Data-driven nonmarket valuation

Values of environmental goods and services provided by forests are implicit but play a critical role in landowners’ decision making. We use an innovative valuation approach integrating operations research and economic theory of pricing environmental goods. A forest planning problem is inverted through altering its reward function of timber values so that the observed harvesting behavior becomes optimal. The discrepancy between the original and new rewards uncovers amenities values which are linked to forest attributes via hedonic models.

With this approach, past decision patterns derived from historical harvesting data can be used to derive how different landowners put values on environmental goods and services. For example, it is found that in U.S. southern pine region, depending on forest conditions, total economic values of amenities varied from zero to just under one thousand dollar per ha. At a discount rate of 3%, a typically managed forest generated on average $243 ha−1 of amenities values per annum, more than twice of harvested timber values. Structural diversity and density of large pine trees were the key determinants to preserving forests for environmental amenities.

 REFERENCE 

M. Zhou. 2017. “Valuing Environmental Amenities through Inverse Optimization: Theory and Case Study”. Journal of Environmental Economics and Management 83:217 – 230.​​