Environmental Ethics and Benefit-Cost Analysis

I’m serving on a panel of environmental economists at the September 2009 “Business and Environmental Ethics Conference” hosted by the Walker College of Business at Appalachian State University (here is the link to last years ethics conference [I'm hoping I'm able to post a video afterwards!]). Not knowing anything, at all, about ethics (or ethical behavior [smug wink]), I begin reading, er, skimming the Stanford Encyclopedia of Philosophy entry on Environmental Ethics. I learned a number of intrinsically useful things, including the difference between instrumental value and intrinsic value.

“Things,” such as environmental and natural resources, can have instrumental and intrinsic value. Instrumental values are generated from our use of these things. In contrast, things have intrinsic values if they have value in and of themselves. My 10 minute talk in September will focus on environmental ethics and benefit-cost analysis – a tricky subject. In the Concise Encyclopedia of Economics, Paul Portney, the longtime RFF guy, describes benefit-cost analysis like this:


Benefit-cost analysis is purely anthropocentric (human-centered) in that it assigns dollar values to things that people care about. In the language of benefit-cost analysis, people have standing but plants, animals, water and air don’t.

However, there is the possibility that dollar values for environmental and natural resources can invade benefit-cost analysis through the concept of total economic value. Total economic value is the sum of use value and nonuse value. Use values for environmental and natural resources are those that are related to people’s actual, observable behavior towards the environment. For example, moving away from an area with poor air quality and towards an area with good air quality reveals a value for the health and visibility benefits of good air. When people vacation, or take a day trip, to a recreation area with good water quality and avoid those with poor water quality they reveal a value for good water quality.

Nonuse values, on the other hand, are values for environmental and natural resources that are not necessarily revealed by observable behavior. We know that people value water quality and wildlife in Alaska, yet it often takes an environmental disaster for these values to be revealed. In the Exxon Valdez oil spill case the revelation that people cared was not observed until the national outrage over the spill. Many values for wildlife are not revealed until we recognize the possibility of extinction and people begin to speak up.

There are many motives for nonuse values, both instrumental and intrinsic. Instrumental motives include altruism and bequests. People today might value environmental and natural resources so that others, either today or in the near or distant future, can enjoy their use. Intrinsic motives include the ecological ethic, the notion that environmental and natural resources have value in and of themselves. If people are willing to reveal their nonuse values (however motivated) with their behavior, such as donations of time or money, then benefit-cost analysis should include both use and nonuse values.

Oftentimes the nonuse values are a major part of the analysis. The nonuse values associated with avoiding another Exxon Valdez-type oil spill was estimated in the billions of dollars (Contingent Valuation and Lost Passive Use, Env. Res. Econ., 2003). Benefit-cost analysis, the tool itself, is not devoid of an environmental ethical dimension. All it takes is an economist who is willing to estimate ethical values and plug them into the analysis. And these economists are not rare.