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Ecology and Economics

Stephen Polasky


Ecologists and economists increasingly work together to inform the public about:

  • the value of nature’s services to humankind
  • how to balance conservation needs with human needs
  • saving biodiversity for future generations

July 2006


A horse ranch in southwest Florida. Natural systems provide services that are useful to people. Photo: Oksana Hlodan.

How is ecology similar to economics?

Ecologists study natural systems and economists study human systems.

Polasky: I have a joint position in ecology and economics in Minnesota, so I see lots of similarities. Besides just sharing the first three letters “eco,” they are formally very similar because both ecology and economics are studies of systems. Ecology is the study of natural systems, and economics is the study of a human system or human market systems. In both you are talking about interactions between components or processes of the systems and how those lead to knowing how the system works as a whole. In economics we talk about market prices and the interaction of supply and demand. In ecology we talk about interactions between various species, predators and prey, and how they lead to the diversity of the system and to differences in system stability and productivity. So there are striking similarities—different terms and sometimes different questions that people think of as interesting—but the mechanics that underlie both ecology and economics are quite similar.

What perspective could both an ecologist and economist bring to the challenges of conservation?

Conservation must take people’s needs into account.

Polasky: I have been too immersed in this for a while, so I don’t think that you can do it without both ecology and economics. Let me give you one example. Suppose that habitat loss is the leading conservation problem in an area. Why is habitat being threatened? Typically it is because humans are making decisions about land use, because they want to grow crops, they want to cut trees, they want to do something that will lead to some improvement in their material well-being, or they want to increase income from the land. Now from an economic perspective you have to understand why they are doing what they are doing. What are their incentives? On the ecological side you need to know what to do for habitat protection in order to conserve species. What does the species need to survive? What is going to lead to a viable population? Knowing this you can then work back to the economics on what we need to do in order to provide incentives to people to actually get conservation of that habitat in place. Again, you need both perspectives.

What do you mean by ecosystem services? Do economists view these services similarly or differently from ecologists?

Nature provides valuable services to people.

Polasky: What I use as my definition of ecosystem services is this: It is the contribution of ecological systems to the production of goods and services that people care about. It is clear that natural systems provide services that are useful to people. We are not talking about some manufactured item but something that is coming from a natural, or let’s say managed, system. I prefer to get away from the use of “natural system” because who knows what that means, but clearly an ecological biological system is contributing value to our lives, such as the fish we eat or the filtration of water.

These services can be measured economically.

To answer the second part of the question, I actually think we see ecosystem services in the same light. Ecosystem services is the bridging concept between the natural sciences and economics because the idea of goods and services is a pretty standard way for an economist to approach this concept: by the quantities of goods and services and the values, which are the prices that we attach to those goods and services. Occasionally there are some differences in opinions. I don’t think they are insurmountable by any means. Sometimes ecologists will talk about ecosystem functions or ecosystem processes almost synonymously with services, and in my mind what makes it a service is that it has to be of value somehow to people. It could be that the production of net primary productivity in an ecosystem is of interest to an ecologist, but does it have value to people?

What factors do economists consider when they place a value on an ecosystem service?

Economic valuation includes looking at the big picture.

Polasky: When economists try to place a value on a service, we are really asking, in a sense, How important is this ecosystem service relative to other things? Is it more important to have more wetlands, which then create habitat and nutrient cycling and all the consequences of that, or, for example, to have more cropland? This asks you to look at the question Is society better off with the wetland as a wetland or converted to cropland? When you transform the system, you have to think of the consequences of making that change, such as do I have to worry about the nitrogen that had been retained by the wetland? If the wetland is in Minnesota, what are the consequences of nitrogen going down the Mississippi River and down into the Gulf of Mexico and adding to the hypoxic [dead] zone in the Gulf? On the human side, how much do these consequences matter to people?

Is it possible to put a monetary value on ecosystem services?

Putting a monetary value on services is not always easy.

Polasky: Yes and no. For certain ecosystem services, I would have no problem putting a dollar value on it, for example, if we are talking about pollination services for growing crops. If ecological science is good enough to explain how crop yields change with the availability or absence of pollinators, then the economic step of putting a dollar value on this is fairly easy because we are assessing crops that are traded in markets. A simple way is to take the change in quantity and multiply that by the market price and that is your value. It gets a little more complicated than that when you are talking about large changes because the prices will change as the availability of crops change, but it’s still a standard supply and demand curve analysis. Where you get into trouble is with issues beyond basics. Suppose we are considering the protection of species. Are these species that people really seem to care about? If they don’t seem to care about them, is it because they don’t know much about them? In the U.S. we have an Endangered Species Act that protects certain species. It is based on a moral and ethical consideration that people shouldn’t cause extinctions. How do you place a dollar value on preventing extinction? We may be better off just talking in strictly ecological terms about what amount of habitat is necessary to protect the species and how we can do that cost effectively. I don’t know that we will ever be able to, or should, put a dollar value on that.

The figure “$33 trillion” was once projected as the value of ecosystems globally. What do you think of this type of economic analysis?

Are nature’s services worth trillions?

Polasky: The $33-trillion figure refers to one of the earliest studies that was done on the value of ecosystem services. The lead author was Robert Costanza. He and his coauthors tried to get at the notion of how we can establish on a global basis what the value of ecosystem services is. They came up with a number 33 trillion [USD] plus or minus a few trillion. There are a number of problems with the study. The most basic one is the question of what you are talking about when you consider all the ecosystem services of Earth. The entire system is our life support system. So what is our life support system worth? You don’t really have to have a scientific study in order to answer that question. The real value of the study was not the $33-trillion figure, which who knows what that means, but that it spurred people to focus on these issues.

Have you come up with some monetary values on a small scale?

Another study showed people would pay more for a home near a nature area.

Polasky: I have worked on several such studies. I worked with a graduate student who was very interested in wetlands. We conducted a study on whether wetlands in Portland, Oregon, make any appreciable impact on something we could observe. We looked at property prices, and we controlled for how close properties were to a wetland. We considered other things as well, such as parks, neighborhoods, and school quality. We considered things like the square footage of property, how many bathrooms there were, did it have a view, and so on. We had a great data set—15,000 observations. I was initially skeptical that we would find anything because I didn’t think we would find that people in Portland would value wetlands. But they did. We found that if you moved the house closer to wetlands by something like a quarter mile, you increased the value of the house by some $400 to $500, on average. To get the gross value in Portland, then, of living near wetlands, you would multiply the $500 per household times the number of households in Portland. Other studies support the view that people find value in living next to natural areas.

The economist Richard Norgaard said that an evaluation of ecosystem services should also consider the moral factor of investing in future generations. Can this be done?

Ethical factors are not always part of the equation.

Polasky: There is a lot of interest within economics about sustainability and about issues of the welfare of current versus future generations. There isn’t a clear answer in economics about how to deal with such a moral question. In many ways it is outside economics. Economists don’t have a monopoly on ethics, just as natural sciences don’t have a monopoly on ethics. I can give you personal views. But Norgaard has brought out an important point, that decisions we make do have important ethical components to them. Clearly, when we are talking about trying to prevent extinction of a species, that has an ethical component both in our relationship to other species as well as our relationship to other generations of humans.

Since we can put a value on ecosystem services, what does that imply for policymakers or conservation management?

Good science is essential to making good decisions.

Polasky: Having good information on which to base decisions is necessary but it is not sufficient for good decision making. Just because we know that there is climate change does not mean that we have actually done anything about it. There is another step to take, which is considering the incentives and the institutions. Are they actually adequate for making decisions? I’ll give a fisheries example to illustrate this point. We know that humans have overfished, causing massive declines in some species. Fishermen are very aware of that, but the individual fisherman has little incentive to stop fishing; it is a tragedy of the commons. The individual fishermen don’t have the incentive to take on the world’s problems. They have to put food on the table, so they continue to go out and fish. Just knowing that the fish has value isn’t sufficient to cure the tragedy of the commons problem. What are the institutions that society has to manage these problems? Valuation is necessary for good information, and good information is necessary for good decision making, but there is more to good decision making than just information.

Stephen Polasky, Ph.D., holds the Fesler-Lampert Chair in Ecological/ Environmental Economics at the University of Minnesota, in the Departments of Applied Economics and Ecology, Evolution, and Behavior. He is also affiliated with the institution’s Conservation Biology, Water Resources, Forest Resources, and the Law School. He was the senior staff economist for environment and resources for the President’s Council of Economic Advisers from 1998 to 1999. His research interests include biodiversity conservation, endangered species policy, integrating ecological and economic analysis, valuing ecosystem services, environmental regulation, game theory, common property resources, and renewable and nonrenewable resources. Polasky was interviewed at the American Institute of Biological Sciences’ 2006 annual meeting, “Biodiversity: The Interplay of Science, Valuation, and Policy.”

Ecology and Economics

ActionBioscience Articles about ecosystem services

BioScience Article

“Accounting for Nature.”
In this March 2009, BioScience article, the author of this article, Stephen Polasky, reviews The Law and Policy of Ecosystem Services by J. B. Ruhl et al., and Polasky states, “The purpose of their book is to address the important legal and policy issues involved in getting ecosystem services into the mainstream of decisionmaking.” He believes it was “written in large part to fill the void on the law and policy aspects of ecosystem services.” Free to read.

Green Economics

Learn more about an approach to economics in which an ecological system is considered to be an integral component.

How much are ecosystem services worth?

Are global ecosystem services worth $33 trillion USD? Read about Robert Constanza’s method of evaluation, which has been contested by other scientists, and other takes on this issue, including an Introductory Guide to Valuing Ecosystem Services published by the UK’s Department for Environment, Food and Rural Affairs.

Gretchen Daily on the value of ecosystems

Read about Daily’s work promoting the economic value of nature:

Read a book online

In Nature’s Numbers: Expanding the National Economic Accounts to Include the Environment (National Academy Press, 1999), W. D. Nordhaus and E. C. Kokkelenberg, recommend how to incorporate environmental and other nonmarket measures into the nation’s income and product accounts.

Read a book at the library

The New Economy of Nature (Island Press, 2002), by Gretchen Daily and Katherine Ellison, describes projects that recognize ecosystems as capital assets and how to manage them so they “continue to yield wealth.”

The National Center for Ecological Analysis and Synthesis (NCEAS)

Scholars, including postdoctoral associates, center fellows, and visitors in working groups, collaborate at NCEAS each year on scores of projects.

Oikos weblog

This blog is about environmental and economic issues started by David Jeffery, a lawyer with environmental economics training.

Institute for Ecosystem Studies (IES)

Central to the institute’s mission is the creation, dissemination, and application of knowledge about ecological systems. Their website includes an educator resources section.

Green Teaching

Try these great lesson ideas for environmentally conscious teachers (and their lucky students).

Economic Use of Public Natural Areas

How many natural resources are needed to support your lifestyle? What is the impact of the economic use of natural areas on the environment? Examine the issues and form your own opinion on the debate between preservation and utilization.


Understanding Science