Ecological Economics 25 (1998) 17 – 19 SPECIAL SECTION: FORUM ON VALUATION OF ECOSYSTEM SERVICES The price-value paradox Robert U. Ayres * INSEAD, Centre for the Management of Enironmental Resources, Bouleard de Constance, 77305 Fountainebleau, France Accepted 9 January 1998 A recent article in Nature suggests that the economic value of global ecosystem services is between $16 and $54 trillion, with an average of $33 trillion, which far exceeds the aggregate Gross World Product (GWP) ($18 trillion) (Costanza et al., 1997). This comment is motivated by that result and the underlying analysis. The Nature paper notes that there are three possible theoreti- cal measures of economic value for a commodity or service flow. In order of preference, they are: (1) the sum of consumer and producer surplus, (2) producer surplus (net rent) alone, and (3) the product of marginal price times quantity or (here- after) the price-quantity product (PQP). However, the first preferred measure requires detailed knowledge of the demand curve, which is difficult to ascertain. It is argued that the latter would be, in general, a lower limit. Unfortunately, it is also a very poor approximation for consumer surplus. In fact, it is easy to cite situations where con- sumer surplus might be very high, but P and PQP can be nearly zero, or even negative. In fact, this occurs in all cases where there is an optimum supply level. According to Leibig’s Law, every productive system has a limiting factor such that an additional increment of it will increase the productivity of the system as a whole. This is normally the only input that has a positive shadow price. 1 Of course, if enough of the ‘scarce’ factor is supplied, some other factor will then become locally limiting. This is why several fac- tors (such as nutrients) can simultaneously have significant positive monetary value in an aggre- gated system, such as agriculture. 2 Implicitly, one can try to estimate the value of bio-geo-chemical systems, such as wetlands or nutrient cycles, indirectly by valuing correspond- ing mass flows of scarce (i.e. limiting) nutrients in the above conceptual framework. Thus, natural 1 This is a standard result of optimization under linear constraints. 2 The shadow monetary values of natural nutrient cycles can be estimated roughly on the basis of the market value (per unit mass) of fertilizers and water that are purchased on the market. According to recent estimates, natural processes provide 70% of fixed nitrogen and nearly 60% of phosphorus to US agriculture (Smil, 1993). US farmers in 1993 spent over $15 billion on agricultural chemicals (including pesticides) (Agricultural Statistics 1995 – 1996, Table 562). Thus, it would appear that these two nutrients from natural sources were worth about $30 billion at 1993 prices. * Tel.: +33 1 60724128; fax: +33 1 64987672; e-mail: ayres@insead.fr 0921-8009/98/$19.00 © 1998 Elsevier Science B.V. All rights reserved. PII S0921-8009(98)00022-6