How do you determine the future value of whales? How much is a beautiful view of the mountains worth? These are the kind of questions conventional economists tend to dismiss as "externalities." But such questions are grist for the mill of a new branch of economics known as ecological economics, or eco-economics for short, that attempts to weld ecological and economic theory.

Proponents of the new discipline formed the International Society for Ecological Economics, which met for the first time in May 1990 at the World Bank in Washington. It was an appropriate meeting places as many of the issues addressed by eco-economics revolve around the idea of sustainable development and much of the theory has been developed by economists at the bank.

One World Bank economist and proponent of eco-economics, Herman Daly, joined forces with theologian John Cobb in 1989 to co-write For The Common Good, a book that describes a new technique to measure economic changes. According to Daly and Cobb, a basic problem with conventional economic indices such as GM’, is that. they do not account for losses to the natural resource base and costs caused by environmental damage.

Their new method, called the Index of Sustainable Economic Welfare (ISEW), takes into account depletion of natural resources used to produce goods and services, costs of pollution and non-income generating government spending. Daly and Cobb would like to substitute their index for conventional measures like GM’. When US economic performance is examined using the ISEW it is very different than that indicated by GM’. Whereas GM’ was on an almost uninterrupted rise from 1960-86, the ISEW was generally flat with small declines in the period.

In their 1986 book of case studies, Economic Valuation Techniques for the Environment, World Bank economist John A. Dixon and Maynard M. Hufschmidt of Honolulu’s East-West Center, describe how to determine the worth of such things as a city park.

Working with Thailand’s Thammasat University researchers, Dixon applied two types of a technique known as contingent valuation to determine the 1980 value of Lumpini Park — a municipal park in Bangkok. The local government, which does not charge usage fees, was interested in developing the park commercially as the opportunity cost of maintaining the area as a park had risen sharply with the price of land.

The first eco-economics technique assumes that the time and money spent to visit the park are a reflection of people’s willingness to pay. The researchers estimated a demand function for the recreational service provided by the park based on the results of a travel-cost survey of residents living various distances from it.

- Gregor Hodgson

Source : Far Eastern Economic Review, 19 Sept, 1991

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