The Perils of Environmental Valuations

Valuation studies have become an increasingly popular tool to justify policies. In Singapore's public housing, the process of estimating economic worth currently elicits prices from direct (stated) and indirect (revealed) preferences of interested parties. This could be by virtue of residence in or usage of a particular geographical area. However, this becomes contested when citizens and government cannot agree on the bases for valuation. While routinely employed, there are limitations to environmental valuation, especially when climate change and land scarcity make front page headlines. Among more prominent cases, the 1989 Exxon Valdez disaster exposed how valuations of environmental damage can be challenged in determining compensation.

In his book Environmental Economics: Concepts, Methods and Policies (2013), Prof. Jesuthason Thampapillai said, There is an emerging tendency among decision-makers to merely seek a number for the value of environmental outcomes in order to portray the image of having demonstrated environmental awareness. Based on his research, this article outlines considerations that could be useful to appraisers and concerned societal actors.

Susceptibility to Biases

The economics bases of environmental valuation has been silent on making itself explicit. Instead, disciplines such as consumer psychology, marketing, and motivation research' have moved in to occupy this void. While it can be argued that valuation studies are not designed to address such motivations, the latter do give rise to preferences. It is discomforting that valuation founded on sound economic assumptions would dependeven partiallyon bases that could be non-rational or even irrational.

The vulnerability of valuation studies to biases is well-documented. For example, strategic bias, when respondents report their willingness to pay to influence an outcome) and acquiesce bias (or yea-saying'), when respondents elicit prices to appear following a perceived majority. A framing effect' can occur when prices elicited vary according to how the same situation is described to respondents. Other biases include: anchoring (influences on respondents to elicit prices based on unrelated information shown); embedding (similar to anchoring except that respondents value based on similar past cases). Perhaps more seriously, the fair-share heuristic' and preference reversals; the former when respondents elicit prices which they believe should be socially fair' to all parties, while the latter concerns respondents presenting circular rankings of possible actions that is illogical.

Environmental valuation techniques also have ethical and philosophical contentions. Valuation based on usage and risk from non-usage can be ethically objectionable. Nature, some argue, cannot simply be reduced to natural resources' determined by economic activities benefitting from their exploitation. Other values based on other uses, existence or intrinsic non-use preservation should be taken into account. Furthermore, prices elicited can also change depending on the trust respondents have in the government to carry out environmental policies. These can also appear illogical when respondents opt for conflicting policy measures arising from their opposing roles as consumers and public citizens at the same time.

Susceptibility to Political Contestation

These reveal how susceptible valuation can be to political contestation. One particular issue is the distribution of the burden of environmental costs. The poor and dispossessed may not be able to pay their share even if their allotted portion' of environmental costs is relatively miniscule. Such valuation may also simply be grandstanding exercises to environmental groups in order to push through politically driven policies.

Elitism rears its head when particular privileged groups prioritise preferences over others, which can lead to counter valuations among opposing elites (e.g. business interests versus policymakers). The outcome remains that the rank-and-file shoulder more burden in terms of price hikes (as consumers), job layoffs or pay cuts to accommodate environmental concerns.

The grounds for environmental valuation as a policy tool are not yet firm, even if the case for it may be undisputed. The reticence of the economics discipline, biases, ethical and philosophical concerns, and risks of politicisation spotlight on the inherent weakness of environmental economic valuation as an objective exerciseif portrayed in this way at all. To combat these problems, environmental valuation must continue to evolve to address its non-rational underpinnings, if it is to continue to be of value not only to policymakers, but to all relevant stakeholders concerned.