Valuing ecosystem services in macroeconomic settings

Consider the following questions. In a region where agricultural production is primarily irrigated, how much of its agricultural gross domestic product (GDP) is accounted for by the provisioning services of water? If agriculture in the region is both rain-fed and irrigated, what is the value of rainwater in agricultural production? How much does a coral reef system contribute to a region’s GDP? These questions are indicative of those that economists and national account statisticians are beginning to tackle. Answering these questions requires measuring the aggregate flow value of an ecosystem service: water in the first two cases and the tourism services derived from a coral reef system in the last case. This chapter lays out an approach to numerically calculating the flow (shadow rental) value of an ecosystem service’s contribution to aggregate GDP. The approach develops a conceptual framework that is directly linked to an empirical model amenable to numerical solutions. The underlying conceptual model is based on dynamic, general equilibrium theory and accommodates multiple sectors and multiple regions. In addition to predicting shadow rental values for ecosystem services over time, the empirical model can also calculate the unit shadow price (discounted shadow rental values) of the ecosystem service(s) over time.