What Is Nature Worth?

In the new wealth of nations, where the intangible may be worth more than the tangible, the question is not one of absolute value but of relative priorities based on contingent factors.

This may be less precise than some might like but is probably more realistic than specific numbers given our contemporary wealth of data but lack of certainty. JL

Paul Glimcher and Michael Livermore comment in the New York Times:

Assigning a monetary value to environmental harm is notoriously tricky. Neuroeconomics found  similarity in the brain structures responsible for how people value the environment in economic terms.

THE United States government recently announced an $18.7 billion settlement of claims against the oil giant BP in connection with the Deepwater Horizon oil rig explosion in April 2010, which dumped millions of barrels of oil into the Gulf of Mexico. Though some of the settlement funds are to compensate the region for economic harm, most will go to environmental restoration in affected states.

Is BP getting off easy, or being unfairly penalized?

This is not easy to answer. Assigning a monetary value to environmental harm is notoriously tricky. There is, after all, no market for intact ecosystems or endangered species. We don’t reveal how much we value these things in a consumer context, as goods or services for which we will or won’t pay a certain amount. Instead, we value them for their mere existence. And it is not obvious how to put a price tag on that.

In an attempt to do so, economists and policy makers often rely on a technique called “contingent valuation,” which amounts to asking individuals survey questions about their willingness to pay to protect natural resources. The values generated by contingent valuation studies are frequently used to inform public policy and litigation. (If the government had gone to trial with BP, it most likely would have relied on such studies to argue for a large judgment against the company.)

Contingent valuation has always aroused skepticism. Oil companies, unsurprisingly, have criticized the technique. But many economists have also been skeptical, worrying that hypothetical questions posed to ordinary citizens may not really capture their genuine sense of environmental value. Even the Obama administration seems to discount contingent valuation, choosing to exclude data from this technique in 2014 when issuing a new rule to reduce the number of fish killed by power plants.

Do we respond to contingent valuation studies the way we respond to all other known classes of economic decisions? Or do we behave differently when environmental value is involved?

To find out, we conducted a study, just published in the journal PLOS One, that compared, at a neurological level, how people responded in both situations.

In the budding field of neuroeconomics, researchers have found striking similarity in the brain structures responsible for valuation across a host of different kinds of decision making. Our study used functional magnetic resonance imaging to examine activity in the brain’s valuation areas when subjects were asked to value environmental proposals (for example, protection of sea turtles, cleanup of the Gowanus Canal in New York), snack foods (e.g., tortilla chips), consumer goods (e.g., “The Simpsons: Complete Sixth Season” DVD, a Moleskine notebook) and time spent on daily activities (e.g., jogging, doing laundry).

Across all four types of questions, neural activity indicated that participants were paying attention. But when it came to putting values on things, we found differences. Specifically, when people put values on consumer goods, foods and time spent on daily activities, this was correlated with neural signals in the traditional valuation areas of the brain. But when people answered survey questions about the value of environmental proposals, their brain activity was uncorrelated with these areas.

The takeaway was clear: The brain did not respond to contingent valuation studies the way it did to all other known classes of economic behavior.

This means that contingent valuation does not line up with what we know about the neural basis of ordinary economic decision making. However, we do not yet know how it fails to line up. Contingent valuation may overestimate environmental valuation; it may underestimate it; it may overestimate sometimes and underestimate at other times.

Where to go from here? The trick will be to figure out how to use functional magnetic resonance imaging technology, or other such tools, to directly estimate how people value the environment in economic terms.

Of course, none of that will settle deeper philosophical questions of environmental ethics — for example, whether we owe something to future generations that individual valuations of our natural resources do not capture. But additional research can give insight into how people genuinely value the world around them, which should give a clearer picture of how grave a harm is caused by disasters like the BP spill, and how much the offenders should pay.