Valuing tropical forests : methodology and case study of Madagascar

14920 WORLD BANK ENVIRONMENT PAPER NUMBER 13 Valuing Tropical Forests Methodology and Case Study of Madagascar Randall A. Kramer, Narendra Sharma, and Mohan Munasinghe RECENT WORLD BANK ENVIRONMENT PAPERS No. 1 Cleaver, Munasinghe, Dyson, Egli, Peuker, and Wenclius, editors, Conservation of West and Central African Rainforests/Conservation de laforet dense en Afrique centrale et de l'Ouest No. 2 Pezzey, Sustainable Development Concepts: An Economic Analysis No. 3 Munasinghe, Environmental Economics and Sustainable Development No. 4 Dewees, Trees, Land, and Labor No. 5 English, Tiffen, and Mortimore, Land Resource Management in Machakos District, Kenya, 1930-1990 No. 6 Meier and Munasinghe, Incorporating Environmental Concerns into Power Sector Decisionmaking: A Case Study of Sri Lanka No. 7 Bates, Cofala, and Toman, Alternative Policies for the Control of Air Pollution in Poland No. 8 Lutz, Pagiola, and Reiche, editors, Economic and Institutional Analyses of Soil Conservation Projects in Central America and the Caribbean No. 9 Dasgputa and Mdler, Poverty, Institutions, and the Environmental Resource Base No. 10 Munasinghe and Cruz, Economywide Policies and the Environment: Lessons from Experience No. 11 Schneider, Government and the Economy on the Amazon Frontier No. 12 Aaheim and others, Global Climate Change: Economic and Policy Issues WORLD BANK ENVIRONMENT PAPER NUMBER 13 Valuing Tropical Forests Methodology and Case Study of Madagascar Randall A. Kramer, Narendra Sharma, and Mohan Munasinghe The World Bank Washington, D.C. Copyright Q 1995 The International Bank for Reconstruction and Development/THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing August 1995 Environment Papers are published to communicate the latest results of the Bank's environmental work to the development community with the least possible delay. The typescript of this paper therefore has not been prepared in accordance with the procedures appropriate to formal printed texts, and the World Bank accepts no responsibility for errors. Some sources cited in this paper may be informal documents that are not readily available. The findings, interpretations, and conclusions expressed in this paper are entirely those of the author(s) and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this volume do not imply on the part of the World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. The material in this publication is copyrighted. Requests for permission to reproduce portions of it should be sent to the Office of the Publisher at the address shown in the copyright notice above. The World Bank encourages dissemination of its work and will normally give permission promptly and, when the reproduction is for noncommercial purposes, without asking a fee. Permission to copy portions for classroom use is granted through the Copyright Clearance Center, Inc., Suite 910, 222 Rosewood Drive, Danvers, Massachusetts 01923, U.S.A. The complete backlist of publications from the World Bank is shown in the annual Index of Publications, which contains an alphabetical title list (with full ordering information) and indexes of subjects, authors, and countries and regions. The latest edition is available free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818 H Street, N.W., Washington, D.C. 20433, U.S.A., or from Publications, The World Bank, 66, avenue d'lena, 75116 Paris, France. Randall A. Kramer is a professor at the School of Environment at Duke University. Narendra Sharma is with the Environmentally Sustainable Development Division of the World Bank's Africa Technical Department. Mohan Munasinghe is chief, Environmental Economics Division, in the Environment Department of the World Bank. Library of Congress Cataloging-in-Publication Data Kramer, Randall A. Valuing tropical forests : methodology and case study of Madagascar / Randall A. Kramer, Narendra Sharma, Mohan Munasinghe. p. cm. - (World Bank environment paper ; no. 13) Includes bibliographical references (p. ). ISBN 0-8213-3407-7 1. Forests and forestry-Tropics-Management. 2. Forests and forestry-Economics aspects-Tropics. 3. Forest conservation- Economic aspects-Tropics. 4. Mantadia National Park (Madagascar) 5. National parks and reserves-Economic aspects-Tropics. I. Sharma, Narendra P. II. Munasinghe, Mohan, 1945- III. International Bank for Reconstruction and Development. IV. Title. V. Series. SD247.K735 1995 95-23688 333.33'572'0913--dc2O CIP Contents About the contributors v Foreword vi Editors' introduction vii PART A: CONCEPTUAL FRAMEWORK i 1. Deforestation Issues 3 Mohan Munasinghe and Narendra Sharma Forest Types and Functions 4 Depletion of Forest Resources 6 The Need for Valuation of Tropical Forests 10 2. Tropical Forests and Sustainable Development: A Framework for Analysis 11 Mohan Munasinghe Dimensions of Sustainable Development 11 Effects of Deforestation on Sustainable Development 12 Framework for Analysis 16 PART B: MADAGASCAR CASE STUDY 19 3. An Overview 21 Randall Kramer, Priya Shyamsundar, Evan Mercer and Mohan Munasinghe Introduction 21 Madagascar and the Mantadia National Park 21 Environmental Valuation Methods Used in the Study 23 iii 4. Impacts on Villagers 26 Priya Shyamsundar, Randall Kramer and Narendra Sharma Approach 26 Data Collection and Analysis 27 Results 29 Discussion 32 5. Impacts on Tourism 33 Evan Mercer, Randall Kramer and Narendra Sharma Approach 33 Data Collection and Analysis 34 Results 34 Discussion 40 6. Spatial Dimensions of Environmental Impacts 42 Randall Kramer, Daniel Richter, and Subhrendu Pattanayak The Productivity Analysis Approach 42 Deforestation History of the Study Area 43 The Effect of Deforestation on Flooding 47 Estimating the Value of Flood Damages: The Dose Response Effect 48 Discussion 50 7. Existence Values 52 Randall Kramer, Evan Mercer and Narendra Sharma Approach 52 Data Collection and Analysis 53 Results 54 Discussion 57 PART C: CONCLUSIONS 59 8. Summary and Implications 61 Narendra Sharma, Randall Kramer and Mohan Munasinghe Summary 61 Policy Implications 62 References 65 iv About the contributors Randall Kramer is an associate professor of Daniel Richter is an associate professor of resource and environmental economics, forest soils and hydrology, School of the School of the Environment, Duke University, Environment, Duke University, Durham, Durham, North Carolina. North Carolina. Evan Mercer is an economist with the U.S. Narendra Sharma is a principal economist Forest Service, Southern Research Station, and advisor in the Technical Department of Research Triangle Park, North Carolina. the Africa Region, World Bank, Washing- ton, D.C. Mohan Munasinghe is Chief of the Environ- mental Economics Division, World Bank, Priya Shyamsundar is a program officer Washington, D.C. with the John D. and Catherine T. MacArthur Foundation, Chicago, Illinois. Subhrendu Pattanayak is a graduate research assistant, School of the Environ- ment, Duke University, Durham, North Carolina. v Foreword This research emerged out of the World economic analysis by applying nonmarket Bank's parallel concerns with environment valuation methods to the environmental ser- and forest resources. In 1989, the Bank issued vices provided by protected forests. the environmental assessment operational The study provides encouraging results directive (EAOD), which set down mandatory from which further work can be done to de- requirements for the environmental assess- velop techniques and methodologies to more ment of all its projects. Subsequently, in 1992 fully understand the economic consequences the Bank issued its seminal work on the stew- of policy, investment, and management ardship of world forest resources (including choices. By improving economic information tropical rainforests) entitled "A World Bank on the benefits and costs arising from forest Policy Paper: The Forest Sector." This publi- use and misuse, forest valuation can lead to cation examined causes of forest degradation improved decision making and help policy and deforestation and explored alternatives for makers strike a balance among economic improving the management of forest resources development, biodiversity, recreation, water- for development and conservation of bio- shed protection, commodity production, and diversity. The lack of knowledge of economic other objectives. benefits provided by forests, or costs associ- ated with depletion of forest resources and degradation of forest lands, was acknowl- edged to be handicapping management deci- sion making, project analysis, investment decisions, and environmental assessment. Thus, based on concerns arising from both Ed ard V.K. Jaycox environment and forestry, it was recognized Vice President that there was a need to increase research on Africa Region the economic value of tropical forests to help policy makers form wise decisions on the utilization and conservation of tropical forest resources. The study reported in this docu- ment represents the first such work supported by the World Bank to explore the frontiers of vi Editors' introduction The loss of large areas of tropical forests has to sustainable development. An analytical become a major concern of the world framework is described. Part B (Chapters 3 to community. Although there are many causes 8) is devoted to a detailed case study of Mada- of tropical deforestation and forest gascar that illustrates the practical application degradation, an important cause appears to be of the techniques of analysis to the valuation an undervaluation of forests by markets and of forests described earlier. Chapter 3 de- governments. One reason for this scribes the case study area (Mantadia Park) undervaluation is that many forest products, and general analytical approach. Chapters 4 such as food and medicinal products, are and 5 describe how impacts on the park are traded in informal markets for which there are valued by two user groups: local villagers and little data. Another reason is that many international tourists. The spatial dimensions services provided by forests, such as carbon of linkages between human activity and area storage, biodiversity protection, recreation, ecosystems are explored in Chapter 6. In and watershed protection, are not traded in Chapter 7, existence values of rain forests to markets; hence, their economic values are North Americans are estimated. Finally, the often ignored. Even where environmental main findings and conclusions of this volume values are recognized, they may not be are summarized in Part C. measured or used to promote efficient The editors appreciate the assistance of a resource management. large number of individuals in Durham, This volume examines some causes of Washington, and Madagascar who have made tropical deforestation and explores forest contributions to this volume. Special thanks valuation issues in the context of a protected are due to Sanath Ranawana for assistance in area project. Part A (Chapters 1 and 2) sets preparing the manuscript, Mary Matthews for out the context of tropical deforestation and copyediting and Nancy Minnich for word- loss of biodiversity and provides a framework processing. The editors and authors espe- for examining the economic value of forests. cially thank the many villagers, tourists, Chapter 1 describes the main functions of scientists, and government officials who forests and the salient facts concerning graciously provided the data used in this deforestation. Chapter 2 outlines the three report. key dimensions of sustainable development: economic, social and environmental; and then defines the vital contribution that forests make vii PARTA: CONCEPTUAL FRAMEWORK 1. Deforestation Issues Mohan Munasinghe and Narendra Sharma Between 1850 and 1980 about 60 percent of been on addressing the loss of tropical moist forests and woodlands in North Africa and the forests. Middle East were destroyed due to the pres- The increasing scale of human activity sure of human activity. During the same worldwide has prompted the search for ap- period, tropical Africa lost 20 percent, south- proaches to development that are more "sus- ern Asia lost 43 percent, and Latin America tainable." As economies grow, so does the lost 19 percent of existing forest cover (Rowe, strain on the finite natural environmental Sharma and Browder 1992). In spite of ef- systems that support life on the planet. The forts to rectify the problem, deforestation in natural environment provides three main types the tropics has continued unabated and by of services necessary to sustain life: (1) as a some estimates may even be increasing. source of the raw material vital for all human According to the FAO-sponsored Forest activity; (2) as a sink for waste and residue Resources Assessment 1990 Project, which generated by human activity; and (3) as a covered 97 percent of all tropical forests, the means of maintaining essential life support estimated annual loss of tropical forests dur- functions (Munasinghe 1992). Tropical for- ing the late 1980s was 16.9 million hectares, ests constitute an important natural system compared to 11.3 million hectares during the that fulfills these services through a multitude early 1980s (United Nations - FAO 1992). of functions and products; there is, therefore, While open access forests have suffered most, an urgent need to conserve these ecosystems. even parks and protected areas are threatened In terms of source functions, the products (for a comprehensive review, see Munasinghe and services derived from tropical forests are and McNeely 1994). diverse and benefit people at the local, na- tional and global levels. Indigenous peoples Forest Types and Functions and communities that live on the fringes of forests rely on the forest resources for most of Tropical forests consist of dry and moist their consumption goods, such as food, shel- forests, each accounting for roughly one half ter, and even clothing. Their well-being of the total worldwide. Tropical moist forests depends extensively upon the forests. At the are further divided into rain forests and decid- national level, forest resources are considered uous forests. Rain forests make up about two- a source of foreign exchange and energy. thirds of all tropical moist forests and are the Forest lands are regarded as "new" land for richest in terms of biomass and biological expansion of food production and settlements. diversity. Deciduous forests generally lie on Forests also ensure a regular supply of fresh the edge of rain forests, and are characterized water, prevent flooding, protect crops from by more defined dry and wet periods (Sharma wind damage, and also prevent soil erosion et a]. 1992). Although tropical dry forests are and siltation of river beds downstream. In all, also subject to large-scale destruction, the about 2.5 billion people in the tropics rely major emphasis of the global community has either directly or indirectly on forest resources 4 Valuing Tropical Forests for consumption goods. The global commu- is consumed nationally as timber and the rest nity relies on tropical forests to stabilize is consumed in the form of fuelwood (Vanclay global climate conditions, protect the diversity 1993). At present, 33 tropical countries are of biological species, support natural ecologi- net exporters of timber. That number is ex- cal systems, and provide recreational benefits. pected to drop to 10 by the end of the century, People at all levels derive benefits from the however, as the domestic demand in many amenity value of forests and the knowledge countries catches up with the surplus that was that forests continue to existence. previously exported. Forest-related exports generate about US Fuelwood is produced primarily to meet $100 billion (1989 dollars) worth of foreign national consumption needs. About 83 per- exchange, amounting to an average 2.7 per- cent of all wood extracted from tropical for- cent of GDP in developing countries (Sharma ests is consumed as fuelwood. In Africa as et a]. 1992)- In certain countries they account much as 91 percent of all wood supplies is for a higher percentage of the GDP; for in- used as a source of energy (Vanclay 1993). stance, about 5 percent in Malaysia, 5 percent An estimated 3 billion people in developing of GDP from value added in the forestry countries rely on fuelwood as the primary sectors of Liberia and the Ivory Coast, and 4 source of energy (Sharma et al. 1992). Never- percent in Cameroon and Tanzania. The theless, only about 20 percent of the total forestry sector is a significant source of gov- energy demand in developing countries is met ernment revenue in some countries--about 70 by fuelwood. Along with increasing scarcity percent in Sabah (Malaysia), for example. of wood, especially in areas severely denuded Nevertheless, the potential rent from the of forest cover, the cost of fuelwood has forestry sector is grossly underestimated and tended to increase significantly. Households, goes uncaptured in most developing countries. especially poor urban households, may spend By far the most valuable economic prod- up to 20 or 30 percent of their income on uct from tropical forests is wood, which ac- fuelwood alone (Rowe et al. 1992). counts for about half of all forest-related Forests are the source of many nonwood revenue. The two main wood products are products as well. These include extractives roundwood and fuelwood. Roundwood is (such as bark, dyes, fibers, gums, incense, wood in its natural state which is processed latexes, oils, resins, shellac, tanning com- into sawnwood, pulp, panels, plywood and pounds and waxes); parts of plants and ani- paper. Tropical hardwoods, the major indus- mals for medicinal, ceremonial or decorative trial timber export of the tropics, accounts for purposes; and food (such as bush meat, flow- just over 10 percent of the total international ers, fruits, honey, nuts, leaves, seeds and trade in timber (Sharma et al. 1992). In total, spices) (Sharma et al. 1992). Most nonwood about 31 percent of the entire volume of products are consumed locally (i.e., nation- industrial timber produced in the developing ally). Nevertheless, they constitute a valuable countries is exported in the form of resource, and their commercial value per roundwood or wood products (London Envi- hectare of land can exceed that of wood prod- ronmental Economics Centre 1992). Never- ucts. Certain nonwood products have consid- theless, this constitutes only about 4 percent erable international markets as well. Rattan, of the total tropical wood supply (Federal latex, palm oil, cocoa, vanilla, nuts, spices, Republic of Germany 1991). Thirteen percent gum and ornamental plants are commodities Part A: Conceptual Framework 5 for which markets exist and are expanding in also has tremendous medicinal value to hu- developed countries. Several countries earn mans. There is ample evidence of benefits to considerable revenue from exporting humans from the rich species and genetic nonwood products. Gum exports in Sudan diversity found in the tropics: generate about US $60 million annually and Madagascar earns about as much from export- plOn ne froeatsingliopian barley ing vanilla. Indonesia is one of the world's plant nort s Calionansublly largest exporters of tropical nonwood prod- crop w US $ ilo n l ucts. Rattan, resin, essential oils, kapok and ' cinchona bark (quinine) exports in 1986 * Globally, medicines from wild products generated US $134 million in foreign ex- are worth approximately US $40 billion change. a year; In terms of other (nonsource) functions, In 1960, a child suffering from leukemia the considerable array of environmental ser- had only a 20 percent chance of sur- vices generated by forests is sufficient justifi- vival; today, a child has an 80 percent cation for protecting natural tropical forests. Tropical forests and forest soils serve as a vast ance oturvival e tote tnfo a drug containing active substances storehouse for carbon due to their high density from the rosy perwinkle, a tropical- of biomass. Up to three times the amount of forest plant from Madagascar carbon found in the atmosphere is contained . by tropical forests (Sharma et al. 1992). The Intergovernmental Panel on Climatic Change Forests serve the important function of (IPCC) estimates that tropical deforestation protecting watersheds and ensuring perennial contributes about one-sixth of the total global supplies of fresh water. By mitigating erosion emission of carbon into the atmosphere. The due to winds and surface runoff, forests increasing levels of atmospheric carbon cause reduce sedimentation and bed-loading of the buildup of greenhouse gases, believed to streams, reservoirs and rivers downstream. result in a rise in earth's surface temperature, The role of forests in preventing floods is the "greenhouse effect." Although the result- quite evident in certain regions. Widespread ing increase in temperature is elusive to esti- destruction of forest along the Himalayan mate or predict, it is believed that a 3 (+1.5) foothills is linked directly with devastating degree Celsius rise in global temperatures can floods in the Ganges and Brahmaputra river be expected in about 50 years, if the level of basins. Forests have a significant role in atmospheric carbon doubles. stabilizing regional climate and hydrologic Primary tropical forests support about systems, particularly by affecting rainfall one-half of all known surviving species. The patterns. Forests also have a role in species and genetic diversity, as well as the improving air quality as well as in enriching diversity of ecosystems found in the tropics, soils through nitrogen fixation. are vital for maintaining the balance of natural The recreational value of tropical forests ecosystems. Loss of genetic diversity can has largely been underestimated thus far. cause maladaptation of species to changing Ecotourism is an emerging economic activity environmental conditions and increase suscep- with tremendous potential to generate foreign tibility to diseases. The diversity of species exchange for tropical countries. Local urban 6 Valuing Tropical Forests dwellers also derive recreational benefits from seriously alter the natural habitat of forest visiting tropical forest reserves, but their systems. "Conversion deforestation" is the willingness to pay for this activity is generally process of converting forest lands into lower than that of international travelers. The alternative uses, such as agriculture and mere existence of tropical forests constitutes resettlement. Not all human activity results in a stream of benefits to people, most of whom complete destruction of forests. Certain may never intend to visit a forest reserve. In human-induced disturbance or conversion several economic valuation studies that have deforestation practices leave the actual area been conducted to quantify these benefits, the under forest cover intact, although some of the "existence value" of tropical forests forest related services and functions may be constitutes a significant percentage of the total significantly affected. Well-managed economic value. plantation forests that allow secondary forests to regenerate after each harvest, and Depletion of Forest Resources sustainable agricultural practices that allow the land to be left in fallow for several seasons At present, 36 percent of the tropics is following a harvest, are considered to be less covered by natural forests, an area amounting destructive uses of forest lands. Wasteful to about 1,715 million hectares. Based on an deforestation occurs when forests yielding estimate of 1,882 million hectares believed to high valued goods and services are clearcut have been under forest cover in 1980, the and replaced with land uses that yield lower average annual rate of tropical deforestation returns. during the 1980s was about 0.9 percent. This latter type of deforestation is what However, the rate of forest loss in countries poses a significant environmental problem endowed with small areas of forest cover has and has local, national and global been much higher: 6.5 percent in Ivory Coast, implications. Wasteful deforestation is to a 5 percent in Nigeria, 4 percent in Costa Rica great extent an irreversible process. and 4.7 percent in Paraguay, for example. In Secondary forests do regenerate quite rapidly terms of area, the largest extent of loss is if the land is left fallow after a season of incurred by Brazil (3.2 million hectares cultivation or if deliberate reforestation efforts annually) and Indonesia (1.3 million hectares are undertaken. However, the biological annually). By region, Africa loses 5 million diversity found in natural tropical forests can hectares per year and tropical America loses take many decades to regenerate and in some 8.3 million hectares per year. If present trends instances could be lost forever. continue unabated, all remaining tropical The real causes of tropical deforestation forests may well be lost during the next are often confused with the symptoms of the century. Africa could lose all existing forests problem. Misdirected forest management in just 60 years (United Nations-FAO 1992). policies that address the symptoms rather The term deforestation is used in a rather than the causes, are likely to fail (Vanclay broad context to imply the wasteful 1993). Distinguishing between the causes and destruction of forest resources, especially symptoms of deforestation can be tricky, primary forests, but this is not always the case particularly since some of the causes lie (Rowe et al. 1992). "Disturbance beyond the borders of the forests. deforestation" refers to human activities that Part A: Conceptual Framework 7 Population pressures, combined with Uncontrolled profiteering and corruption poverty and landlessness, are one cause of motivate politicians, forestry officials, timber deforestation in the tropics. Governments of merchants and rich landowners to exploit developing countries are driven to harvest forest resources. The influence of corruption forest resources and convert land into is not often evident in the routine proceedings agricultural use simply to meet the increasing of business and administration. However, demands of a growing population base. By occasional inquiries into illicit dealings the year 2000, the world population is between government officials and logging expected to increase by 1 billion, and about 60 companies may reveal the extent of percent of this growth will be concentrated in racketeering that takes place in the forest the developing countries. Faced with the industries. In Papua, New Guinea, during the challenge of providing basic necessities, these late 1980s, political turmoil led to an governments see tropical forests as an independent inquiry into the activities within invaluable source of new land and raw the forestry sector. The report following the material. While low-lying forests are treated inquiry revealed that many politicians, as potential agricultural lands, highland community leaders and logging companies forests are used for extracting timber, were engaged in bribery, money laundering fuelwood and other raw material. and other illicit activities. Approximately 10 million hectares of forests Governments of developing countries are will have to be cleared each year simply to also largely preoccupied with rectifying urban continue providing the growing population and social problems and often do so at the with the current intake of nutrient content, expense of environmental degradation. These assuming that present yields are maintained. problems have a direct effect on human well- It is believed that 60 percent of all being, whereas the welfare effects of deforestation is due to expansion of environmentally unsound policies are less agricultural settlements (World Bank 1992). clear. Furthermore, governments prefer to The remainder is divided among various other address highly visible issues, which upon activities such as logging, ranching and resolution constitute political victories. mining. In some regions, however, the extent Consequently, environmental issues have of deforestation due to the expansion of small- typically received relatively low priority on holder agricultural settlements is modest in government policy agendas. Lately, however, comparison with these other activities. In the the ecological consequences of extensive Amazon region, for example, the most environmental degradation and the resulting prominent form of deforestation is by economic consequences are receiving conversion of land into livestock ranching. In recognition, particularly due to efforts by Brazil alone, subsidized cattle ranching nongovernmental organizations. People of accounted for about 70 percent of developing countries are now more aware of deforestation--an area amounting to some 12 the need to reconcile economic development million hectares by 1980 (Rowe et al. 1992). with conservation of environmental resources, Similarly, in tropical east Asia, industrial and governments are increasingly held logging constitutes the major form of accountable for environmentally sound deforestation. policies. 8 Valuing Tropical Forests The mismanagement of forest resources is from the forestry sector (Rowe et al. 1992). also due to the inefficiency of administrative In the Philippines only 16 percent of all and regulatory institutions. Forestry sectors timber harvesting rents were collected are typically characterized by centralized between 1979 and 1982. The loss of revenue administrative structures in which authority to the government amounted to about US and power are concentrated at the top. $850 million. Consequently, private timber Administrative staff at the local levels do not firms which capture a large percentage of the have much authority over the decision-making rent from timber harvesting are encouraged to process. Furthermore, forestry institutions are exploit forest resources for private short-term understaffed and lack both training and gains. equipment to implement proper management Various forms of market failures practices. Forestry officials must often rely constitute a significant threat to the on timber companies to provide transportation sustainability of forest management as well. to logging sites in the interior of forests. Of particular significance is the disparity Hence, their ability to perform random between the private and social costs of timber inspections is severely limited. Furthermore, harvesting. Timber prices are generally based officials lack incentives to perform duties with on the stumpage value; that is, the value of diligence and efficiency. Institutional reform products derived from the timber less the measures and proper incentive structures need processing costs. However, timber harvesting to be adopted to rectify some of these imposes considerable social costs in terms of problems. opportunity costs, or foregone benefits from A related issue is the tendency to exclude other forest-related good and services. The local communities and indigenous people loss to local communities of forest-related from the planning process for long-term forest consumption goods, loss of services rendered management (Hanna and Munasinghe 1995a, by forest ecosystems (such as flood control, 1995b). Traditional claims to forest lands fresh water supply, prevention of erosion and held by these groups are often disregarded as soil degradation, and carbon sequestration), well. All too often, forest management the loss of biodiversity, and foregone policies that have attempted to prevent entry recreational benefits are all factors that must to, and the extraction of products from, forest be taken into consideration when determining reserves have ended in failure. The main the social cost of timber harvesting. Only lesson has been that the participation and then can the socially efficient level of support of local communities are imperative harvesting be determined. Other factors that for successful management of forest cause market failures are the open-access resources. nature of forest resources, incomplete A clear manifestation of poor enforcement information and uncertainty of forest systems, capacity within institutions is the irregularity and imperfect competition. or inability of forestry agencies to collect Market failures are often complemented royalties, fees and reforestation taxes from by policy failures that further aggravate the logging firms. As a result, governments bear deforestation problem. Over 80 percent of the loss of a significant source of revenues. tropical forests are essentially publicly owned. Developing country governments typically Government policies therefore have a collect less than 50 percent of due revenues considerable effect on the management of Part A: Conceptual Framework 9 forest resources, and the distribution of management: the valuation of tropical forest benefits and costs from forest related resources. There are several economic industries. Policies such as encouraging techniques to estimate the value of natural timber harvesting by granting concessions and resources such as forests. These include the subsidies to logging companies, or providing contingent valuation method, travel cost infrastructure support to promote nonforest method and opportunity cost method. Forest land uses, have a direct and negative impact resources pose several difficulties with regard on forests. Macroeconomic policies that to the estimation of total economic value. distort prices of forest-related goods can also Examples are the absence of markets for many result in increasing deforestation. Examples forest products and services, the difficulty of include artificially lowering the price of placing a monetary value on all resources, the fuelwood to subsidize domestic energy costs, lack of knowledge regarding the value and or setting high taxes on imported timber utility of some forest functions, and the products in order to encourage local difficulty in isolating the benefits of industries. For instance, the tax policy in interrelated functions. In spite of such Indonesia has distorted prices to the extent limitations, economic valuation methods can that domestic industries can incur operating be useful to estimate values which are costs 2.5 times higher than competing accurate at least within an order of magnitude. industries in other countries and still remain Environmental functions that cannot be competitive. As a result, the Indonesian valued in monetary terms can be examined plywood industry consumes 15 percent more using other techniques such as multicriteria raw material in processing plywood than other analysis. This may require the development countries in the region (Rowe et al. 1992). of additional biological and physical The combined impact of market and indicators of sustainability (Munasinghe and policy failures is that private, profit-driven Shearer 1995). The objective is to integrate firms are encouraged in the "mining" of environmental concerns into the conventional forests for short-term gains rather than economic decision-making process by practicing sustainable harvesting. The remedy providing policy analysts with better often involves some form of public information upon which to base decisions intervention by establishing regulations, involving alternative land uses. Traditional providing economic (i.e., market-based) economic analysis often only accounts for the incentives, or making institutional changes commercial value of forest resources. that ensure sustainable management of forest Disregarding the nonmarket value of forest resources (London Environmental Economics resources--including amenity value--may Centre 1992). Logging firms must also be cause certain alternative land uses to appear charged rent that more accurately reflects the more desirable. opportunity cost of harvesting timber. Correcting market and policy failures can be complicated and sometimes lie beyond the The Need for Valuation of capabilities of sovereign governments. Tropical Forests Internalizing the cost of wasteful deforestation can be undertaken to some extent by This leads to an issue that requires urgent identifying benefits derived by local and attention with regard to proper forest national communities. There are considerable 10 Valuing Tropical Forests global externalities from tropical forests as dictates the outcome of forest management well. Estimating the value of global practices. It overrides the effect of market externalities and internalizing them must be signals and influences the tone of policies. done at a global level. Indeed, when the national land use policy is Finally, a nation's land use policy is based on legitimate political, social and established to conform with political and economic concerns, the outcome is desirable. social objectives and is not based simply on If the policy is influenced by self-serving economic criteria. The institutional structure political motives and driven by corruption, that underlies a nation's land use policy then the process may be in need of reform. 2. Tropical Forests and Sustainable Development: A Framework for Analysis Mohan Munasinghe By the early 1980s there was mounting ronmental concerns in order to strike a healthy evidence that environmental degradation had balance between forest conservation and a direct and negative impact on economic development. This is the recipe for sustain- development. Several ecologists pointed out able development. that the open dynamic socioeconomic subsystem within which all human activity Dimensions of Sustainable occurs is engulfed within a larger ecosphere Development (Odum 1973, Odum 1975, Costanza 1991, Folke and Janssen 1992). As human activity Three main dimensions are essential to increases due to population growth and achieving development practices that are economic development, so does the scale of sustainable: economic, ecological and the socioeconomic subsystem relative to the sociocultural (Munasinghe 1993a). These are finite extent of the ecosphere, thereby mutually reinforcing concepts that must be endangering the latter's capacity to provide addressed with equal emphasis to ensure essential environmental services that support sustainability. the subsystem. The aim of sustainable The economic approach to sustainable development is to keep the scale of the development is based on the Hicks-Lindahl socioeconomic subsystem within these concept of maximizing the flow of net bene- reasonable limits. While the overall objective fits from a stock of resources. In so doing, the is to improve the quality of life, this objective stability of the resource base must be main- is constrained by the need to diminish the tained. Identifying the critical resource base intensity of resource use, in order to maintain that must be maintained to ensure or even enhance environmental assets and sustainability and determining the substitut- services for the future. ability between different resources are diffi- It is unreasonable to expect that all tropi- cult tasks. They are further exacerbated by cal forest resources can be maintained intact, the irreversibility and uncertainty of some especially given the projections for population environmental processes, and the tendency of growth in the developing countries. If alterna- natural systems to experience catastrophic tive uses of forest land yield higher returns collapse. Finally, valuation of resources, than intact forests, then conversion is war- particularly noncommercial resources, poses ranted. It is imperative, however, that such a challenge as well. decisions first take into consideration the Maintaining the stability of natural (bio- totality of goods and services provided by physical) systems is a key objective of ecolog- forests, all affected communities, and the ical development. Central to this effort is the impact on sustainability of environmental task of protecting the diversity of species, of systems supported by forests. Economic genetic structures and of ecosystems. development has to be reconciled with envi- Biodiversity protection is important for three 12 Valuing Tropical Forests reasons. First, the viability of ecosystems must be less than the rate of natural upon which current life forms and production regeneration until a critical stock of the processes are dependent requires sufficient resource has been rebuilt. Similarly, the biological diversity. Second, the needs of discharge of pollutants must be maintained in future generations are unknown. Species balance with the natural capacity for required for critical processes in the future assimilation. Fortunately, most major types of may now be unknowingly and wastefully pollutants can be assimilated by driven to extinction. Finally, knowledge is environmental systems, to a certain extent. In limited concerning the intricate relationships the case of persistent pollutants such as CFCs, among ecological processes that constitute policies must be designed to ensure that they natural systems. Destroying seemingly are eventually phased out of use. insignificant species may cause irreversible The existence of tropical forests is and even catastrophic imbalances in these essential to achieving sustainable natural systems. development on all three fronts: economic, The sociocultural approach to sustainable ecological and sociocultural. Goods and development focuses on protecting all social services derived from forests support and cultural systems, particularly those of economic development. When forest indigenous peoples. There are 6,000 cultural resources are managed sustainably, a groups worldwide that speak as many continuous flow of goods and services can be different languages. Compared with national ensured. Indeed, there is significant potential state cultures, indigenous cultures constitute to expand the economic benefits from tropical 90 to 95 percent of the cultural diversity of the forests and also ensure a more equitable world (Gray 1991). Among the main distribution of these benefits. Previously objectives to achieve when promoting untapped benefits such as recreational use can sociocultural development are: a) protecting be identified and utilized. Ecotourism and cultural heritage; b) ensuring equity (both other recreational uses constitute a series of intra- and intergenerational); and c) benefits from forest resources that are empowerment of less dominant groups in mutually compatible with conservation, but if societies. tropical forests are allowed to degenerate, The formidable task confronting policy these services may never be realized. makers is to reconcile all three approaches and to operationalize policies that achieve Effects of Deforestation on sustainability. A practical approach would be Sustainable Development to maximize the net benefits from economic and social development subject to the The effects of deforestation on sustainable constraint of maintaining the stability of development can be extremely detrimental. services from, and the quality of, natural Denuded mountain slopes lose the ability to resources over time (Munasinghe 1993b). retain water, resulting in extensive flooding There must be a balance between the use of along riverbeds. The devastation from wide- natural resources and the natural capacity for scale flooding includes crop damage; loss of regeneration. Particular precautions must be livestock and other animals; damage to human taken when the resource is already scarce or dwellings, infrastructure and equipment; nearing extinction. Then the rate of extraction displacement of people; and the spread of Part A: Conceptual Framework 13 disease. Countries such as Bangladesh, conclusive evidence may come too late to Thailand and Madagascar frequently prevent the effects of global warming. experience such disasters. Deforestation also Preemptive measures are therefore warranted. decreases the soil retention capacity, allowing When forest resources come under the erosion of fertile topsoil and reducing the extreme pressure of human activity, the result productivity of the land. Furthermore, the may be eventual desertification of the land. siltation of riverbeds and reservoirs Loss of forest cover affects the capacity of downstream impedes hydroelectric projects, land to retain water and may also cause fisheries and other industries; causes changes in rainfall patterns. This results in destructive flooding; and poses a threat to changing patterns of vegetation. Less dense constructed dams. Overall, the estimated shrubs and bushes may replace the rich economic loss due to depletion of forests is biomass which required more moisture. If the about 4 to 6 percent of GNP in the major pressure on land due to human activity timber exporting countries--the same order of continues unchecked, the surviving vegetation magnitude as the gains from timber export may gradually disappear until the surface is (Rowe et al. 1992). virtually bare. Beyond a certain stage, the Tropical forests play a vital role in process of desertification may be difficult to maintaining natural environmental systems, reverse. thus contributing to ecologically sustainable Forests also have a significant role in development in many different ways. By maintaining watershed systems. The capacity acting as a storehouse of carbon, tropical to retain water within forest soils enables forests help to maintain the balance of carbon watersheds to remain active even during in the atmosphere, consequently influencing periods of low rainfall or drought. Denuded global climatic conditions. The biomass-rich of tree cover, soils lose the retention capacity tropical forests may retain up to 55 percent of and most rainfall disappears rapidly as surface the total organic carbon stock (Rowe et al. runoff. The role of forests in providing fresh 1992). Since the atmosphere has only a water may not be apparent. But the limited capacity for absorption, excess carbon destruction of watersheds can be devastating, contributes towards the buildup of greenhouse especially to rural poor communities that rely gases. Currently, deforestation releases on natural sources for even their basic between I and 3 billion metric tons of carbon requirements. Trees also affect rainfall by into the atmosphere, due to the release of permitting evapotranspiration. In the Amazon carbon during the burning of forests and the it is estimated that about one-half of the subsequent absence of biomass to sequester rainfall is the result of evapotranspiration atmospheric carbon. Fossil fuel combustion, (Rowe et al. 1992). The loss of forest cover particularly from developed countries, thus affects the hydrogeologic cycle as well. accounts for the release of about 5.6 billion Finally, tropical forests have a significant metric tons of carbon into the atmosphere role in protecting biodiversity. The 1992 annually. During recent years, the buildup of Convention on Biological Diversity defined greenhouse gases attributable to the burning biological diversity as the "variability among of tropical forests has increased the cause for living organisms." There are three categories concern. Although the existence of a of biological diversity: species, genetic and greenhouse effect lacks scientific validation, ecosystem. The categories simply provide a 14 Valuing Tropical Forests convenient method to define different types of species extinction, thus causing biological diversity and facilitate measurement, but they diversity to increase over time. At present, are not mutually exclusive (Aylward and however, due mainly to increased human Barbier 1993). It should be noted that the activity, species are disappearing at an un- concept of biodiversity is distinct from the precedented rate. According to one estimate, biological resources themselves. But the the rate of extinction is 40,000 times higher literature tends to consider efforts to conserve than the natural rate of species evolution! biodiversity and to conserve biological re- Some authors suggest that as many as 50 sources (or natural habitats) as being one and species may be driven to extinction each day the same objective. (Schucking and Anderson 1991). Tropical forests cover 9 percent of the Protecting biodiversity is important for earth's surface but support about one-half of several reasons. First, there is intrinsic value the 1.4 million named species found among to biodiversity in and of itself Tropical the entire world biota (Schucking and Ander- forests are complex ecosystems with intricate son 1991). Yet, it is believed that less than 5 dependencies among various species of plants percent of the biodiversity of rain forests is and animals. The extinction of a single spe- known to science. The total number of spe- cies can drive several others to endangered cies in the world is estimated to range be- status or extinction. tween 5 and 30 million. One study revealed One attractive aspect about biodiversity that just 10 hectares of rain forest in Borneo protection for the developed world may be the contained some 700 tree species, the total potential medicinal value of various species number of species found in all of North Amer- found in tropical forests. Pharmaceutical ica (Botkin and Talbot 1992). More typically, prospecting is a growing industry in which a hectare of South American tropical rain plant and microbial organisms are screened forest may contain 40 to 100 species, or, in for compounds active against disease agents Amazonian Peru, as many as 300 species. In such as cancer and AIDS. The U.S. National contrast, a typical hectare of eastern North Cancer Institute is currently engaged in a five American forest may contain 10 to 20 species, year program involving the screening of some while boreal forests could have as few as one 3,000 plants active against cancer cells, of to five (Botkin and Talbot 1992). which some 70 percent are tropical Some conservation biologists believe that (Munasinghe and McNeely 1994). 25 percent of all species may become extinct Finally, tropical forests are important to during the next 20 to 30 years (Botkin and fulfill the sociocultural dimension of develop- Talbot 1992). The extinction and evolution of ment, mainly by serving the basic needs of species is an inevitable natural process, al- numerous indigenous and tribal groups. though during some periods the rate of extinc- There are some 300 million indigenous people tion or evolution has reached significant around the world who live in 70 countries and proportions. For example, about 65 million inhabit some 20 percent of the land mass years ago the last mass extinction is known to (Martin 1993). The preservation of this have wiped out all dinosaurs, most marine unique social and cultural diversity is depend- invertebrates and marine plankton. Except ent upon maintaining forest resources intact. during such periods, the rate of evolution has With proper emphasis, indigenous communi- generally been slightly higher than the rate of ties can be protected from the barrage of Part A: Conceptual Framework 15 outside pressures which they are not accus- These are simply the cases that have been tomed to handling. Along with increasing recorded; the actual number may be higher. economic pressure, many indigenous groups The developed world is well aware of the have lost their traditional claims to forest asset constituted by indigenous peoples' lands and have been displaced by ranchers, knowledge of different animal and plant loggers and settlers. species, their behavior and uses, and the The objective is not to preserve these intrinsic functions of forest ecosystems. A cultures and societies to meet some ideal fundamental difference between indigenous standards of "indigenousness." Indeed, as the and nonindigenous peoples arises from their world's finite resource base becomes increas- respective views of nature. Nonindigenous ing constrained due to rising demands of the societies generally perceive human beings as growing population base, these indigenous an entity separate from nature; hence, the communities are likely to encounter external main focus is to establish the proper relation- economic, cultural and political pressures ship of human beings with nature. The natu- sooner or later. Indigenous communities ral environment is perceived as an entity to be often feel the external pressure when they "managed" or controlled to better serve hu- come in contact with religious missionaries, man needs. Indigenous peoples, in contrast, mass media networks, and market-oriented generally believe that humans are an intrinsic economic forces. Frequently, these influences part of nature. The relationship is therefore strain relationships between the older genera- one of coexistence with nature. Their knowl- tion and younger members within the commu- edge base reflects this perception and contains nity. Older members strive to maintain tradi- both material and spiritual information (Gray tional customs and rituals while the youth are 1991). more open to external influences. Indigenous knowledge of the medicinal The policy analyst's challenge is to learn value of plant and animal species has been how to communicate with groups speaking particularly attractive to the developed coun- different languages, holding different world tries. About one-fourth of all western pre- views, and having different cultural character- scription drugs contain elements of rain forest istics. In acknowledgment of the presence plants. Information from indigenous groups and importance of indigenous communities, has contributed to the development of about policies must be designed and based on the three-fourths of these drugs. For instance, notions of development that are important to information on quinine and curare were pro- each individual community, rather than a vided by the Shuar of Ecuador and Peru (Gray superimposed, or preconceived, notion of 1991). The pharmaceutical industry based on development. Doing so enables these commu- rain forest-related drugs generates about US nities to adapt to external environments gradu- $43 million in annual revenues. Unfortu- ally and in a nonthreatening manner, while nately, very little of this economic benefit is ensuring the continued maintenance of their returned to the indigenous communities. cultural heritage. But if the proper measures Policies that recognize and incorporate are not adopted, many cultures may vanish. indigenous communities will most likely be During the past 150 years, 87 indigenous successful if sufficient authority and power groups have disappeared in Brazil alone, are delegated to the local level. Empowering these communities instills within them the 16 Valuing Tropical Forests direct responsibility for management and Framework for Analysis' protection of the forest resources. Equally important is the need to educate local commu- The environmental impacts of human nities on the effects of forest destruction and activity can be traced using techniques of the benefits from well-managed forest re- environmental assessment (EA). For exam- sources. Once aware of such benefits, com- ple, deforestation of a primary moist tropical munities are more apt to adopt conservation forest may be caused by hydroelectric dams methods and to ensure that such methods are (energy sector policy), roads (transport sector adopted by other communities and groups as policy), slash and burn farming (agriculture well. sector policy), mining of minerals (industrial In this respect, the concept of biosphere sector policy), land clearing encouraged by reserves is a promising approach. A great land-tax incentives (fiscal policy), and so on. emphasis is placed on involving local commu- The task of environmental assessments is to nities in research, education and training distinguish and prioritize among these multi- programs. Local people are integrated into ple causes and their impacts. These proce- the management system and their indigenous dures are carried out by engineers, biologists, knowledge of forests is utilized in designing social scientists and other experts to the best management practices. The reserves comprise extent possible. An important step is the use and nonuse zones, known as buffer zones identification of the "with" and "without" and strict zones, respectively (Kemf 1993). project scenarios. This leads to the final objective of Once the impact of human activities has sociocultural development: the issue of equity. been identified by an environmental assess- The typical scenario in many developing ment, environmental economic tools help to countries is rampant profiteering by logging map these results into conventional decision firms and corrupt politicians at the expense making. These methods include economic mainly of local communities that are deprived valuation of environmental impacts (at the of even the most fundamental requirements local/project level), natural resource manage- such as food and shelter. Under proper forest ment (at the sector/regional level), environ- policies, there should be a more equitable mental macroeconomic analysis and environ- distribution of the benefits from harvesting mental accounting measures (at the forest resources. Local communities that economywide or multisectoral level) and suffer most of the externality effects are global/transnational environmental economic rightfully due a greater share of the revenue. analysis (at the international level). However, Likewise, logging firms must bear the costs there is considerable overlap in the techniques equivalent to the extent of damage caused by used at different levels. their activities. Holding logging firms more accountable for the cost of destructive forest Valuation of Environmental Costs uses will eventually result in their adopting and Benefits less destructive measures and also in their considering the efficiency and effectiveness of The total economic value (TEV) of an harvesting forest resources. It is then likely environmental resource is made up of use that the extent of forest destruction will de- value (UV) and nonuse value (NUV). Use crease significantly. values can be further divided into direct use Part A: Conceptual Framework 17 value (DUV), indirect use value (IUV) and components often introduces ambiguity and option value (OV). Nonuse value comprises potential for overlap. Particularly elusive to primarily existence value (EV). Bequest measurement are the categories of OV and value is sometimes classified as a component NUV. Since the primary objective is to mea- of NUV as well. Therefore, total economic sure TEV, the distinction between individual value can be stated as: components of value is not strongly empha- sized. The individual components are consid- TEV = UV + NUV; or ered primarily as an indicative guide. Several empirical techniques have been TEV = [DUV + IUV + OV] developed to measure the monetary value of + NUV environmental assets and impacts. The results from implementing some of these techniques Care must be exercised to avoid the possi- have been controversial even in developed bility of double counting. This may occur if market economies, and they must be inter- the value of indirect supporting functions as preted with caution and sound judgment. well as the resulting direct uses are counted. The basic concept underlying all valuation A brief description of each of the above com- techniques is the willingness to pay (WTP) of ponents is presented below: individuals for an environmental service or Direct use value is determined by the resource. This corresponds to the area under t ta demand curve derived for the consumption contibuton hat n eviromenal aset of the particular environmental service or makes to current production or consumption; roure. alenily t e.i vl resource. Alternatively, the change mn value Indirect use value includes the benefits of an environmental asset could be defined in derived basically from functional services that terms of the difference between the values of the environment provides to support current two expenditure (or cost) functions. This production and consumption (e.g., ecological provides a value for the minimum amount functions like natural filtration of polluted necessary to achieve a desired level of utility water or recycling of nutrients); (for a household) or output (for a firm) before o vand after varying the quality of, price of, coptin ale islbasically the premiuthat and/or access to the environmental resource in consumers are willing to pay for an unutilized qusinhodgaloteapcscntn. asset, simply to avoid the risk of not having it Another mar of eco ae. .vial n h uue Another measure of economic value is available in the future;. what people are willing to accept (WTA) in Existence value arises from the satisfac- the way of compensation for environmental tion of merely knowing that the asset exists, degradation. Empirical evidence shows that although the valuer has no intention of using WTA compensation for being deprived of an it; and environmental amenity yields higher values than corresponding WTP estimates to retain Bequest value reflects the desire to con- tham c eniy Whilet es o ean serve environmental assets for the benefit of ti f suc a die bse o eco- futue geeratons.tion for such a discrepancy based on eco- nomic theory, several behavioral and psycho- Although total economic value (TEV) is a logical explanations have been proposed. well-defined concept, the breakdown by People are less willing to spend actual income 18 Valuing Tropical Forests or wealth as opposed to "opportunity" income such situations it may be possible to measure or wealth--money they do not yet have but benefits of environmental improvements in may obtain (Knetsch and Sinden August terms of willingness to accept income for loss 1994). People may also be more cautious of amenity, as opposed to willingness to pay about changing the status of assets as opposed for the improvement. to experiencing no change. Generally, WTP is A variety of methods have been proposed considered to be a more consistent and for empirically measuring changes in the credible measure than WTA. economic value of environmental resources. Nevertheless, there may be valid These methods rely on actual behavior in justification for the use of WTA in developing conventional markets, implicit markets, and countries. Money values placed on constructed markets. Several of these environmental goods and services are methods are used in the case study that typically low, especially in low-income areas. follows. Income disparity between regions and different groups has been addressed in Note traditional cost-benefit analysis by using income weights, but difficulty in obtaining 1. For more details on this section, see accurate income or consumption estimates of Munasinghe 1993a. concerned groups hinders this approach. In PART B: MADAGASCAR CASE STUDY 3. An Overview Randall Kramer, Priya Shyamsundar, Evan Mercer and Mohan Munasinghe This study focuses on environmental valua- As lawmakers and the public devote an tion of a forestry development and conserva- increasing share of national income to envi- tion project in Madagascar. The study is ronmental programs, they need evidence of important for several reasons. First, discus- the economic benefits resulting from these sions at the World Bank have included an significant investments. Furthermore, valua- emphasis on the need for improved valuation tion studies such as this one can shed light on methods for natural resource projects. Sec- questions such as: Is the value of a park with ond, forests produce a number of nontimber a buffer zone greater than one without? What outputs that cannot be valued with traditional is the appropriate level of compensation for net revenue analysis often used in project local people unable to continue their forest analysis. Third, there is tremendous public extraction activities because of a reserve? and political interest in tropical forestry is- How much are foreign tourists willing to pay sues, which in turn has created a demand for to visit national parks in developing coun- improved quantitative information on the tries? benefits and costs of protecting and using This research project has the objective of tropical forests. adapting several valuation methods for use in economic analysis of a conservation project. Introduction In particular, the objective is to examine the use of several valuation tools for assessing the Although there is some lively debate on benefits and costs of establishing a new na- this view among economists, ecologists and tional park. The results of the study should environmentalists, we assume that meaningful have implications for future economic analy- assignment of economic values to many sis of forestry and other environmental pro- environmental goods and services is possible jects. and can improve policy and public decision making (Smith 1990). Environmental eco- Madagascar and the Mantadia nomics emphasizes human preferences in National Park assigning values to nonmarket goods and services. This is admittedly an anthropocen- Comprising 587,000 square kilometers, tric approach, but one that recognizes the Madagascar is an island located 400 kilome- importance of the noncommercial value of air, ters off the southeast coast of Africa. With a water, forests, and other environmental re- per capita income of about $300, 80 percent of sources. Environmental economics assigns the 11 million inhabitants live in rural areas values based on individuals' willingness-to- and 85 percent work in agriculture. Only 14 pay for improved environmental quality. The percent of the 12 million hectares of forest in measurement of environmental benefits and Madagascar is classified as nondegraded, costs facilitates their use in a benefit-cost high-density forest (World Bank 1988). The framework to supplement the more conven- tionally measured benefits and costs. 22 Valuing Tropical Forests island has one of the highest rates of defores- was approved by the World Bank. The tation in the world, losing an estimated project had three objectives: (1) to strengthen 20n,000 hectares of forest per year. More the forestry department; (2) to prevent further unique plants and animals have evolved in degradation of natural forests; and (3) to Madagascar than probably anywhere else in promote private sector involvement in the world--at least 150,000 of Madagascar's reforestation and wood processing. The 200,000 species are found nowhere else. This project was budgeted at $22 million over high level of endemism, large number of seven years. species, and relatively small geographic area Mantadia National Park was established as have led the major conservation organizations a part of the natural forest protection to declare the island to be one of the most objective.' The park is located near the important global reservoirs for biological popular Perinet Forest Reserve in the diversity. Andasibe region east of Antananarivo, the Madagascar is potentially an important nation's capital. It can be reached in tourist destination. Tourism in Madagascar approximately 3 hours from the capital by centers on two major activities: beach and paved roads and is also accessible by rail. nature tourism. Nature tourism is among the The park extends over an area of 9,875 fastest growing subsectors of the tourist hectares which is representative of the eastern industry even in the face of minimal rain forests. The park varies in altitude from promotion, high access costs, and poor 850 to 1,250 meters and is characterized by infrastructure. Of the 28,000 tourists who steep terrain and dense undergrowth. A visited Madagascar in 1987, 8,000 came mixture of different species of trees and plants specifically for nature tourism, compared to characterize the land and forests in the park. only 4,000 in 1985 (World Bank 1990). The park is thought to contain possibly 11 The World Bank, along with other donor species of lemurs, four of which are agencies and nongovernmental organizations endangered, two are rare and two vulnerable. (NGOs), are providing funding to the Most important, the park contains the habitat government of Madagascar (GOM) to for the Indri,' one of the largest known lemurs establish a network of over 45 protected areas in Madagascar (Harcourt and Thornback covering 1.4 million hectares as part of a 1990). National Environmental Action Plan (NEAP). The combination of the Perinet Reserve's The objectives of the protected area network global reputation as one of the last remaining include conserving the country's biodiversity habitats for the Indir lemurs, the easy and establishing a vibrant nature tourism accessibility, and the planned training and industry. The Bank justified funding projects visitor facilities for the new park suggest large for this program on the assumption that potential benefits from nature tourism increased tax revenues from nature tourism recreation. In approving the FMPP, however, would cover operating costs' and that by the the Bank did not include the national park fifth year of the project the growth in nature component in its benefit-cost analysis because tourism would add $12.5 million per year to the benefits were considered "long-term in the economy (World Bank 1990). nature and difficult to quantify" (World Bank In 1988, the Madagascar Forests 1988, p. 43). Rather, it was simply assumed Management and Protection Project (FMPP) that cost recovery through tourism activities Part B: Madagascar Case Study 23 would be large enough to support the many people are willing to pay significant operation and maintenance of the reserve. sums to insure their continued availability. Environmental economists have devised ways Environmental Valuation Methods to measure this existing, but not directly Used in the Study observable, willingness-to-pay for such environmental assets (Smith 1990; The total value of a moist forest in Whittington et al. 1990). Four methods are Madagascar consists of a number of used in this study for empirically measuring component values. These can be broadly the change in environmental values resulting categorized as use and nonuse values. The from the park: (1) contingent valuation use values include value to individuals who method; (2) recreation demand analysis; (3) extract timber, food, medicine, and other opportunity cost analysis; and (4) productivity products from a forest, as well as those who analysis. consider the forest a source of nutrients by means of slash-and-burn agriculture. Use Contingent Valuation Method values also include the value to foreigners and Malagasies who use an intact forest for The contingent valuation method (CVM) recreation, locals who use it for religious and uses survey techniques to establish the value cultural purposes, and scientists who use the of goods and services that are not exchanged forest as a laboratory. In addition, there may in markets and, therefore, do not have any forst s alabratry.In ddiion thre ay rices associated with them. Within this be significant existence values. Because of priceoassociad wit themrWth this the diverse habitat provided by forests in framework, demand for nonmarket goods is Maedgasr ana popde y ue iestablished by first describing a simulated Madaascr, anypeope my vlue market to the respondents and then asking preservation even if they never plan to visit or tmrectl th re ets andfthencakin use the forest. them directly to reveal their preferences in The creation of a national park can terms of some common denominator. The enhance or diminish several components of adtae of uing the CVM is thatritei the total forest value (Dixon and Sherman suitable for valuing a wide range of nonpriced 1990). If residents are prohibited from environmental goods and services. extracting minor forest products, this will varuetio n formts e se diminish the residents' use values. On the variations.n In this study, the referendum style other hand, to the extent to which the park has of contingent valuation questions is used. attributes that are desirable to tourists or to Referendum CVM questions divide the preservationists, there may be offsetting whethsample i se numb er or not they increases in recreation or existence values. Each be is a whehe or nt It is challenging to attach economic values would be willing to pay a specified amount to many of the benefits of environmental for the particular nonmarket good, and they projects because no corresponding market r n ither "ye or "no." price data are available. Although public In this study, CVM was used in both the goods such as biodiversity, wildlife reserves, village survey and the tourist survey. In the and national parks are often available to village survey, household members were consumers at a zero price and may not affect askesabou tr iingesstacce t private goods markets in a measurable way, 24 Valuing Tropical Forests forest contained in the park. The questions assumption that individuals travel to a single referred to compensations which would make country such as Madagascar and engage in a the household as well off with the park as they variety of activities. The activities consist of would have been if they had continued to have traveling to specific natural areas for access to the forests in the park. The measure recreation and travel enjoyment. Estimating used for the compensation mechanism was this model requires specific data on how each units of rice. household distributes its time across activities In the tourism survey, the CVM was used during the time horizon of the model, and a (as an alternative method to the recreation specification of the features of the activities. demand method), for estimating the total Ideally, this implies collecting full trip value of the park to tourists. These questions itinerary data as well as travel cost data for were phrased in terms of how much more the foreign visitors. The itinerary data include the foreign tourists would have been willing to distribution of time among activities for each pay for their trips if the new park were individual and the costs of pursuing the available for them to visit. activities. Recreation Demand Analysis Opportunity Cost Analysis Recreation demand models use the The opportunity cost approach uses amounts of time and money visitors spend standard economic analysis of market values traveling to a site, as price proxies together to determine the net economic benefits with participation rates and visitor attributes, associated with the alternative uses of one or to estimate the recreational value of the site. more resources. In this study, the opportunity Most studies portray the problem in terms of costs of interest are those associated with a single-purpose, single-destination, day trip alternative land uses by people living in and to a site that affords some particular recreation near the park. Given the dependence of the experience of typical quality that can be villagers on the forests for a significant substituted for those available at many similar portion of their livelihood, creating a national sites. Recreation in Madagascar's national park out of a large tract of forest and imposing parks contrasts sharply with these restrictions over future use imposes a assumptions. Recreators in Madagascar can considerable economic burden on local be divided into two groups consuming distinct villagers. By determining recent land use in goods: local recreators who make day trips to and around the park and projecting future land national parks to view the local natural use changes in the absence of the park, one environment, and international nature tourists can estimate the cost to villagers from losing who undertake lengthy trips to experience the opportunity to exploit the park area for unusual natural settings and cultures. agricultural or forest products. Demand by international tourists requires Although there are no human settlements a reformulation of the traditional travel cost within the Mantadia National Park models. This study focuses on international boundaries, several villages lie in proximity. tourists. A theoretical model of international These villages depend upon the forests within nature tourism is presented in a paper by and immediately around the park for forest Mercer and Kramer (1992). It is based on the products and food. A primary use of the Part B: Madagascar Case Study 25 forest is swidden agriculture. For several identified and estimated with the help of hundred years, the eastern Malagasy have natural scientists, the productivity changes practiced a form of shifting cultivation known can be valued through economic analysis. as "tavy." About 200,000 hectares of land is The productivity analysis for this study cleared every year because of shifting proceeds by first estimating deforestation cultivation in Madagascar (Andriamam- rates in the Mantadia area using remote pianina 1985). sensing. Deforestation rates for the future are Villagers in this area are also dependent projected based on the historical analysis. upon the forests for a number of other reasons. These land use changes are then used to Fuelwood is collected from the forests on a project effects on flooding. Finally, the regular basis, a wide variety of fish and predicted reductions in flooding brought about animals are foraged for consumption, and by the park and buffer zone are used to predict several types of grass are harvested and used reduced crop losses which are estimated and for assorted purposes. Forest plants and herbs valued in economic terms. also serve as important sources of medicine. The application of opportunity cost Notes: analysis requires that cash flow analyses be conducted for villages around the park to 1. This assumption is based on an expected determine the inputs and outputs of the increase in the number of tourists from 30,000 to households' production functions. In addition, 200,000 by the year 2000. a determination must be made of how much of aethearicutonur an ad e oresr a ct s is 2. Recently, the World Bank has discontinued its the agricultural and forestry activities is involvement with the Mantadia National Park. occurring inside and outside the park However, the U.S. Agency for International boundaries. This is accomplished with the use Development is working with an NGO to implement of remotely sensed data. the park plan. 3. Madagascar is the only place in the world where Productivity Analysis lemurs occur in the wild. Lemurs are prosimian primates. Of the 54 species of lemurs on the island, the Productivity analysis is used in this study Indri is the largest and in acute danger of extinction to measure the benefits to farmers of reduced (Jenkins 1987). flooding from reduced deforestation resulting 4. Mitchell and Carson (1989) describe the pros from the establishment of the park and buffer and cons of the referendum and alternative CVM zone. Productivity analysis is a valuation question formats. method suitable for examining the effects of environmental quality on products that enter into market transactions. This approach has been used in other studies to value the effects of various types of environmental change on agriculture, forests and fisheries (Freeman 1993). The basic premise is that changes in environmental quality can reduce (or increase) the quantity and quality of products being marketed. Once those physical changes are 4. Impacts on Villagers Priya Shyamsundar, Randall Kramer, and Narendra Sharma Development projects in which large forest The household utility function is given by: areas are protected or converted to other land uses, such as agriculture or grazing for live- U = U (Xm,Xa,Xf,X) (1) stock, have often failed to take into account the impacts on people with traditional rights The household uses the surplus from the to forests. The failure to adequately compen- production of the agricultural goods and the sate or involve people in the establishment minor forest products to buy market goods. It and management of protected areas has re- therefore faces the following income suIted in poor performance of many projects constraint. dealing with reserves and natural parks. In many instances, these parks and reserve areas pmX.= p.(A-X) + po-Xf) - wl, are vulnerable to problems related to access - pkk + I - c (2) by local populations. This component of the study analyses the economic and social im- where pacts of establishing the park in Madagascar Xm a vector of market goods pur- on village households living adjacent to the chased by the household protected tropical rain forests (Kramer, A a vector of quantities of the dif- Sharma et al. 1994). ferent agricultural goods pro- duced by the household Approach F a vector of quantities of forest products harvested or processed Household production models have been by the household used by economists to study a number of Pm a vector of prices of market issues pertaining to farm households (Singh, goods Squire and Strauss 1986). These include labor Pa = a vector of prices of agricultural supply, transportation, intrahousehold goods decision making, etc. (Gronau 1977). The Pf a vector of prices of forest same framework can be used to study the products impact of the establishment of a national park h = hired labor used in the production on Malagasy villagers in terms of their of agricultural goods demand for forest and agricultural products k a vector of capital goods used in and their land use practices (Shyamsundar the production of agricultural 1993). output Households are assumed to consume a w = the market wage vector of market goods X,, a vector of Pk a vector of prices of capital goods subsistence goods X., and a vector of minor I other income available to the forest products Xf. Two of these, X. and N, household. are both produced and consumed by the c costs of clearing primary forests household. Furthermore, households obtain for swidden agriculture utility from the consumption of leisure XY. Part B: Madagascar Case Study 27 Thus, the right hand side of the above decline in land availability results in a decline expression represents household net surplus. in household benefits because of a decrease in It is the income available to the household household profits. The cost the household after consuming a portion of its produce and bears equals the change in profits as a result purchasing the inputs used in home produc- of the change in access to land. tion. This income is used to purchase a vector An alternate method for establishing the of market goods X,., which are available at welfare loss to the household as a result of the market prices pm. The household also faces park is based on the household's expenditure land and labor constraints, as well as agricul- function. The expenditure function is used in tural and forest production constraints. standard welfare economics to link income The establishment of the park will result and utility through the indirect utility function in a change in the total area to which the (Varian 1984). It is the minimum expenditure household has access, both for agricultural required to obtain a given level of utility. The purposes and for obtaining forest products. contingent valuation method can be used to Initially, i.e., without the park, the average estimate changes in the expenditure function household is assumed to have access to T by asking people directly about perceived hectares of land. With the establishment of changes in welfare. the park, the household loses access to some land, retaining access to only T' hectares of Data Collection and Analysis land (T' T). Thus, with the establishment of the park, the household loses access to AT In order to estimate the opportunity costs hectares (ATO) of land. Some of this land is associated with foregoing these economic under primary forest cover (T,), and the rest activities on park land, a survey was con- under secondary forest cover (T,). ducted of 351 households in 17 villages. These villages lie within 7.5 kilometers of the T - T' = AT = AT, + AT. (3) park boundary. A local nongovernmental organization, well versed in rural survey The loss in accessible land has a direct impact techniques, assisted in administering the on household production and, thereby, on survey. The survey was undertaken following household income and consumption. The a reconnaissance visit to the villages, several change in production and consumption behav- focus group interviews, conversations with ior in turn affects household welfare. The loss various people who were well acquainted with to household welfare as a result of the park the area, and a pretest which covered about 25 can be estimated in a number of different households. The survey was administered in ways.' Malagasy, the national language. The welfare loss can be estimated indi- The questionnaire focused principally on rectly by estimating the opportunity cost (1) establishing the extent of dependence of borne by the household because of the estab- the local villagers on forests near their vil- lishment of the park. Opportunity costs are lages and on forests within the park bound- defined as "the benefit foregone by using a aries for obtaining a variety of forest products; scarce resource for one purpose instead of (2) establishing the extent to which villagers using it for its next best alternative use" used the forests within and immediately (Gittinger 1982, p. 489). As long as the around the park for shifting cultivation; and household is using optimal and positive quan- (3) assessing local attitudes toward conserva- tities of land in its production activities, a tion of forests. Questions were also asked 28 Valuing Tropical Forests related to socioeconomic variables, land use, Agricultural income was estimated by time allocation, and household production considering data obtained from the village activities. The final section used the contin- household survey on area planted, crop yields, gent valuation method. The CV question and annual costs incurred. Price data on required respondents to provide "Yes" or agricultural products were farm gate prices "No" responses (a referendum format). The obtained by interviewing various people question referred to compensation which operating within the village economy. Data would make the household as well off with on labor expended in agricultural production the park as they would have been if they had were obtained from a comprehensive study continued to have access to the forests in the undertaken on the costs of agricultural pro- park. The measure used for the compensation duction (MPASSA 1987). mechanism was units of rice. Three cash flows were developed based on A separate questionnaire was administered the geographical groupings of the surveyed to the village leaders. It focused on issues villages and an estimate of the populations pertaining to general agricultural patterns, that were losing access to lands and forest markets and prices of goods sold, village products as a result of the park. The three history and migration patterns, forest-related cash flows refer to sets of villages that lie cultural issues, and details concerning shifting northeast, southeast, and southwest of the cultivation practices. park. In each of these cash flows, the net loss The opportunity costs of establishing the from the establishment of the park to the Mantadia National Park to the local popula- average household in the subgroup of villages tions were determined by considering: (1) the was estimated. income generated from forests by the locals in Each cash flow consists of two sets of terms of forest products (both timber and estimations: nontimber) harvested; (2) the income gener- ated by locals from slash and burn agriculture 1.t199s(singl year)estimateeofith on the forest lands; (3) the extent to which the ne cashl to the ave v- area included in the national park includes iag hos rom the et forests used by the villagers; and (4) the ing fforestcructs a the ne extent to which villagers continue to have shiflow accrn a u access to the area within the national park for harvesting of forest products and for swidden 2. the final cash flow, which extends agriculture. from 1991 to 2010. This cash flow The income generated by villagers from is based on the initial year's flow harvesting forest products was established by of benefits and costs, but also in- using primary data obtained in the village corporates certain adjustments in household survey. The most important data benefits and costs over time (e.g., used were the frequency and quantity of it is assumed that without the park, different products harvested. Price data on deforestation would proceed in the forest products and data on labor expended park area at a 3 percent annual were obtained from a number of different rate). sources, including interviews with villagers, Each of the three cash flows measures the shop owners, household and village leaders, economic benefits from the forests within the and published reports. park to the locals if they continued to have Part B: Madagascar Case Study 29 access to the park. The cash flows, therefore, ment. Malaria, chest congestion-related estimate the value of land to the average illnesses, and venereal diseases are other household assuming a "without park" sce- significant health problems affecting this nario. This value is equivalent to the opportu- population. In general, most of the villages nity cost of establishing the park to the aver- surveyed either had, or were within 4 to 5 age household. Therefore, the net present kilometers of, primary school facilities. value figures in each of the three cash flows However, the survey indicated the average represents the present value of the opportunity number of years of education per person to be costs from the establishment of the Mantadia only 2.4 years. National Park to the average village house- Rice production is the primary economic hold in each of the three different village activity in the area. The average household groups. produces 487 kilograms of paddy rice per year, worth about US $128 (Table 4.2). Most Results households also engage in shifting cultivation. Eighty percent of the households surveyed The household survey covered a total of said that they would add to existing land for 17 villages lying to the east and south of the cultivation. Other crops grown are maize, Mantadia region. The total population cov- beans, manioc, sweet potato, taro, sugar cane, ered by the household survey is 1,598, and the ginger, banana and coffee. Fuelwood is the average household size in this region is 4.6 most economically important forest product persons (Table 4.1). Most of the villages do obtained by the households. not have access to any medical facilities, running tap water, or electricity. The village children in general suffer from malnourish- Table 4.1 Socioeconomic Characteristics of the Surveyed Households Variable Range Mean Number of household members (N=351) 1 - 13 4.55 Age (years) (N=335) 0.5 - 100 17 Proportion younger than 10 years of age ---- 0.37 (N=593) Education (years) (N=1542) 0 - 14 2.35 30 Valuing Tropical Forests Table 4.2 Value of Agricultural and Forestry Activities Activity Number of Total annual Mean annual value per observations value for all household villages Rice 351 $44,928 $128 Fuelwood 316 $13,289 $38 Crayfish 19 $220 $12 Crab 110 $402 $3.7 Tenreck 21 $125 $6 Frog 11 $71 $6.5 Based on the data collected on agricultural Aggregating over all households living in the and forestry inputs and outputs, the cash flow vicinity of the park and using a 10 percent models were used to estimate the opportunity discount rate and 20-year time horizon, the net costs borne by the villages as a result of lost present value of the opportunity costs was access to the forests in the park. Averaging estimated to be $566,000. over the results obtained from the three cash flow models, the mean value of losses was $91 per household per year (Table 4.3). Table 4.3 Estimates of Economic Losses to Local Villagers from Establishment of Mantadia National Park Annual Mean Value Aggregate Net Method Used per Household Present Value Opportunity Cost $91 $566,000 Contingent Valuation $108 $673,000 The contingent valuation responses were be expected. Respondents who found buffer analyzed with an econometric model. The zones acceptable were more likely to agree to discrete choice responses were used to esti- the offered bid. Several of the dummy vari- mate a bid function in a logistic regression ables for village groups have significant framework (Table 4.4). The estimated bid coefficients. These variables likely reflect model revealed that a number of socioeco- village level differences not captured in other nomic variables were systematically related to variables. the probability of accepting offered bids. The The logit model correctly predicted 75 bid level itself was a positive and significant percent of the responses, clearly indicating explanation of responses. The coefficient on that the elicited bid responses were the dummy PREFDUM is positive, as would nonrandom. From the estimated bid function, Part B: Madagascar Case Study 31 a mean willingness-to-accept compensation without (Table 4.3). Aggregating over the was calculated. The responses to the contin- population in the park area, this implies a gent valuation questions indicate that, on necessary one-time compensation of approxi- average, a compensation of rice equivalent in mately $673,000, assuming a 10 percent value to $108 per year per household would discount rate and 20-year time horizon. make households as well off with the park as Table 4.4 Maximum Likelihood Estimates for Village Contingent Valuation Analysis Variable Coefficient Std. Error t-ratio* Constant -3.0012 0.766 -3.917 BID 0.15887 0.08 1.987 HHMEM -0.0400 0.075 -0.531 PREFDUM 1.6577 0.3935 4.212 RTOT -0.0005 0.0004 -1.337 Group 1 1.8473 0.6146 3.006 Group 2 -0.1833 0.7186 -0.255 Group 4 2.6515 0.6242 4.248 Group 5 1.3421 0.5927 2.265 Maximum Log Likelihood -121.999 n 240 McFadden's R2 0.25 Percent Correctly Predicted 0.75 WTA = Yes/No responses to the bid (the dependent variable); BID = offered bid (ranging from I to 7 vata of rice); FHMEM = number of household members; PREFDUM = a dummy representing preference for buffer zones over forests (Buffer Zones = I Forests = 0); RTOT = annual household rice production; GROUP 1 - GROUP 5 are dummy variable for geographical groupings of villages. 32 Valuing Tropical Forests Discussion countries to directly measure the welfare changes occurring from a given change in a The Mantadia National Park has been public good, have been underutilized in devel- established with the intention of preserving oping countries. In this study, contingent Madagascar's unique biological heritage. valuation was used to estimate the welfare While the benefits of conserving the fauna and change perceived by local residents as a result flora and the biological diversity within the of loss of access to lands currently within the park are large (and are presented later in this Mantadia National Park. report), some very significant opportunity The analysis indicates that CVM, rigor- costs must be considered, as a necessary ously applied, can be effectively used in the condition, to avoid open access problems that developing country context. The econometric will threaten the existence of the park in the analysis undertaken indicates a systematic long run. association between various socioeconomic Approximately 3,400 people in three sets variables of interest and the expressed of villages will be negatively affected by the willingness-to-accept compensation. The park. The results suggest that an annual results show that responses to the CVM ques- compensation of approximately $100 per tion were decidedly nonrandom. Also, the household would be required. Such compen- opportunity cost (or market based) approach sation could be made in the form of education, and the contingent valuation method provided health facilities, alternative income-earning strikingly comparable estimates of costs borne enterprises in the buffer zone, or other devel- by villages. All of this is encouraging evi- opment activities. dence to support the use of the contingent These compensation costs appear to be a valuation method in such a context, but fur- significant part of the true cost of implement- ther research is required to improve its wide- ing protected area projects and should be built spread applicability. into project design at an early stage. Without adequate compensation and active cooperation Note of local residents, natural resource manage- ment projects are more likely to fail. 1. If a market for land existed, the loss in welfare The opportunity cost approach was used to could be fairly simply approximated by considering baseline estimates of the economic land prices. However, because of the lack of trade in provide bland, the value of land, and thus the welfare loss losses to villagers from the establishment of because of loss of access to land, is established by the park. The analysis relied on cash flow considering the returns to land holdings. models constructed from detailed input and output data collected from the 350 village households. This approach provided consid- erable insight into differential impacts in the various regions around the park. It potentially could be used in involving people in the management of programs. It is also a power- ful tool in understanding the interrelationship among microeconomic factors relating to use and management of parks. Nonmarket valuation techniques, which have been extensively used in developed 5. Impacts on Tourism Evan Mercer, Randall Kramer and Narendra Sharma When environmental conservation projects flows (Z) and nonrecreation service flows increase nature tourism activities, economic (ZNR), i.e., valuation techniques can be used to measure the associated benefits. Despite the fact that U = U(R, ZN) (4) international nature travel has become "big business" (Laarman and Durst 1987), only a Nonrecreation service flows are produced by few attempts have been made to estimate the combining the composite market commodity economic value of tourism to national parks in (XNO with time (TN ). Recreation service developing countries Most studies have fo- flows are produced by combining market travel cused on the value to domestic tourists. The services (XTO) and time to travel to country i objective of this study component is to help fill (Ti) with nature tourism trip experiences in this gap by examining the potential benefits country i (Vi). Therefore, the household pro- that accrue to international nature tourists from duction functions for 2, and Z, are: the creation of Mantadia National Park (Mer- cer, Kramer and Sharma 1993). ZR= R(Vl...Vi,T..., X T, ...XTi) (5) Approach 4a= ZNR(XNR, TM) (6) The decision by foreigners to pursue nature tourism in Madagascar is more complex than Nonhomogeneous nature tourism trip expe- the models presented in most recreation de- riences in country i (V) are produced by choos- mand studies to date. Foreign visitors fly great ing a bundle ofj activities (Aii) and utilizing in- distances and utilize various modes of travel to country market services (Xtji) and time (t'i ) to visit numerous sites and enjoy many different travel to the locations of the activities. The Ai activities in Madagascar. Few foreign tourists can be thought of as either single destinations plan trips solely to visit a particular national within the country or groups of destinations. park in Madagascar. More commonly, they Activities in Madagascar, for example, might decide to take a trip to Madagascar to view include traveling to the proposed Mantadia nature. Then, they decide on an itinerary that National Park to view the Indri lemurs and to a may include several parks, cultural sites, and specific beach to swim and sunbathe, or to a other attractions. group of parks for bird watching and a group of Assume that households (or individuals) beaches for snorkeling. Therefore, the produc- travel to a single country such as Madagascar tion function for V is expressed as: and engage in a variety of activities which con- sist of traveling to specific natural areas to en- Vi= vi (A%i... Ai,t'i ...ts,Xtli...Xtii) (7) joy the vegetation, wildlife, scenery, water fea- tures, etc. Households considering where international nature tourism attempt to maxi- mize utility as a function of recreation service 34 Valuing Tropical Forests A = activity j in country i and is a French, and Malagasy) were hired to adminis- function of the site's environmen- ter the questionnaires to visitors to the Perinet tal services (si), market goods Special Reserve. (Xr 1), and on-site time (tr ) Data were collected during the summer of ti travel time to location of a, 1991. Interviews were completed with 94 tour- Xti= market goods used to travel to lo- ists. The number of tourists available to survey cation of a . was limited by a political strike which made transportation difficult. Additional data were The household's problem is to maximize its obtained from an expert opinion survey admin- utility (equation 4) by choosing nature tourism istered to 27 US and European organizers of trips (V and market goods (X m) subject to nature tours. production constraints (equations 5, 6, and 7) and a fill income constraint. This decision Results problem is examined with two different empiri- cal models: (1) a Typical Trip Model, and (2) a Summary statistics from the collected data Random Utility Model (RUM). are presented in Table 5.1. Income for the total sample of visitors ranged from US $3,000 to Data Collection and Analysis $300,000, with a mean of $59,156. The aver- age tourist was 38.5 years old and had com- To conduct the empirical analysis of recre- pleted 15 years of education. Visitors came ation benefits, questionnaires were prepared from 14 countries (primarily from Europe). and translated into French. The questionnaires Trips ranged from three to 100 days in length consisted of a series of questions on the costs (mean of 26.6 days) with one to eight days of the current trip to Madagascar, details on spent at Perinet (mean of two days). Total ex- previous international nature tourism related penditures ranged from $335 to $6,363 with trips, the decision process in determining trip the average trip costing $2,874. Italy, Great destinations, contingent valuation questions for Britain, and France were the most common willingness-to-pay for visiting the Mantadia countries of origin. National Park, and a series of socioeconomic For the econometric models, incomes and and demographic questions.' travel costs to Madagascar were taken directly The questionnaires were tested in Philadel- from the tourist survey. The tourist survey re- phia with a focus group of previous visitors to sponses were also used to select the seven most Madagascar. Focus group participants were important destinations that serve as substitutes recruited by the Wildlife Preservation Trust, a for Madagascar. Average values given by the conservation organization that has organized travel agents for each of the destinations were several tours of Madagascar. Draft questions used as the quality variables in the econometric were presented to the participants for their analyses. Travel costs for the substitute destina- comments and feedback. The final question- tions were calculated by adding the cost of naire was revised based on the focus group round trip airfare from the capital city of the comments. In Madagascar, the questionnaires respondents' country of residence to the capital were revised again following pretests with a city of the destination country. The average small sample of visitors to the Perinet Special additional in-country cost of a two-week devel- Reserve and discussions with our local Mala- oping country nature tourism trip was calcu- gasy collaborators. Two local Malagasy re- lated from the responses of travel agents and search consultants (trilingual in English, tour operators in the expert opinion survey. In Part B: Madagascar Case Study 35 the CVM section of the tourist survey, tourists birds as they saw on the current visit to the P- to Perinet were provided with information erinet Reserve (where C = $50, $100, $150, about the new park and then asked if they $200, $300, $400, $600, or $800). The tourists would be willing to pay $C more for their trip responded "yes" or "no" to the randomly as- to Madagascar to include a visit to the new signed bid levels. national park if: 1) they saw twice as many lemurs and birds as they saw at Perinet; and 2) if they saw the same number of lemurs and Table 5.1 Summary Statistics for Tourists by Country of )rigin Country % of Average Average Average Average Average Average sample Expendi- Number Number Age Educa- Income ture Days in Days in 6) lion ($ US) (S US) Coun1?y Penne Britain 20.2% $3332 18 1.6 45 17 $39,545 Italy 21.4% $2357 21.4 1.9 34 15 $63,214 France 15.5% $3171 36 1.9 34 15 $37,785 Germany 11.90/0 $3270 24.8 1.8 40 16 $32,935 Switzerland. 11.90/0 $3200 37.6 2.3 36 17 $50,717 USA 4.8% $3097 18.5 2.75 49 17 $70,000 Belgium 3.6% $2921 23 1.3 47 16 $35,896 Holland 3.6% $2572 26.5 5.3 30 14 $41,666 Austria 1.2% $2000 21 1 15 $65,000 Denmark 1.2% $1750 28 2 35 18 $75,000 Kenya 1.2% $6363 35 4 39 11 $25,000 New Zealand 1.2% 60 3 26 12 $5,000 Reunion 1.2% $335 9 1 68 14 $45,000 36 Valuing Tropical Forests Table 5.2 Maximum Likelihood Estimates for Recreation Demand Analysis Independem 7)pical Trip Mode? RUM Modetl Vanables INTER 3.7089* 0.78318' (2.43) (7.891) UNUS -1.49' -0.4096* (-4.281) (-8.698) ACCOM -0.94190 -0.5381* (-0.183) (-7.040) COST -0.000499 0.00046 (-0.889) (0.772) EDYRS 0.0849 (0.781) INCOME 0.000006 (1.091) ED*COST -0.0000168 (-0.536) INC*COST -0.0000121" (-1.793) Log-likelihood = -195.2669 Log-likelihood = -56.45 significait at the .05 level - significant at the .10 level INTER = index of quality of local guides, educational materials and facilities for interpreting natural areas; UNUS = index of de posbility of seeing unusual animals; ACCOM = index of quality of accommodations and transportation services; COST = rournatip airfare ph irnntry costs; EDYRS = years of formal education; INCOME = total household annual pretax income; ED*COST = number years of education nultiplied by COST; and INC*COST = household income multiplied by COST. T- ratios are in the parentheses below the coefficiert estimates. Table 5.2 presents the maximum likelihood the probability of visiting site j. The regression results from the Recreation Demand independent variables are listed in the left col- Models. The dependent variable in the Typi- umn of Table 5.2. Following Feenberg and cal Trip model is the sum of the number of Mills (1980), the income (INC*COST) and trips each individual has made or plans to education variables (ED*COST) in the RUM make within the next five years to eight devel- multinomial logit model were combined with oping country nature tourism destinations. the cost variable. A tobit maximum likelihood The dependent variable in the RUM model is estimator was applied to the typical trip model Part B: Madagascar Case Study 37 and a multinomial logit maximum likelihood visit the new national park during their trips to estimator was applied to the RUM discrete Madagascar. Variables that influence the choice model. probability of being willing to pay for visits to The quality variablese INTER and UNUS the park include the price (bid amount), the were significant at the .05 level in both mod- national origin of the tourist, type of pay, num- els, while ACCOM was significant in only the ber of vacation days, and whether or not they RUM model. Only the INTER variable exhib- subscribe to nature magazines (differential its the correct sign. The COST variable was significance between the regressions). The bid not significant in either regression and had the amounts (CVIAMT and CV2AMT) are highly correct negative sign only in the Typical Trip significant (at the .01 level) in both model. The income variable was significant at regressions. Variables that are significant at the .10 level in the RUM model but has the the .05 or .10 level include the dummy vari- incorrect negative sign. While not significant ables for national origin for French, Germans, in the Typical Trip model, the INCOME vari- and British (FREN, GERM, BRIT), the able exhibits the correct positive sign. The dummy variable for salaried vs. hourly or self- incorrect signs may be a result of a mis-speci- employed respondents (PAYTYPE), the num- fled model or faulty data due to the small sam- ber of annual vacation days (VACDAYS), and ple size collected during an unusual tourist annual household income (INCOME). The season (i.e., during the general strike). difference in significance of the variables be- For the contingent valuation analysis, the tween the two regressions, while troublesome bid amounts and respondents' answers (yes or at first glance, also provides some interesting no) to the bid amounts formed the dichoto- researchable hypotheses. mous choice variables for estimating a logit The sign on the CVIAMT and CV2AMT function of willingness-to-pay. A number of variables is as expected; as the price increases, functional specifications suggested by Bishop, "yes" responses become less likely. However, Heberlein and Kealy (1983), Boyle and the sign on the INCOME variable would be Bishop (1988), and Hanemann (1984) were expected to be positive rather than negative, tested with the logit analysis. The linear speci- again indicating problems with the small sam- fication, which provided the best fit with the ple size or a mis-specified model (INCOME data, is presented in Table 5.3. The values coefficients were negative in all specifications represent the estimated coefficients for each tried). The coefficient on the INCOME vari- independent variable regressed against the able, however, is very small (-.000006 and - probability that the respondent is willing to .000012). Given the relatively high income pay the specified bid amount for a visit to levels of the respondents (mean income = Mantadia National Park if the respondent sees $59,156), this might be interpreted to mean the same number of lemurs and birds as during that income levels had little impact on proba- his or her trip to the Perinet Reserve. bility of a "yes" response. Despite the small sample, the CVM method produced significant results for esti- mating the willingness-to-pay of tourists to 38 Valuing Tropical Forests Table 5.3 Maximum Likelihood Estimates for Tourism Contingent Valuation Analys s Independent Variable Dependent Vanlable (Pr(Yes)) Same # ofLemurs Twice # ofLemurs Constant 1.258 -0.19263 (0.961) (-0.178) CVIAMT -0.0058' (-3.128) CV2AMT -0.0039* (-2.655) BRIT 1.6154*- 1.9833* (1.8564) (2.026) ITAL -1.6425 1.2527 (-1.118) (2.026) FREN -13.643 -1.7917" (-0.070) (-1.795) GERM 1.5353*- 0.44743 (-1.732) (0.041) PAYTYPE -1.7194-* 0.0292 (-1.732) (0.041) MAG 0.40732 1.462- (0.531) (2.350) VACDAYS 0.02980 0.0327- (1.466) (1.642) INCOME -0.000006 -0.000012- (-0.0889) (-2.153) McFadden's R' 0.352 0.443 Significant at the .01 level. Significant at the .05 level. Significant at the .10 level. CVIAMT=bid amount for same number of lemurs, CV2AMT=bid for twice as many lemurs, BRIT-dummy variable (1=British, 0=other), ITAL-dummy for Italian, FREN-dummy for French, GERM=dummy for German, PAYTYPE-durnmy (where l=salaried 0-other), MAG=dummy for nature magazine subscriber, VACDAYS=number of vacation days/year, INCOME=total household annual pre-tax income. Part B: Madagascar Case Study 39 The significance and signs of the national visit the new park no matter how many lemurs origin variables are quite interesting. In both and birds they see, whereas the Italians appear regressions, the British and Germans are more to be willing to pay to visit the park only if they likely than the non-British and non-Germans to see more lemurs and birds. These results fit be wiling to pay to visit the new national park with expectations following discussions with in both cases (i.e., whether or not they see more tour operators and travel agents who indicated lemurs and birds). However, the GERM differential attitudes toward protected areas and variable is not significant in the second tourism among nationalities. regression. The negative signs on the French variables indicate that the French are less likely than other nationalities to be willing to pay to Table 5.4 Estimates of International Tourists' Benefits from Establishment of the Mantadia National Park Method Mean increase in Total annual increase Discounted present consumer surplus in consumer surplus value (10% discount per tourist rate) Typical Trip $45 $174,720 $1.7 million RUM $24 $93,600 $936,000 CV $65 $253,500 $2.53 million II- IIl II 1 I Table 5.4 presents a summary of the conservative assumption). It is obvious that the benefits estimates for international tourists tourism benefits of the park would be based on the above econometric models. The substantial, ranging from about $1 million to first column represents the average increase in $2.5 million. consumer surplus per tourist. The second In comparing the estimates in Table 5.4, the column is an estimate of the annual aggregate Typical Trip and RUM models only measure benefits of the park for foreign tourists using a the willingness-to-pay for the increased quality conservative assumption that the total number of local guides, educational materials, and of visitors to the Mantadia National Park will facilities for interpreting natural areas assuming remain the same as the number that visited the no increased possibility of viewing lemurs or Perinet Reserve in 1990.' The final column improvements in accommodations. The CV provides the discounted present value of the estimate is comparable, although it also aggregate annual benefits assuming that they assumes some improvements in accom- will remain the same in perpetuity (another 40 Valuing Tropical Forests modations, and it may reflect some existence choices of international nature tourists for values. whom there are a limited number of choice occasions. Hence, the valuation estimated Discussion based on the RUM model inspires more confidence. When conservation projects provide The contingent valuation approach increased opportunities for nature tourism ac- generated estimates of the value of the park tivities, nonmarket valuation techniques can under two different scenarios. The estimate provide estimates of potential economic bene- most comparable to the RDM estimates is fits. This study component has demonstrated based on a question about willingness-to-pay the utility of recreation demand models and for the park if tourists were able to see the same contingent valuation methods for assessing the number of lemurs and birds as currently viewed economic impacts of conservation projects. in the Perinet Reserve. This estimate After developing appropriate conceptual frame- aggregated over all tourists is $253,000 works for analyzing international nature tour- annually. ism activities, the researchers used surveys to Studies of this type bode well for both ex- collect needed data from tourists in Madagas- ante project evaluation efforts as well as project car and from tourism operators in the USA and planning, implementation and management. Europe. Despite the limited sample size, the Although the estimated tourism benefits are regression results indicate considerable success only one part of the total value of the new in explaining variation in trip choices and national park, the results show that tourism can willingness-to-pay for enhanced tourism oppor- be a significant source of benefits when parks tunities. These models were then used to gen- are created in a tropical country, even one with erate estimates of aggregate tourism benefits a modest level of international visitors. associated with creating the Mantadia National Clearly, the potential nature tourism benefits Park. should be included in any reasonable benefit- The park valuation estimates were based on cost analysis for project evaluation. expected increases in the quality of nature tour- Nonmarket studies of this kind, however, may ism opportunities in Madagascar. The two prove even more beneficial in maximizing recreation demand models generated fairly project revenues and benefits through improved close estimates of increases in consumer sur- planning and management efforts. Gov- plus. For both models, it was assumed that the ernments may wish to use tourism taxes, user new park would lead to a 10 percent increase in fees, and similar revenues to capture some of an index of the quality of guides, educational this willingness-to-pay in order to finance materials, and facilities for interpreting natural conservation activities. areas. The Typical Trip model resulted in an annual benefits estimate of $174,720 for all tourists, while the random utility model gener- ated an estimate of $93,000 annual willingness- to-pay. It may be that Typical Trip models are more appropriate for situations in which recreators are making numerous trips to a variety of sites within a season, for example, Madagascar residents visiting the park. RUM models are probably more appropriate for the Part B: Madagascar Case Study 41 Notes 1. Nature tourism (also known as nature-oriented tourism, natural history tourism, and ecotourism) is defied as "tourism based directly on the use of natural resources in a relatively undeveloped state, including scenery, topography, water features, vegetation, and ecosystems" (Healy 1988, p. 1). 2. See Abala (1987), Brown and Henry (1989), Dixon and Sherman (1990), Durojaiye and Ikpi (1988), Edwards (1991), Eutriak and Grandstaff (1986), and Tobias and Mendelsohn (1991). 3. For additional detail on the survey, see Mercer, Kramer and Sharma (1993). 4. Estimations were performed with the LIMDEP econometric software package (Greene 1992), INTER = index of quality of local guides, educational materials, and facilities for interpreting natural areas, UNUS = index of the possibility of seeing unusual animals; and ACCOM = index of the quality of accommodations and transportation services. 6. Spatial Dimensions of Environmental Impacts Randall Kramer, Daniel Richter and Subhrendu Pattanayak There is mounting concern that increasing activity, flooding may result in significant rates of deforestation are causing greater economic losses in terms of diminished crop flooding on the eastern half of the island of yields. Anecdotal evidence suggests that the Madagascar where the monsoon rains are incidence and magnitude of flooding has particularly severe. This is because forests increased in Madagascar in recent years as have a strong impact on the dynamics of deforestation has expanded. Major floods floods. This impact involves two processes: have occurred in 1959, 1972, and 1986, and regulating the rate at which water moves into crop loss is an increasingly regular phenome- streams, and regulating the total water runoff non. In addition, research conducted in the (Richter, Noble and Kramer 1992). It is Mantadia area shows evidence of increased generally believed that deforestation increases runoff in watersheds cleared for swidden the frequency and severity of floods, yet there agriculture. If current rates of deforestation is limited empLical work to demonstrate these continue, flooding may further increase and effects (Courtney 1981). A study in a temper- cause greater economic losses. This analysis ate setting showed that forest soils are several focuses on the local effects of floods. times more permeable to rainfall than are To the extent that the Mantadia National pasture soils and have much lower discharges Park and other aspects of the Environmental for 50-year floods (Clark 1987). A larger- Action Plan reduce deforestation, one benefit scale analysis, which focused on deforestation of these conservation activities will be the in the upper Amazon basin, found a signifi- prevention of flooding. The purpose of this cant increase in the annual crest of the Ama- study component is to estimate the economic zon during a period in which extensive defor- benefits of reduced flooding that may arise estation took place (Gentry and Lopez-Parodi from the establishment of the Mantadia Na- 1980). tional Park. This component represents the It is important, however, to distinguish combination of ecological and economic between localized and more regional impacts. information to better understand interactions After a careful analysis of worldwide evi- between humans and a rapidly changing dence from forest watershed research, Hewlett environmental system (Kramer, Richter et al. (1982) concludes that there is no cause-effect 1995). relationship between forest cutting in the headwaters and floods in the lower basin. The Productivity Analysis Approach Flooding may increase close to the area cut, but as water flows through a major river The productivity analysis proceeds by basin, this effect becomes insignificant amid examining the history of deforestation in the other important ones such as the nature and Mantadia area using remote sensing.' Data intensity of precipitation, the direction in from aerial photos taken in 1957 and satellite which water moves across the basin, and the images recorded in 1976 and 1984 are com- size and geomorphology of the basin (Hamil- bined with topographic information to de- ton 1988). Yet, if the more immediate down- scribe the deforestation history of the area stream has a sizable amount of agricultural Part B: Madagascar Case Study 43 (Green 1993). These deforestation rates are examine the impact of topography, slope and projected into the future to capture the effect elevation, in particular, on deforestation in on flooding. The relationship between defor- this area.2 estation and flooding is examined using two Elevation within the study area increases different data sets: one based on monitored from east to west from a low of approximately small watersheds in the Mantadia area, and 100 meters in the southwest, through interme- one based on weather data and flow rates of diate elevations (1,000 meters) on the Central the Vohitra River. Finally, the predicted Plateau to the Andrabetany Mountains (1,500 reductions in flooding brought about by the meters) in the north. Comparing the defores- creation of the park and buffer zone are used tation history of the study area with elevation to predict reduced crop losses which are reveals important correlations. In general, valued in economic terms. All of these pre- progressive destruction of forest cover pro- dictions are in a "with and without park" ceeds from lower to higher elevations and framework. In the "without park" case, the from east to west through time. Deforestation flooding damages would have amounted to a as a percent of original forest lost at a given sizable economic loss. In the "with park" elevation and for a given slope is shown in case, these losses are considerably dimin- tables 6.1 and 6.2, respectively. ished. Thus any estimation of the benefits of Deforestation has proceeded generally the park creation must include the prevention from areas of low to high elevation, with of loss. deforestation fronts moving faster through terrain of low and moderate slope, becoming Deforestation History of the stabilized in areas of high relief, most notably Study Area along the eastern escarpment of the plateau. While deforestation between 1976 and 1984 Remote sensing was used to construct a virtually eliminated all large tracts of lowland deforestation history of the study area (Green forest in the study area, forests of the plateau 1993). The technique made use of (1) a set of had been largely spared up to 1984. Three eight 1:50,000 scale topographic maps, and centers of deforestation pose the greatest (2) 1:1,000,000 scale negatives of Landsat threat to the forests of the plateau. Two areas satellite images. The eight topographic maps in which active deforestation fronts are mov- encompass an area roughly 88 kilometers (N- ing up the escarpment on moderate slopes are S) by 63 kilometers (E-W), a total of approxi- the valleys of the Lakato River in the south mately 550,000 hectares, which includes the and Rianila River in the north. A third active entire watershed of the Vohitra River. Forest area of deforestation is centered on the town cover is depicted on the topographic maps by of Andasibe and the road that runs though it., overlaying information of the 1:50,000 scale connecting Antananarivo and Toamasina. aerial photographs acquired in 1957 (based on This latter cutting threatens much of the a photo interpretation). These overlays form plateau because no topographic barriers exist the base maps of the forest extent in 1957, to "naturally" slow the rates of clearing in this upon which subsequent information about the area. changes in forest cover from the Landsat Deforestation in this region has already images of 1976 and 1984 is further overlaid. isolated the forests of the Special Reserve and Thus, this multiple overlaying enables the the Forestry Station and has penetrated into depiction of the chronological path of defores- the southwest and southeast corners of tation. From these maps it was possible to Mantadia Park. Steep slopes within Mantadia 44 Valuing Tropical Forests will probably limit deforestation in the Clearing, especially during the period southwest and along the northwest portions of 1976 to 1984, has removed much of the forest the park, yet forests that remain on the cover from the watersheds of the region. relatively flat land in the southeast portion of Using the values in tables 6.1 and 6.2, it is the park may be threatened with clearing. possible to ascertain that deforestation has Probably less than 10 percent of Mantadia proceeded at an annual rate of 2.17 percent for National Park had been cut by 1984; however, the area at an elevation of 800 to 1,200 meters large tracts of forest on moderately flat and a slope of 0 to 12 degrees'. Given this portions of the plateau are threatened to the rate, in a "without park" scenario, the park and west and northwest of Mantadia. Cutting near the buffer zone will lose all of their primary Andasibe and Lakato may eventually forest cover in approximately 45 years fragment the formerly continuous forest cover (Kramer, Richter et al. 1995). to the north and south, thereby limiting future migrations of plants and animals on a large scale, just as species within the Special Reserve and Forestry Stations are now isolated. Part B: Madagascar Case Study 45 Table 6.1 Forest Extent vs. Elevation* Elevation Original 1957 1976 1984 in meters > 1200 13375 ha 12652 ha 12652 ha 12636 ha (100%) (95%) (95%) (95%) {100%} {100%} (99%) 800-1200 223800 ha 171900 ha 166320 ha 151240 ha (100%) (77%) (74%) (68%) (100%) {97%) (88%} 400-800 175280 ha 90652 ha 78011 ha 46906 ha (100%) (52%) (45%) (27%) (100%) {86%) {52%} 100-400 126730 ha 45839 ha 29389 ha 3211 ha (100%) (3%) (23%) (3%) (100%) {64%} {7%) Total 539170 ha 321040 ha 286370 ha 21399 ha (100%) (60%) (53%) (40%) (100%) {89%) (67%) * Note: Forest extent is depicted in hectares, (percent of original), and {percent of 1957). 46 Valuing Tropical Forests Table 6.2 Forest Extent vs. Slope* Slope in degrees Original 1957 1976 1984 > 17 1150 ha 834 ha 819 ha 694 ha (100%) (73%) (71%) (60%) (100%) (98%) {83%} 12-17 11950ha 7958ha 7425ha 5577 ha (100%) (67%) (62%) (47%) S100%) { 93%) (70%} 8-12 106900ha 65756ha 59328ha 42900ha (100%) (62%) (55%) (40%) {100%) {89%) {67%) 4-8 353580 ha 215780 ha 192700 ha 145190 ha (100%) (61%) (55%) (41%) {100%) (89%) (67%) 0-4 80800 36266 31059 23284 (100%) (45%) (38%) (29%) (100%) (86%) {64%) Total 554380 ha 326590 ha 291330 ha 217650 ha (100%) (59%) (53%) (39%) { f 100%) (89%} {67%} * Note: Forest extent is depicted in hectares, (percent of original), and {percent of 1957). Part B: Madagascar Case Study 47 The Effect of Deforestation Two agricultural land uses were compared on Flooding with savoka in their effects on flooding in a nine-year experiment at Perinet. Substantially To determine whether these forest conver- greater volumes of quick storm flow were sions have had a detectable impact on flood- produced when savoka watersheds were ing, a review was made of hydrologic experi- converted to tavy or to cultures. Year-to-year ments conducted on the Perinet Experimental variation was substantial but, on average, tavy Watersheds, which lie within this river basin. produced about 154 percent more storm flow These watersheds are a remarkable research than savoka forest, whereas the carefully facility from which the scientific results have cultivated catchment produced 58 percent been prodigious, yet the results are not widely more runoff than savoka. Though forest known. Second, long-term discharge data conversion increased rate and volume of from the Vohitra River were analyzed to runoff over the nine year period for all floods, examine whether trends indicate increased land use appears to have its greatest effects on flooding in recent years. small- and medium-sized floods. Since the early 1960s, small watershed In addition to the above studies, the stage studies near Perinet have tested effects of land of the Vohitra River at Andekaleka has been uses on flooding. Land uses studied include monitored, generally twice daily, since 1952. primary forest (foret naturelle), secondary A 27-year record of monthly discharge (1953 forest (savoka), traditional rice agriculture to 1979) was available to analyze for flood with burning (tavy), and agriculture with frequency and time-trend analyses, thus terraces and other conservation practices providing a second perspective on the (cultures). Watershed data are reported by problem of hydrologic changes in the area. Bailly et al. (1973) and Sarrailh and The primary objective of these Vohitra Rakotomanana (1978) in detailed technical data analyses was to determine whether peak reports. These reports quantify how discharges have increased in the Vohitra River conversion of primary forest to agricultural over nearly three decades. Two time series of uses and secondary forest affects flood river discharge data were used to address this dynamics in highland watersheds of eastern objective: the series of annual maximum Madagascar. monthly discharges (n = 27, 1953-1979), and An eight-year experiment at the Perinet the complete series of monthly discharges Experimental Watersheds suggests that over the same period (n = 285). flooding differs considerably between primary It was necessary to remove variation in and secondary forest. Annual storm flow precipitation from each time series so that from a 30-hectare secondary forest savoka trends could be examined that were free of watershed was about three-fold more than variations in precipitation inputs. Monthly from a similar-sized primary forest catchment. rainfall data for this 27-year period were taken The increased stream flow from savoka may from three stations in or adjacent to the be attributable to several factors, such as Vohitra River basin: Antananarivo, reduced infiltration capacity due to soil Andekaleka and Tamatave. An arithmetic compaction, decreased evapotranspiration, mean monthly rainfall was estimated from the and less extensive rooting. The length of time three stations for the rainfall-runoff regression during which a savoka may re-acquire the model. Log transformed monthly hydrologic attributes of a primary forest was precipitation and monthly discharge were not reported. used in two regression analyses to predict 48 Valuing Tropical Forests discharge from precipitation. Residuals (ob- Vohitra River data should be undertaken using served minus predicted discharge) were deter- more complete records of discharge and mined for the two equations and were plotted rainfall than were accessible for this study. against time. These residuals data were taken The results would be of great interest to natu- as the time series of river discharges with ral scientists, policy analysts and economists variation due to rainfall removed. Since throughout the world. residuals tend toward zero throughout the time Even with the partial data, using the re- series, there was no graphical evidence to sults from the experiments in the Perinet suggest that flooding of the Vohitra River Watershed and the rates of deforestation increased in frequency or severity. estimated earlier, it is possible to predict a Several important caveats are offered at "without park" effect on the annual discharge this point. First, the time series tested ranges in the major rivers in the watershed (Kramer, from 1952 to 1979. This series could poten- Richter et al. 1995). Moreover, since land use tially be extended if the complete Vohitra has differential effects on floods of different River discharge data could be obtained but, intensities, it is possible to fit a diminishing despite several attempts, the authors were not function on flooding intensities. able to obtain data from years more recent than 1979. It seems obvious that a more Estimating the Value of Flood definitive statement might be made about the Damages: The Dose-Response Effect Vohitra River basin, but only if detailed daily river data were available for the entire record At the time of this writing, rice paddy (1952 to the present). Second, the fact that destruction in the Mantadia area is not exten- there is no detectable trend leads to one of two sive according to local experts (Ferraro 1993). conclusions: either no trend in flooding ex- Many of the hillsides are still under at least isted prior to 1979 (i.e., forest conversion of some forest cover and many people are able to the river basin had not yet affected flooding) harvest most of their rice production before or alternatively, no trend is detectable with the the heavy rains at the end of the rainy season. monthly data sets used in this analysis. Further, floods primarily affect the paddy rice, In summary, flooding generally becomes as opposed to tavy, which is on the hillside. more frequent and more destructive as a result Although about 5 percent of the agricultural of converting forests to other uses. This production is lost due to flooding annually, in potential is amply demonstrated by the studies years of major storms, which are not very of forest clearing at the Perinet Experimental rare, the destruction can be sizable. Watersheds. In apparent contrast, analysis of Using a simplified productivity analysis, the flooding data from the large Vohitra River it is possible to use a dose-response effect basin indicates no increasing trend in storm (dose = flooding; response = damage) to flow over the period of 1952 to 1979. As estimate losses due to flooding. In a "with stated above, these results do not necessarily park" scenario, this amount would equal the indicate that effects of deforestation on flood- benefits from averting flooding damages. It is ing have not occurred; rather, they indicate necessary to ascertain several characteristics that the monthly discharge data do not show a of floods as parameters that enable estimation trend in increasing flood frequency or sever- of flood damage. These parameters are: area ity. More than any other conclusion, the of inundation, depth, duration, seasonality, analyses indicate that more work is needed. A intensity and frequency (United Nations comprehensive time series analysis of the 1991). Part B: Madagascar Case Study 49 Paddy, the principal crop that grows in the function was fitted that used the above infor- valley bottoms, lies in the area inundated; it mation. This functional form incorporates the can be damaged by submersion and the force depth, duration and area inundated. The of the water overspilling the river banks. The logarithmic nature of the function indicates floods happen in the rainy months of February that the destructive potential of the floods and March, however, by which time most of increases, but at a decreasing rate, over a the paddy is already harvested. This restricts range of increasing flood magnitudes. the yield damages. Thus the "area of inunda- To determine the economic value of the tion" and "seasonality" parameters help focus effect on human use, calculations used the the calculation to a percentage of paddy yields average annual net return on a hectare of only, as opposed to a much larger basket of all paddy ($453), a discount rate of 10 percent, Malagasy agricultural production. and an exchange rate of 1,110 Malagasy Regional studies and anecdotal evidence francs per US dollar. As shown in Table 6.3, provided data on the range and destructive the first year total (across floods of all magni- capacity of the two smaller (two- and five- tudes) expected loss is $51,691. Over a 20- year) floods (Ferraro 1993). The assumption year life of the project, the aggregated ex- is made that the 100- and 200-year floods will pected loss amounts to $547,176. damage all of the paddy in the effective flood plain, an area of 654 hectares. For the floods of the intermediate magnitudes, a logarithmic Table 6.3 Net Present Values of Flooding Damage Net Present Value of Year I Aggregate Net Present Value of Total Expected Loss Total Expected Loss Growth in damage $51,691 $547,176 No growth in $50,787 $475,620 damage I_1_ The establishment of the protected area is the buffer zone are in place, assuming that projected to prevent deforestation on 26,787 protection for the forests they encompass is hectares. The effect of this on flooding inci- assured, the floods will not grow in intensity dence, and thereby on crop damage, will be and range because land will not be converted realized through the elimination of the growth from its present primary-secondary forest in the amount of storm flow, and thereby of combination to tavy. Table 6.3 reports the the growth in damage potential of the various "no growth in damage" scenario (with park), flood magnitudes. This "with park" scenario the first year total expected loss, and the does not imply that floods will not happen and aggregate impact. This was essentially a there will be no loss to crops; rather, it implies repetition of the previous (without park) that crop losses will be lower since the floods calculation with the only difference being the will not increase in their potential to cause use of a much lower 'dose' (flooding) factor. damage. In other words, once the park and 50 Valuing Tropical Forests Thus, for the "with and without park" including tools from remote sensing, hydrol- comparison, the net present value of the ag- ogy, forestry, agronomy and economics. A gregate watershed protection benefits, over large amount of secondary data were com- the 20-year life of the project, is $71,556. piled and reanalyzed by the study participants This amount is the simple difference of the to shed light on the necessary physical, bio- aggregate total expected loss associated with logical and economic interrelations. This has the "with and without growth in damage" represented a rather uncommon integrated (equivalent to the "without and with park") analysis, and illustrates the range of data and scenarios. skills necessary to apply productivity analysis to examine the watershed protection benefits Discussion of tropical forests. Notwithstanding the data limitations, it The Vohitra River is part of a much larger can be argued that this study component has river basin that flows easterly to the Indian resulted in a reasonable estimate of watershed Ocean. As the topography flattens to the east, protection benefits. It is recommended that there is more irrigated area. This area can future research projects be designed to shed also be affected by upstream watershed degra- further light on these complex and important dation, which can cause increased sedimenta- interrelationships, and on the human-ecosys- tion. A recent report on irrigation investments tem interface. Productivity analysis is sug- in Madagascar considered the effects of wa- gested as the best analytical tool to employ in tershed degradation on downstream irrigation such research. Furthermore, this study illus- systems (Metzel and Baird 1990). However, trates the need for building national capacity the area protected by the Mantadia National to establish geographic information systems Park and associated buffer zone is such a and carry out long-term hydrologic assess- small part of the larger watershed that the ments. Such data bases are necessary to downstream benefits are likely to be quite understand the dynamics of ecological sys- small. tems that are subject to major human pres- Because of the interest in measuring the sures. benefits of the park, only crop losses from changed flooding in the vicinity of the park Notes and buffer zone are analyzed. As evidenced in Table 6.3, these impacts are modest, but 1. Productivity analysis has been widely used in this analysis may underestimate the total economics to value the effects of various types of watershed protection benefits of the project. environmental change on agriculture, forests, and It is important to note that the benefits and fisheries (Freeman 1993). costs of watershed protection are not borne by 2. See Greene (1993) for details. the same individuals. While reduced flooding benefits farmers who grow paddy rice in river 3. The deforestation rate (d) is defined as the mean bottoms immediately downstream, the costs of annual percentage loss in forest cover. establishing the park are borne by residents 4. Other components of this study assume a 20- living around the park who formerly used the year life for the project. Thus, for an estimation of the area for collecting forest products and practic- flood prevention benefits under the "with park" sce- ing swidden agriculture. nario, only the first 20 years of the expected life of the To apply the productivity analysis, a forest area are taken into account. variety of scientific concepts have been used, 7. Existence Values Randall Kramer, Evan Mercer and Narendra Sharma Evidence for substantial public support for age distribution, education, political party biodiversity protection can be seen in public affiliation, and environmental attitudes. opinion polls and voluntary contributions to A survey respondent should be willing to conservation organizations. Another means to pay the requested donation of $W for the gauge this support is the use of the contingent protection of tropical rain forests if his or her valuation method. This section summarizes level of utility with protection and lower another study component that uses contingent income (Y-W) is at least as great as his or her valuation in a national mail survey to assess utility without protection. That is, when the value that residents of the United States place on rain forest protection (Kramer, Mer- U(O,Y;A) < U(1,Y-W;A) cer and Sharma 1993). The purpose of the survey was: (1) to measure the willingness-to- where 0 = no additional rain forest pay of residents of the United States for pre- protection serving a portion of the world's tropical for- 1 = additional rain forest ests, and (2) to determine the attitudes toward protection issues concerning tropical rain forest preser- Y = income vation and management (such as compensa- A = a vector of attributes tion). Of course, as many of the benefits of that may affect the biodiversity protection occur in other coun- WTP for rain forest tries, especially in Europe, this survey pro- protection. vides a pilot study to explore whether or not the CVM is workable for valuing a global Since the underlying utility function, good of this type. U(*), is unknown to the researcher,' it is viewed as a random variable with a given Approach parametric probability distribution and an observable mean value. Assuming a logistic This empirical effort to measure the exis- cumulative probability density function for tence value of rain forest protection is based the random variable, the probability that the on welfare concepts of environmental eco- respondent's willingness-to-pay is greater or nomics. It is assumed in the study that house- less than the offered bid amount can be esti- holds maximize utility subject to an income mated with a logit regression model. constraint by choosing a bundle of market and nonmarket goods. If one of the nonmarket Data Collection and Analysis goods is a public good called rain forest protection, then willingness-to-pay will be a The empirical CVM model used in this function of the price of rain forest protection, study component is based on two different prices of other goods, income, and household approaches. Given the lack of consensus in tastes. The hypothesis is that these tastes will the literature about the question format for CV be conditioned by a variety of socioeconomic questions (Mitchell and Carson 1989), an characteristics, including household size and experiment was conducted. The sample was Valuing Tropical Forests 52 randomly divided into two groups for experi- staff (nonfaculty) of a university, the other mental treatment. Half of the sample was two groups were recruited from among mem- presented with a referendum style question. bers of church groups. The focus groups were The application of referendum CVM ques- used in part to refine the amount and type of tions requires a discrete number of information about tropical rain forests pre- subsamples. Each subsample is asked sented in the survey. Exercises were also whether or not they would be willing to pay a conducted to define the good to be valued. specified amount for the particular nonmarket Most focus group members were comfortable good and they respond either "yes" or "no." valuing tropical rain forests in general, but not The probability that an individual's for specific regional or country willingness-to-pay is greater or less than the subcomponents. Thus, without specifying offered bid amount is estimated with a logit countries or regions, the final good was the regression model. The logit model creates a creation of parks and reserves to protect 110 function that depicts the probability that WTP million acres (or 5 percent) of the remaining values will exceed offered bid amounts. The rain forests (in addition to the 5 percent al- total WTP is then estimated as the area under ready preserved). The other major use of the the probability function.2 By including other focus groups was the testing of alternative explanatory variables in addition to the of- payment vehicles, i.e., higher taxes, higher fered bid in the logit model, one determines prices, and donations to nonprofit organiza- how income and other explanatory variables tions. After extensive discussions with the influence the demand for rain forest protec- focus group participants and contingent valua- tion. tion experts, contribution to a hypothetical The other half of the sample was presented United Nations Save the Rain Forests Fund with a "payment card" question format (Mit- was defined as the payment vehicle. A pretest chell and Carson 1989). With this approach, was employed with a national mail sample of each respondent is presented with an array of 100 households. different dollar amounts starting with zero and The final version of the survey was mailed asked to circle the amount closest to their to a random sample of 1,200 US residents WTP. One way to calculate mean WTP from between April and June 1992.' A mailing list payment card responses is to take a simple was purchased from a commercial marketing average of the circled amounts. A censored firm. The sampling frame was all households regression model (Cameron and Huppert with listed telephone numbers. After several 1989) is used from which a mean predicted follow-up mailings, 542 surveys were re- WTP can be calculated. As with the logit turned, for a corrected response rate of 56 analysis of the referendum responses, explan- percent. The design and implementation of atory variables can be included to identify the survey followed the Total Design Method demand shifters. Willingness-to-pay estimates developed by sociologist D. Dillman (1978), based on each approach will be presented including the use of three follow-up mailings. subsequently. For this study, three focus groups were conducted. One group was recruited from the Part B: Madagascar Case Study 53 Results serving their rain forests?" This has important ramifications for the ongoing political debate Tropical deforestation was a well-known about the role of industrialized countries in issue among the respondents: 91 percent of bearing some of the costs of environmental the respondents responded affirmatively to the protection in less developed countries. A question "Before today, have you ever read, follow-up question asked what percentage of heard, or seen TV shows about tropical rain the costs would be borne by the industrialized forests?" and 81 percent claimed to be famil- world. The median response was 41 percent. iar with reasons for deforestation (see Table 7.1). Two-thirds of the sample answered yes to the question "Should industrialized coun- tries help developing countries pay for pre- Table 7.1 Percentage of Respondents Answering "Yes" and "No"" to Questions about Knowledge of, Visits to, and Obligations to Pay for Rain Forests YES NO Any knowledge of rain forests 91% 9% Knowledge of causes of deforestation 81% 19% Previously visited a rain forest 11% 89% Plan to visit a rain forest 8% 61%a Should industrial countries help developing coun- 67%b 33% tries pay for preserving their rain forests '31 percent were uncertain if they would visit a rain forest in the future b For those responding "Yes," the percentage that industrialized countries should pay ranged from I to 100 percent, with a median of 41 percent. The respondents were encouraged to Next in average order of importance were two weigh tropical deforestation against other international environmental problems that environmental concerns by asking them to have received extensive media attention: rank a variety of environmental problems. atmospheric ozone depletion (3.47) and global The rankings assigned were 1 through 6 with warming (3.65). Considerably lower rankings I indicating the greatest importance. Highest were given to the other problems on the sur- rankings were given to air (2.63) and water vey list: tropical deforestation (4.52), acid rain pollution (2.73). This is not surprising since (4.60), and harvesting old-growth forests in the local effects of these problems are more the northwestern United States (5.37). It is pronounced than other problems presented, interesting that deforestation in the tropics and there may be a perceived greater link with was viewed as a more serious problem than the health of respondents and their families. deforestation in the US Pacific Northwest. Valuing Tropical Forests 54 To examine factors affecting willingness- significance level). Surprisingly, the to-pay for rain forest protection, the CV re- importance given to the cutting of old-growth sponses were regressed against a number of forests in the northwest United States had the socioeconomic and attitudinal variables. opposite effect in the referendum model. One Results are given in Table 7.2 for both possible explanation is that people who are subsamples. The first column indicates the concerned about old-growth US forests may effects of the variables on the dollar amount have more of a national focus and be less selected by the payment card respondents. concerned about tropical forests, thus having The second column shows the effects of the a lower propensity to pay for protection in the independent variables on the probability of tropics. Respondents who said that saying yes to the offered bid by the industrialized countries should help pay for referendum format respondents. Although the rain forest protection had higher WTP in the coefficients have different interpretations for payment card model and were more likely to the two different question formats, the results accept offered bids in the other model. will be discussed jointly in terms of the Finally, family size had a positive relationship direction of influence of the independent with WTP in the payment card model, perhaps variables on WTP. indicating a bequest or intergenerational Because of the inherent nature of the equity motive. question formats, only the referendum model Estimated willingness-to-pay is shown in has a variable for the offered bid. The log of Table 7.3. The referendum format yields a the offered bid has a negative and significant mean WTP per household of $24, while the effect on the likelihood of bid acceptance. payment card format gives a mean WTP of Hence, there is confirmation of the expected $31 per household. Aggregating over the 91 negative relationship between price and million households in the United States gives quantity of rain forest protection. Income has a total WTP of $2.18 billion and $2.82 billion the expected positive effect on the WTP in for the two methods. While this total figure both models. As incomes rise, there is a shift appears quite large, it should be viewed in in the demand for this environmental good. context. Recall that the CV question asked Political affiliation has no significant effect in for a one-time contribution. Hence, the $2.2 the payment card model, but in the billion to $2.8 billion can be thought of as a referendum model Republican affiliation has revolving fund that would be used over a a negative association (at the 10 percent number of years to finance tropical forest significance level) with accepting offered programs. If one makes a more conservative bids. A dummy variable for whether or not assumption that only households with at least respondents made charitable contributions has $35,000 in annual income would actually a significant and positive coefficient in both donate to the fund, then the aggregate WTP models. A dummy variable which reflects would be $1 billion. past or planned visits to rain forests increases the WTP in the referendum model. The ranking given deforestation compared to other environmental problems was also included as an independent variable. As expected, the more important the ranking (I = most important), the higher the WTP in the payment card model (at the 10 percent Part B: Madagascar Case Study 55 Table 7.2 Maximum Likelihood Estimates for Rain Forest C ntingent Valuation Anal sis Payment Card Referendum ResponsesO Responses Constant -3.522 (-1.747)d -15.914 (-2.641) 7 Log of Bid --- -1.165 (0.229)' Log of Income 0.379 (1.904)' 1.426 (2.5 16)c Political Affiliation dummy 0.231 (0.769) -1.190 (-1.857)d Charitable Contributions dummy 1.04 (3.045)' 2.194 (2.059)c Rain Forest Visitor 0.711 (1.943)' -0.942 (-1.182) Deforestation -0.151 (-1.817)d -0.230 (-1.015) Old-growth Forests -0.047 (-0.613) 0.377 (1.954)' Cost-sharing dummy 1.921 (5.883)' 1.947 (2.464)c Family Size 0.190 (2.088)0 -0.018 (-0.083) Number of observations 173 163 Goodness of fit --- McFadden R2 = .48 _L_ ICorrect Pred. = 89% aDependent variable is the log of the amount (ranging from 0 to $1500) which was circled. b Dependent variable is the yes/no response to the offered bid level. ' Significant at 5 percent level. d Significant at 10 percent level. Valuing Tropical Forests 56 Table 7.3 Willingness-to-Pay Estimates for Tropical Rain Forest Preservation Type of Ques- Mean WTP Total WTP Total WTP tion Format ($/household) (all households)' (income > $35, 000),b Referendum $24 $2,184,000,000 $ 780,000,000 Payment Card $31 $2,821,000,000 $1,007,000,000 a Assuming 91,000,000 million households in the United States in 1989 (US Bureau of Census) b Income distribution in 1989 (US Bureau of Census) Discussion Notes This study component represents one of 1. The underlying utility finction is unknown the few applications to date of nonmarket because many of its components are unobservable. valuation methods to a global environmental 2. There are a number of different approaches in good. Most previous applications of contin- the literature for empirically estimating WTP for gent valuation have focused on local or re- referendum CV questions. In the estimation proce- gional environmental goods. The results dures, this study component takes the approach of suggest that US residents are able to respond assuming that WTP is a non-negative random vari- to valuation questions about the value of able. Se Cooper and Loomis (19) for a defense to of this approach. tropical rain forest protection and to give consistent responses across two different CV 3. The cover letter, follow-up letters and survey formats. instrument are found in Kramer, Mercer, and Sharma Perhaps the most interesting policy find- (1993). ing is that two-thirds of the households said that industrial countries should share the costs of protecting the remaining rain forests. The Biodiversity Convention signed by most countries attending the Rio Conference was based in part on a principle of shared costs between beneficiaries in industrial and less developed countries. Results of this study suggest that the US public supports this inter- national financing approach. For the study sample, tropical deforesta- tion ranked below most other environmental problems, perhaps reflecting a higher priority for domestic environmental issues. Despite this low relative ranking, households are willing to contribute $24 to 31 on average. This could create a substantial global fund if households in other industrial countries are willing to make similar-sized donations. PAR T C: CONCLUSIONS s a e 8. Summary and Implications Narendra Sharma, Randall Kramer and Mohan Munasinghe Summary In the village component, a paired com- parison of the use of opportunity cost analysis Forests in many areas of the world are vanish- and the contingent valuation method found ing at a rapid rate. In the last several decades, $100 annual costs to village households re- the intensity and scale of forest exploitation sulting from foregone access to land set aside have increased significantly. A large number for the park. The opportunity cost approach of developing countries experiencing increas- was a relatively simple, but data intensive, ing deforestation are also facing acute short- form of analysis with practical applications ages of fuelwood, fodder, industrial timber, for conceptualizing development programs and other forest products for domestic use. and for involving people in the management Aside from the potential environmental degra- of programs. It is also a powerful tool in dation, depletion of forests and trees may understanding the interrelationship among exacerbate poverty, displace indigenous microeconomic factors relating to use and populations, and impede agricultural produc- management of parks. The contingent valua- tivity. Deforestation, especially in the humid tion method required the collection of less tropics, has serious regional and global impli- village data but was challenging to implement cations (potential climate change, loss of because of the need to carefully refine the biodiversity, and degradation of large water- method for use in village settings where there sheds). was little formal education and few cash The improved management of forest transactions. The results were encouraging resources is the subject of considerable atten- for the use of CVM in such settings. tion from local, national, and international The tourism component developed an organization and agencies. In both developed approach to valuing parks for international and developing countries, the amount of forest nature tourists. Both the recreation demand land set aside as parks and forests is growing, method and the contingent valuation method yet economic analysis of these management were used to estimate the benefits of the new decisions is rarely conducted, either before or park for these visitors. There were some after the fact. Without such analysis, it is differences in estimates for the two methods difficult to determine whether proposed ($24 vs. $65 per trip), but the disparity may be changes in forest use are economically justi- due to the possible influence of nonuse values fled. on the higher estimates of the CVM approach. To help guide decision making on the Nevertheless, both methods appeared to be variety of options available to improve man- quite workable for valuing recreational de- agement of the world's forests, improved mand for national parks in the developing valuation is needed. Accurate valuation of world. One practical application of the results forest resources is essential to the appraisal of would be the setting of user fees. both forestry and nonforestry projects affect- The deforestation-flooding component ing forests. This study has examined the use illustrated the complexities of combining of a number of different nonmarket valuation several disciplinary approaches to implement techniques. 60 Valuing Tropical Forests the productivity method for valuing environ- Policy Implications mental changes. A remote-sensing expert conducted extensive analysis of maps and This study has examined the economic satellite images to estimate deforestation rates impacts of a new national park on a variety of in the study area. A hydrologist/soil scientist stakeholders. The work suggests that, with analyzed data on small watershed runoff and proper tailoring to local conditions, environ- river basin flow rates to provide input on the mental valuation methodologies can be useful effects of deforestation on flooding in the in assessing resource value changes in devel- Mantadia area. Finally, the information about oping countries. Other researchers are en- flooding was combined with agronomic infor- couraged to engage in valuation studies to mation on crop yields and flooding to estimate improve the information base for designing the agricultural impacts of additional defores- new environmental policies and projects. tation in the absence of the park. This inter- The results from such valuation efforts can disciplinary effort provided a useful illustra- be incorporated more fully into benefit-cost tion of the application of productivity analy- analysis of projects, including conservation sis, but it could have been expanded into an components, to determine the project's eco- extensive research project of its own. Al- nomic viability. Further research of this type though, due to data constraints, a certain has implications for policies, investment degree of subjectivity exists in the estimation decisions, resource mobilization, and project of the effect of deforestation on discharge and design and management. Such information agronomic damages, the estimates of the can help governments decide how to (1) economic impacts of flooding are believed to allocate scarce capital resources among com- be conservative. peting land use activities, and (2) choose and The first three components of the study implement investments for natural resource focused on use values associated with a pro- conservation and development. Results can tected tropical forest. Given the strong inter- also be used in determining, or influencing, est in tropical forestry issues among environ- pricing, land use, and incentive policies. At mental groups and politicians in industrialized the local level, the findings can be used to countries, it is widely thought that nonuse determine appropriate compensation for local values must be important motivators of cur- villagers for foregone access to forest areas rent concerns. Yet, little empirical work has designated as national parks. In addition, the examined the importance of nonuse values research findings can show the value of a park associated with tropical forest conservation. as a global environmental asset to foreigners, The fourth component of the study analyzed thus influencing external assistance for con- such economic values for a sample of U.S. servation programs at the local level. residents. This study was one of the first At the same time, the findings indicate applications of CVM to a global environmen- future issues that need further exploration. tal good. The results suggested that the CVM Reliance on willingness-to-pay is fundamental can be used in such a context if care is taken to the economic approach to valuation, but to provide balanced and detailed information tends to highlight the value ascribed to richer to respondents about the transboundary effects foreign visitors (because ability to pay is also of protecting tropical forests. Respondents a key element). If conflicting claims to park indicated a strong demand for rain forest access were to be determined purely on this protection, although a significant minority basis, Malagasies (especially the poor local were not willing to "purchase" this good. villagers) are likely to be excluded. There- Part C: Conclusions 61 fore, other aspects of sustainable development costs of forestry and other environmental (especially social elements like distributional projects. The Bank could even become a equity) would need to be considered to protect leading center in the development and appli- the basic rights and needs of local residents. cation of resource valuation techniques, much This study has shown the potential of as it has been for benefit-cost analysis. Much several valuation methods for improving the of the development of valuation to date has economic analysis of projects. While a study been done by economists from developed of this scope is impractical for every environ- countries and most of the applications have mental or natural resource project, a carefully been in developed, temperate climate settings. planned research program conducted on a A multiyear program of Bank involvement in variety of project types in a variety of geo- research and application would rapidly in- graphical and socioeconomic settings would crease the use of environmental valuation in begin to establish a database of values that developing countries. The Bank could also could be used for benefits transfer to other play an important role in training development projects. Development institutions like the economists in resource valuation, spreading World Bank can play an important role in technologies and ensuring their wider applica- refining sound and practical valuation tech- tion. niques for the environmental benefits and References Abala, D. 0. 1987. 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