Does "existence value" exist?: environmental economics encroaches on religion.

Author:Nelson, Robert H.

In Encounters with the Archdruid, John McPhee (1971) relates a discussion he had with David grower, regarded by McPhee and many others as the leading environmentalist of our time. Brower is talking about the real meaning of wilderness. He notes that

I have a friend named Garrett Hardin, who wears leg braces. I have

heard him say that he would not want to come to a place like this by

road, and that it is enough for him just to know that these mountains

exist as they are, and he hopes that they will be like this in the future.


As Brower said of his own views, "I believe in wilderness for itself alone."

Economics as traditionally practiced, however, finds it difficult to accommodate this perspective on the world (Norton 1991). Human beings, the economics way of thinking assumes, live for happiness. Happiness is, moreover, a product of consumption. As the economist Stanley Lebergott (1995) writes, "the goal of every economy is to provide consumption. So economists of all persuasions have agreed, from Smith and Mill to Keynes, Tobin, and Becker" (149). Historically, there has been little or no place in economic thinking for the idea that something that is never seen, touched, or otherwise experienced--that is not consumed in any direct way--can have a value to an individual.

Yet, as McPhee's discussions with Brower indicated, this thinking rooted in economics was deeply at odds with an emerging environmental awareness that in the 1960s and 1970s was spreading widely in American society. Economists, it appeared, might be faced with an awkward choice: either reject their own economic perspective on the world or disagree with a powerful new social movement. Most likely, some economists were themselves drawn personally to the environmental values difficult to express in conventional economic terms. For them, the potential dilemma was also internal: either limit their own commitment to certain environmental goals such as the intrinsic importance of wilderness and endangered species preservation or reject the economic way of thinking in an important area of their life.

However, in a famous 1967 article in the American Economic Review, John Krutilla (1967) proposed a reconciliation. Krutilla suggested that the scope of economics should be expanded to include a new concept, which has come to be known as "existence value." The enjoyment of life need not have as its limit things that can be seen and touched. Consumption, even as economists think about it, should extend to include the simple fact of knowing that a wilderness, endangered species, or other object in nature exists. Formally, the variables in a person's "utility function" would not only comprise the amounts of food, clothing, and other ordinary goods and services consumed but also the various states of knowledge each person has of the existence of social and physical characteristics in the world. Implicitly at least, consumers would be willing to pay something for this form of consumption; hence the efforts by economists to estimate existence values in dollar terms (Mitchell and Carson 1989; Portney 1994).

By the 1980s, the concept of existence value was coming into use by a number of economists for purposes such as estimating the benefits of government actions or calculating damage assessments against corporations whose actions had harmed the environment. A federal appeals court in 1989 directed the Department of the Interior to give greater weight to existence values in its procedures for assessing damages to public resources under the Superfund law (State of Ohio v. United States Department of the Interior [D.C. Circuit. 880 F. 2d 432, 1989]). The concept has even been received favorably in literary circles such as the New York Review of Books, where the author of one article concluded that it would be central to achieving preservation of tropical forests and other world biodiversity objectives: "But why should citizens of industrialized countries pay to preserve resources that are legally the domain of other countries? An obscure tenet of economics provides a rationale. Certain things have what is known as an `existence value'" (Terborgh 1992, 6).

The large dollar magnitudes that some economists were attributing to this new source of economic benefit emphasized its potential importance. In 1992, Walter Mead surveyed a variety of estimates of existence value. In one study the value to households across the United States of preserving visibility in the Grand Canyon was estimated to equal $1.90 per household per year, yielding a long-run discounted value to all U.S. households of $6.8 billion. Preservation of the northern spotted owl in the Pacific Northwest was estimated in another study to be much more valuable, having a total existence value for U.S. households of $8.3 billion per year. Still another existence-value study came up with higher numbers, asserting that, however implausible it might seem, preserving whooping cranes would be worth $32 billion per year for all the people of the United States. Having such impressive dollar estimates to cite raised the prospect for some environmentally concerned economists that the government might alter calculations of the economic merits of various policy proposals.

A Growing Debate

Initially, most of the economic discussion of existence value reflected the views of proponents. Beginning in the 1970s, a small circle of economists sought to introduce a novel concept to the profession and to show that it could be applied successfully in practice. At first, most mainstream economists paid little attention. However, as the potential uses have widened and the policy stakes escalated, an active debate has broken out in recent years within the economics profession concerning the merits of the existence-value concept (Bate 1994; Desvousges 1993a; Diamond and Hausman 1993; Edwards 1992; Kopp 1992; Quiggin 1993; Randall 1993; Rosenthal and Nelson 1992; Stewart 1995). Noneconomists also entered the controversy, in some cases questioning the use of existence value ("Ask a Silly Question" 1992; DiBona 1992).

The Exxon Corporation, facing large potential damage assessments as a result of the Exxon Valdez oil spill, and fearing that these assessments might be based in part on economic estimates of existence value for various states of nature in Prince William Sound, committed large financial resources to the issue. Exxon hired a number of leading economists to examine whether the use of existence value was an appropriate economic method. Their evaluation was on the whole negative (Hausman 1993). The state of Alaska and the federal government hired several leading environmental economists who took a more positive view (Carson and others 1992).

Reflecting the growing controversy inside and outside the economics profession, the National Oceanographic and Atmospheric Administration (NOAA) convened a panel of leading economists, chaired by Nobel Prize winners Kenneth Arrow and Robert Solow, to review the issue. In 1993 the panel declared that although great care must be exercised to prevent misuse, existence value should be included among the economic tools available to government analysts (Arrow and others 1993). However, the NOAA report failed to resolve the matter, and an active debate continues (Portney 1994).

From a technical economic standpoint, existence value raises a number of problems, which a growing literature has been probing. Massachusetts Institute of Technology economists Peter Diamond and Jerry Hausman (1994) conclude that "surveys designed to test for consistency between stated willingness-to-pay and economic theory have found that contingent valuation responses are not consistent with economic theory" (46). Other critics find that in practice existence-value studies often yield implausible estimates (Desvousges 1993b). For example, respondents to survey questionnaires sometimes give similar estimates for saving a group of wild animals from human harm, even when the exact number of animals specified in the surveys may vary by orders of magnitude.

Thus far, those who have actually attempted to measure existence values have studied mostly wilderness areas, threatened species, and other environmental concerns. However, the use of the concept is potentially much broader. People in rich nations may value the existence of tropical forests, but these same people may value the existence of higher incomes for poor people in poor countries, a goal whose fulfillment may depend on cutting the forests.

Indeed, possibilities for the calculation of existence value are endless (Milgrom 1993). Virtually any object invested with symbolic importance will have an existence value. For example, the presence of an abortion clinic in a community will cause some of the residents to feel good, others to feel bad. Burning the American flag will have a large negative existence value for many people. However, the knowledge that freedom of speech, including flag burning, is protected will also have a large positive value for many others. Should survey questionnaires, based on statements of dollar values as a way of communicating views about the desirability of government actions, be used to help resolve such issues? One can pose the same sorts of questions for a large array of issues.

Diamond, Hausman, and several other leading economists have called on the profession to abandon the use of existence value on both theoretical and empirical grounds, such as those noted so far (Diamond and Hausman 1994; Castle and Berrens 1993). But others, although acknowledging the significant difficulties and major potential pitfalls of the theory, argue that Americans care a great deal about the environment even when they are not directly affected and that any decision-making calculus not incorporating such preferences as a benefit would suffer from serious inadequacies (Carson and others 1996; Hanemann 1994).

Despite their importance, these...

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