A Start on nonmarket valuation Nonmarket introduction doc Edward Morey October 13 2014 Valuation and Consumer s Surplus put simply I use the term individual to mean an individual member of some species as in George Bush is an individual and George the Gorilla is an individual Most economists are typically only interested in individuals that belong to the species homo sapiens but there is nothing in economics per se that keeps an economist from including non human individuals in society 1 For economists value is anchored at the level of the individual an individual associates different values with different things It is a measure of the worth that an individual attaches to a commodity activity or state of the world 2 Put simply if commodity A is valued by an individual more highly than commodity B having A increases the individual s happiness more than having B would increase his 1 Whether to include non humans has probably not crossed the minds of most economists 2 Note the word attach For economists a red ball only has value because one or more individuals have attached value to it Otherwise it would be without value at least for an economist A start on non market valuation Edward Morey October 13 2014 or her happiness Often we use the word utility as a substitute for happiness one could also use the expression well being Values from the individual s perspective are relative As in I value my friendship with Marc more than I value my friendship with Don Or I would give up three apples to remain friends with Marc but only two apples to remain friends with Don 3 For economists the values an individual associates with different commodities are expressions of that individual s preferences 4 For economists the value society places on a commodity is the sum of the values positive and negative placed on it by the individuals in that society For economists if the individual members of society do not value a commodity the commodity has no social value Saying it another way values that are not individual based are not counted by economists 5 3 Assuming I like apples 4 A person is an individual my dog Sofie is an individual a worm is an individual and my house plant Wilbur is an individual a distinct member of its species An economist would probably say that an individual who has no preferences cannot value things for such an individual there are no values nothing to count Some people say that the ability to experience pain is necessary for having preferences Others would say it is both necessary and sufficient I am not sure that the ability to experience pain is necessary but I would say one has to be able to feel something that one has to be able to experience external stimuli at some level so a rock cannot have preferences A tree 5 Soon I will briefly discuss other notions of value A start on non market valuation Edward Morey October 13 2014 An important question then is which individuals count Whose values count Economists typically limit counting to human individuals but not typically all human individuals That said there is nothing in economics that requires this Note that many Environmentalists and some ecological economists believe that the preferences values of non human individuals or at least some of them should count towards social value Who should and should not count is an equity question 6 Value is of critical importance to economists because economists think the best thing to do is the thing that has the greatest value Note that many people define value differently from how economists define value For example many environmentalists would argue that the earth has value independent of how individual humans value it and that earth s intrinsic value should count when decisions are made about how to use the earth and its resources An economist would either say that there are no such values or if there are they should not be considered 6 Note the distinction between A Edward the individual is a member of society whose values count directly in the social adding up Edward has a dog Sofie whose happiness he cares about greatly But Sofie is not a member of society so her values do not count directly in the social adding up And B Both Edward and Sofie are members of society so both their preferences count directly in the social adding up Sofie s welfare gets weight in both worlds but in A her preferences do not directly count they count only because a member of society cares about her A start on non market valuation Edward Morey October 13 2014 Religious people might say that the only values that should count are God s values that what should be done or not done should be determined by the preferences of God not the preferences of men 7 Many philosophers but not economists talk about whether things can have intrinsic value value not assessed by some valuer built in value 8 7 This is not to say that economists believe that people should not believe in God and in fact many economists believe in a God Rather in this context they would describe belief in God as something that affects one s preferences For example a believer might not want to sin because sinning increase the probability that he will suffer in hell That is sinning for believers decreases long run happiness If God sends sinners to hell and non believers don t believe this then non believers misjudge the consequences of their sins 8 Its value for its own sake or in its own right As in a tree has value for its own sake or for the sake of the cosmos not simply because individuals who count use it for shade or value it because it can become part of a house Tanya a student asked me Can intrinsic values be factored into economic analysis Good question The more general question is whether intrinsic value can be incorporated into decision making letting things have intrinsic value would it seems set economics on its head How might it work There would be two kinds of values economic values based on the preferences of individuals and intrinsic values The decision maker would want to add them together This would require that they are all in the same units probably dollars I am comfortable with measuring people values in dollars because people have use for dollars but less comfortable saying that a tree has an intrinsic value of 10 What would the tree do with 10 Nothing but does that matter Who would assign the intrinsic value I guess an economist would say that to justify on efficiency grounds cutting down a tree the net benefits to