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A Micro-Economics Primer:  An Introduction to Valuation Methods for
Agro-Forestry Projects in Developing Countries
By D.Dosman and M.K. Luckert
Price:  [Z$60]

At the center of many agro-forestry planning issues in developing countries are
the relative values of natural resources.  In order to effectively manage a countrys
or regions use of its natural resources decision-makers may attempt to take into
account the values for all aspects of the natural resources and understand how
these values interrelate.  At the household level, welfare (satisfaction) is derived
from the use of natural resources for consumption and production.  For policy
makers it is desirable to understand how changes in policies will affect the welfare
of households.  In addition, economic valuation may be valuable in developing land
use policies that will allocate resources effectively, efficiently and more equitably.

In a previous paper (Dosman and Luckert 1997) we demonstrate some of the
basics of economic theory behind resource values and introduce a number of the
methods that are discussed in this primer in more detail.  The primary objective of
this paper is to fammiliarise the reader with the basic concepts of a number of the
valuation methods currently used in applied economics, and to outline their
strengths and weaknesses.

Different groups user resources in different ways.  If we wee to attempt to estimate
the total value of natural resource rights, all possible uses and services of the
resources would have to be incorporated.  To illustrate how complex the use and
service pattern can be, we can examine the uses of a forest resource.  A forested
area may be valued for its consumptive uses like grasses, game firewood, and
forage for livest

ock and personal consumption.  In addition, the forest may have a value in
commercial timber operations.  A forest may also be valued for services that benefit
a broader community.  For example, a healthy forest provides watershed and
environmental benefits, as well it preserves a diverse gene pool to help maintain
biodiversity.  Another source of value may be derived from having sacred sites
located within the forest region, as these sites are an integral component of the
culture and religion.  In many instances, only the commercial value of the timber is
considered in policy development.  In order to develop policy that is beneficial for
the entire population in the region, an estimation and understanding of the
economic values for non-commercial uses of the forested region are also desirable.  Economists have developed several methods to estimate the value of a good or
service.  These various methods have been designed for different types of goods
and have different data requirements.

Non-market resource valuation may be necessary because the importance and
scarcity of the natural resources may not be captured in values indicated in formal
markets.  This is particularly the case in developing countries where many natural
resources are not traded in the market place for monetary value.  Markets for
goods in developing countries can be thin for two reasons (Adamowicz, Luckert
and Veeman, 1997).  First, property rights may not be well defined for the resource,
or they may be defined in such a way that the resource is available to all but it
can not be sold.  For example, in some regions in Zimbabwe specific fruits and
firewood can be collected for ones own consumption but they can not be sold. 
Second, the household may not be able to produce more than what the household
can use.  The result is that there is not surplus production to sell in the market
place.

Another aspect that adds to the complexity of valuation is that values for natural
resources in developing countries may differ substantially from region to region
because each area has its own small, isolated economy.  This is a result of poor
transportation and communication infrastructures.  Another ramification of small
markets is that they are easily influenced by changes in local conditions or policies.
  Local economies are also affected by the fact that resource scarcity or abundance
can be region specific.  For example, firewood may be available in one region while
being scarce in neighbouring community.  The result will be that firewood in the first
regio n may not be traded while in the second community firewood may command
a high price in the market place.  Accordingly, values of the natural resources are
endogenous to, or influenced by, a number of variables:

  • Their availability in nature.

  • The local economic situation.

  • The structure and definition of the property rights and;

  • The policy framework of the region.

The objective of this paper is to outline the conceptual basis for some of the
techniques that have been developed to estimate the value of natural resources
that are not traded in the market place.  As the primer deals with introductory
concepts, it is not the intent of the primer to make the reader a practitioner in
non-market valuations.  Essentially, this primer should give the reader a conceptual
understanding of the different types of methods and indicated some of their
potential strengths and weaknesses.


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