General Economics (econ.GN)

Abstract: As the global economy continues to grow, ecosystem services tend to stagnate or degrow. Economic theory has shown how such shifts in relative scarcities can be reflected in the appraisal of public projects and environmental-economic accounting, but empirical evidence has been lacking to put the theory into practice. To estimate the relative price change in ecosystem services that can be used to make such adjustments, we perform a global meta-analysis of environmental valuation studies to derive income elasticities of willingness to pay (WTP) for ecosystem services as a proxy for the degree of limited substitutability. Based on 749 income-WTP pairs, we estimate an income elasticity of WTP of around 0.78 (95-CI: 0.6 to 1.0). Combining these results with a global data set on shifts in the relative scarcity of ecosystem services, we estimate relative price change of ecosystem services of around 2.2 percent per year. In an application to natural capital valuation of non-timber forest ecosystem services by the World Bank, we show that their natural capital value should be uplifted by more than 50 percent (95-CI: 32 to 78 percent), materially elevating the role of public natural capital. We discuss implications for relative price adjustments in policy appraisal and for improving estimates of comprehensive national accounts.