“How do you value …?”
My job, as Impact Infrastructure’s Chief Economist is to put a price on the difficult to price: the value of a walk in the woods, the benefit of green space in a city. “How do you value …?” is usually the first question people ask me when I tell them what I do.
Economists have many ways of measuring the intangible items that do not have prices because they are not traded in markets. They use cunning methods to determine the value of a wetland, exercise, or wilderness. We have a toolbox of methods from asking people hypothetical questions, watching peoples’ actions, or seeing how the value may be embedded in other observable prices.
Meta-Analysis to the Rescue
A type of research report called a meta-analysis is important in collecting these types results and the great resource of the world wide web means that these meta-analytical summaries are at researchers’ fingertips.
“In statistics, a meta-analysis refers to methods focused on contrasting and combining results from different studies, in the hope of identifying patterns among study results, sources of disagreement among those results, or other interesting relationships that may come to light in the context of multiple studies.”1
Meta-analyses synthesize and summarize the prices of non-traded goods as well as highlighting differences in values. They can help understand the differences in various valuation methodologies. They can also highlight geographical differences or changes in values over time. They are, for researchers, in a word – great.
Take for example wetland valuation. Sometime wetlands are bought and sold. Although possible, it is unlikely though that the price paid reflects the value that a wetland provides as habitat, the water treatment services, recreational use, or the flood control benefits it may provide. These characteristics are important, but under appreciated, and hence under- or not-priced.
Take for example one meta- analysis study2 – “This study reports a meta-analysis of more than 30 US valuation studies estimating wetland value per acre, a meta-analysis of more than 40 US valuation studies estimating willingness to pay per household per year for improvements in surface water quality, and a meta-analysis of 11 US valuation studies estimating benefit per acre for terrestrial habitat services. Results indicate that mean value per acre of wetland services is $262.43 (in 2003 US dollars). American household’s annual mean willingness to pay associated with surface water quality change is $102.51. Benefit per acre of terrestrial habitat is estimated to average $130.32.”
Apart from valuing wetland habitat and water quality services, there are hidden gems that come out of studies like this. For example, holding other things constant, wetland value per acre rises by 234.4% if a wetland provides a birdwatching function. Or, saltwater marshes and prairie potholes tend to have significantly lower value than swamps.
So the values can vary based on the functions the wetland provides (as with the birdwatching example), by region of the country, or by income or demographics of those affected. By using meta-analyses that synthesize many studies, the most important variations in these values can be included in a wetland valuation so that if, for example, the social cost of water is high in the South West due to scarcity, this can be captured.
And often several meta-analyses can be found for a topic you are interested in valuing. There are other meta-analysis studies of wetland valuation like the one cited above. Two others cover 39 studies (1969-1996) or 65 observations and 80 studies (1969-2003) or 202 observations. Looking at hundreds of studies at once one can not only value wetlands but gain an understanding of the range of values and hence the risk in using these values.
The web is a great resource, for valuing difficult to value things, for understanding and accounting for changes in these prices over time, and across the country, as well and the risk associated with using these prices in valuation studies – TWIG.
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