and societal. The next section itemizes benefits, within each of these categories, which are attributable to Gros Morne National Park specifically.