Economic Valuation and Socioeconomics of Coral Reefs

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

Economic Valuation and Socioeconomics of Coral Reefs:

Methodological Issues and Three Case Studies

Herman Cesar and Chiew Kieok Chong

Abstract

In most tropical countries, coral reef ecosystems provide coastal populations with a

number of goods and services. However, a variety of anthropogenic practices threatens

reef health and therefore jeopardizes the benets owing from these goods and

services. These threats range from local pollution, sedimentation, destructive shing

practices and coral mining, to global issues such as coral bleaching.

By “getting some of the numbers on the table”, economic valuation can help shed light

on the importance of the goods and services and show the costs of inaction in the face

of threats. Creating markets for sustainable resource use can highlight the value of

these goods and services to local populations.

This paper gives an overview of economic valuation (total economic value, cost benet

analysis) and the techniques supporting it (contingent valuation, travel cost, effect on

production, etc.) as they are applied to coral reef ecosystems.

The paper also highlights some of the socioeconomic issues of reef degradation and

conservation and shows the importance of economic issues involved in stakeholder

analysis. Stakeholder analysis helps to show who gains and who loses from threats to

the coral reef and from conservation measures. Together with economic valuation, it

thereby helps to determine what drives unsustainable practices and how such practices

can best be mediated given the local social situation.

Three case study examples are explored. The rst examines the total economic value of

a specic area, namely Jamaica, and the costs and benets of this area when coastal

management is introduced. The second demonstrates cost benet and stakeholder

analysis of a threat to coral reefs. The third estimates the economic costs of climate

change (coral bleaching, erosion, etc.).

The paper concludes with an up-to-date summary of economic valuation studies on

coral reefs.

Introduction

Coral reefs form a unique ecosystem, richer in

biodiversity than any other ecosystem in the

world. Reefs are productive, shallow water, marine

ecosystems that are based on rigid lime skeletons;

themselves formed through successive growth,

deposition and consolidation of the remains of

reef-building corals and coralline algae. The basic

units of reef growth are the coral polyps and the

associated symbiotic algae that live in the coral

tissues. This symbiotic relationship is the key

factor explaining both the productivity of reefs

and the rather strict environmental requirements

of corals.

Coral reefs have important ecosystem functions

that provide crucial goods and services to

hundreds of millions of people. These goods and

services often form an important source of

income for local populations (through shing,

mariculture, etc.), and sustenance to those living

at subsistence levels. They are also a tourist

attraction, contributing to local income and

foreign exchange. In addition, they form a unique

natural ecosystem, with important biodiversity

WorldFish Center Contribution No. 1721

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

value as well as scientic and educational values.

In addition, coral reefs form a natural protection

against wave erosion.

Currently, however, coral reefs are rapidly being

depleted in many locations around the world as a

result of, amongst other things, destructive shing

practices (poison shing, blast shing, muro-ami,

etc.), coral mining, marine pollution, sedimenta-

tion and coral bleaching. Often, these destructive

impacts are the result of externalities – the people

who cause the damage benet from unsustainable

economic activities, but the costs are borne by

others who depend in some way or other on coral

reefs. Economists argue that this is often due to

the absence of a well-functioning market for

environmental goods and services. Hodgson and

Dixon (1988) describe an externality situation in

which logging causes sedimentation that results

in reef degradation (affecting tourism) and shery

losses. For the logging company, these tourism

and shery losses are not part of their prot

calculation. In the absence of government policy

and/or public outcry, logging would continue

even if the external costs to society were much

higher than the net prots of the logging industry,

as was the case in the example of Hodgson and

Dixon.

This example indicates two things. First, it shows

the importance of a stakeholder analysis of who

is gaining and who is losing from a situation and

the potential for a possible intervention; and,

second, it shows the importance of obtaining

economic values for the various reef goods and

services, e.g. a shery value and a coastal

protection value. Some of these goods and

services involve concrete marketable products,

such as shellsh, for which the value can be

determined based on the demand, supply, price

and costs. Other services depend on the possible

future uses of yet unknown biodiversity on reefs

for which, sometimes, markets can be created.

The values of all these goods and services together

form the total economic value (TEV) of reef

ecosystems (e.g. Spurgeon 1992). This TEV can be

calculated for a specic area or for other uses (e.g.

preservation area, tourism area, multiple use area,

etc.). Economic valuation can also be used to

calculate the economic losses due to destruction

of reef functions, as in blast shing (Pet-Soede et

al. 1999), coral mining (Berg et al. 1998) or

bleaching (Westmacott et al. 2000c). The three

case studies in this paper discuss each of these

points. These case studies are briey summarized

here.

Case study 1 The TEV of the

Portland Bight area (Jamaica) and

a cost benefit analysis (CBA) of

establishing a marine protected

area (MPA)

Establishing a marine protected area (MPA) is a

costly affair and a government needs to be well

informed about the pros and cons of an

additional MPA (McClanahan 1999). Evaluating

the costs and benets of establishing and running

an MPA is a crucial step for an economist involved

in MPAs. The net benets of establishing a park

are dened as the net increase in the value of the

ecosystem due to the establishment and

management of the park minus the costs of

managing the park. Pendleton (1995, p.119)

states: “Past valuations of tropical marine parks

inaccurately measure their economic value

because they value the resource protected and not

the protection provided”. For the Portland Bight

Protected Area (Jamaica), a combined marine

and terrestrial multiple use area, the cost-benet

analysis (CBA) of establishing the protected area

was carried out as part of attempts to obtain

international donor money to run the protected

area.

Case study 2 Benefit cost and

stakeholder analysis of coral

mining in Lombok (Indonesia)

Coral mining for lime production is a source of

income and subsistence in many developing

countries. The associated damage to the reef is,

however, signicant, both in physical and

monetary terms. The economic benets from reef

destruction are often used to justify continuation

of this damage. Accordingly, it is important to

quantify the costs associated with coral reef

degradation if a balanced assessment of the

benets and costs of various practices is to be

made. To do this, a CBA is carried out where the

net benets of coral mining to the people causing

the damage are compared with the net societal

costs plus the enforcement costs of eliminating

coral mining in a specic location. In this case

study the CBA relates to Lombok, Indonesia.

Case study 3 Economic losses due

to coral bleaching in the Indian

Ocean

Climate change may, in the long run, be the most

important threat to coral reefs. The massive 1998

coral bleaching event was only one of recent hints

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of what may happen in the future. Bleaching can

have severe impacts on both sheries and tourism.

In the longer run, if the balance between reef

growth and bio-erosion shifts as a result of coral

die-off, it can also lead to reduced levels of coastal

protection. For this threat, a cost-benet frame-

work is not appropriate at the local level as there

are no local gains from bleaching. Hence, the

focus is on the economic costs of reef destruction

alone.

This paper combines a background on the

valuation and socioeconomics of coral reefs with

these three case studies. The goods and services of

coral reefs are described in Section 2. The basic

concepts of economic valuation and their

techniques are discussed in Sections 3 and 4,

respectively. Section 5 focuses on the socio-

economics of coral reefs, which is discussed with

specic reference to stakeholder analysis. The

next three sections (6-8) describe case studies on

the TEV and the costs and benets of marine

parks, the CBA and stakeholder analysis of a

threat, and an estimation of the economic costs

of climate change (coral bleaching, erosion, etc.).

The paper concludes with a discussion of the

issues raised. The Annex brings together the most

well-known valuation studies on coral reefs.

Goods and services of reefs

Ecosystems provide a great many functions, goods

and services. The terms “functions”, “goods” and

“services” have, in this context, slightly different

meanings, although many authors use these

terms interchangeably in the environmental

economics literature. Costanza et al. (1997)

dene functions, services and goods in the

following way: “Ecosystem functions refer

variously to the habitat, biological or system

properties or processes of ecosystems. Ecosystem

goods (such as food) and services (such as waste

assimilation) represent the benets human

populations derive, directly or indirectly, from

ecosystem services”. For example, a forest on steep

slopes provides the function of water retention

and an associated service of water supply. Upland

deforestation leads to dry season water shortages

in the lowlands and deterioration in the eco-

system service of water supply.

Moberg and Folke (1999) systematically

presented the most important goods and services

of coral reef ecosystems (see Table 1). The authors

categorized goods as renewable resources (sh,

seaweed, etc.) and materials obtained from the

mining of reefs (sand, coral, etc.). The services of

coral reefs are categorized into: (i) physical

This section is an abbreviated version of Cesar (2000).

Goods Ecological services

Renewable

resources

Mining of reefs Physical

structure

services

Biotic services

(within

ecosystem)

Biotic services

(between

ecosystems)

Bio-

geochemical

services

Information

services

Social and

cultural services

Sea food

products

Coral blocks,

rubble/sand

for building

Shoreline

protection

Maintenance

of habitats

Raw materials

and medicines

Raw materials

for lime and

cement

production

Build up of

land

Maintenance

of biodiversity

and a genetic

library

Biological

support

through

“mobile links”

Nitrogen

xation

Monitoring

and

pollution

record

Support of

recreation

Other raw

materials (e.g.

seaweed)

Mineral oil and

gas

Promoting

growth of

mangroves

and seagrass

beds

Regulation of

ecosystem

processes and

functions

Export of

organic

production,

etc., to pelagic

food webs

/Ca

budget

control

Climate

control

Aesthetic value

and artistic

inspiration

Curios and

jewelery

Generation of

coral sand

Biological

maintenance

of resilience

Waste

assimilation

Sustaining the

livelihood of

communities

Live sh and

coral collected

for the

aquarium

trade

Support of

cultural,

religious and

spiritual values

Table 1. Goods and ecological services of coral reef ecosystems identified in Moberg and Folke (1999)

Source: Adapted from Moberg and Folke (1999).

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structure services, such as coastal protection; (ii)

biotic services, both within ecosystems (e.g.

habitat maintenance) and between ecosystems

(e.g. biological support through mobile links,

such as sh that move from mangroves in their

juvenile stages to coral reefs in their adult life);

(iii) biogeochemical services, such as nitrogen

xation; (iv) information services (e.g. climate

record); and (v) social and cultural services, such

as aesthetic values, recreation and gaming. Note

that this categorization differs slightly from that

of Costanza et al. (1997).

Economic valuation of coral reefs

The economic value of a reef ecosystem is often

dened as the total value of its instruments, that

is, the goods and ecological services that it

provides. We, therefore, need to know what these

major goods and services of reef ecosystems are,

as well as how they interact with other ecosystems.

Next, these goods and services need to be

quantied and evaluated in dollar terms. For

goods sold in the market place, this is simply

achieved by looking at their market price, but for

ecological services, this is not possible. Instead,

complex valuation techniques are used to

determine the economic value of these services.

Note that, in principle, markets could be

established for each of the goods and ecological

services where no markets currently exist,

although this might be very costly and

impractical.

The value of all the compatible goods and services

combined gives the TEV for an ecosystem.

Each

of the goods and services of coral reefs presented

in Table 1 above generate economic value. For

example, shery resources can be harvested and

sold, and the coastal marine area enables sea

transportation that creates prots. Similarly,

preservation and ecotourism create value. The

mapping between the goods and services on the

one hand and their values on the other hand is

straightforward, as is shown in Figure 1.

As indicated in Figure 1, there are six categories of

values. These are (i) direct use value; (ii) indirect

use value; (iii) option value; (iv) quasi-option

value; (v) bequest value; and (vi) existence value.

Direct use values come from both extractive uses

(sheries, pharmaceuticals, etc.) and from non-

This section is an abbreviated version of Cesar (2000).

The neo-classical foundations of economic value and its relationship with willingness to pay and consumer surplus are not discussed here (however,

see Pearce and Turner (1990) for a general discussion and Barton (1994) and Pendleton (1995) for a specic discussion on the neo-classical economic

value of coral reefs).

extractive uses. Indirect use values are, for

example, the biological support provided in the

form of nutrients and sh habitat and coastline

protection. The concept of option value can be

seen as the current value of potential future direct

and indirect uses of the coral reef ecosystem. An

example is the potential of deriving a cure for

cancer from biological substances found on reefs.

Bio-prospecting is a way of deriving money from

this option value. The quasi-option value is

related to the option value and captures the fact

that avoiding irreversible destruction of a

potential future use gives value today. The bequest

value is related to preserving the natural heritage

for generations to come where the value today is

derived from knowing that the coral reef

ecosystem exists and can be used by future

generations. The large donations that are given to

environmental non-government organizations

(NGOs) in wills are an example of the importance

of the bequest concept. The existence value

reects the idea that an ecosystem has value to

humans irrespective of whether or not it is used.

In the Annex, examples of the different values in

the literature are presented.

One purpose of obtaining the TEV of coral reefs

and using CBA is to get some numbers on the

table for policy discussions. For instance, a

government might consider proclaiming a specic

bay an MPA. The management costs of running

MPAs are signicant and the government may

want to know in economic terms whether the

management costs are justied. Or a government

might get complaints from NGOs about certain

unsustainable coastal activities; these activities

constitute a threat but, at the same time, they

generate quite some cash, and so the government

needs to be convinced that it is worthwhile to

curb the threat. Indeed, powerful economic forces

are often driving destructive patterns of coral reef

use, rendering short-term economic prots,

sometimes very large, to selected individuals.

Coral reef protection is presumed to conict with

economic development, and to require a sacrice

of economic growth. However, this perception

stems mainly from a failure to recognize the

magnitude of costs to the present and future

economy resulting from reef degradation. To

illustrate this point, Table 2 shows estimates of

the benets to individuals and losses to society

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from each square kilometer of coral reef

destruction, and thus provides a basis for an

economic rationale for preventative or remedial

efforts. For coastal protection and tourism losses,

there are both “high” and a “low” scenario

estimates (shown as extremes of a range),

depending on the types of coastal construction

and tourism potential. “High” cost scenarios are

indicative of sites with high tourism potential

and high coastal protection value. The opposite

holds for “low” cost scenarios.

Valuation techniques

A host of valuation techniques have been

developed in recent decades. Standard techniques

in micro-economics and welfare economics rely

on market information to estimate value.

However, most of the time, the externalities

inherent in environmental issues prevent these

techniques from being used. For an elaboration

of this issue for non-economists, see Dixon

(1998). Specically for tropical coastal ecosystems,

Barton (1994) gives a detailed overview of 15

This section is an abbreviated version of Cesar (2000).

Figure 1. Total economic value and attributes of economic values for coral reefs

Source: Barton (1994).

Total Economic Value

Use Values Non- Use Value

Direct use value Indirect use value Option value Quasi-option value Bequest value Existence value

Outputs / services

that can be consumed

directly

Functional benets

enjoyed indirectly

Future direct and

indirect use

Expected new

information from

avoiding irreversible

losses of:

Value of leaving use

and non-use values to

future generations

Value from

knowledge

of continued

existence, based

on e.g. moral

conviction

Extractive:

• capture sheries

• mariculture

• aquarium trade

• pharmaceutical

Biological support

to:

• sea birds

• turtles

• sheries

• other ecosystems

• species

• habitats

• biodiversity

• species

• habitats

• ‘way of life’

connected to

traditional uses

• threatened reef

habitats

• endangered

species

• charismatic

species

• aesthetic

reefscapes

Non-Extractive:

• tourism/recreation

• research/education

• aesthetic

Physical protection

to:

• other coastal

ecosystems

• coastline

• navigation

Global life-support:

• carbon store

Net return to

beneciaries

Net losses to society

............ ..Function

Threat

Total net

benets

Fishery

Coastal

protection

Tourism Others

Total net losses

(quantiable)

Poison shing 33 40 0 3-436 n.q. 43-476

Blast shing 15 86 9-193 3-482 n.q. 98-761

Coral mining 121 94 12-260 3-482 > 67.0 176-903

Sedimentation

from logging

98 81

192

n.q.

273

Over-shing 39 109 _

n.q.

n.q. 109

Table 2. Total net benefits and losses due to threats to coral reefs in Indonesia

(Net present value; 10% discount rate; 25 year time-span; in US$’000; per km

)

Source: Adapted from Cesar et al. (1997) n.q. = not quantied

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different valuation techniques. Spurgeon (1992)

gives an interesting summary of this topic with

many actual numbers. Table 3 gives a listing of

the most common techniques used for valuing

the goods and services of coral reef ecosystems.

Three general categories are distinguished. The

rst includes generally applicable techniques that

use the market directly to obtain information

about the value of the affected goods and services

or of direct expenditures. The second includes a

number of potentially applicable techniques,

which use the market indirectly to obtain

information about values and expenditures. The

third general category involves survey-based

methods that use hypothetical markets and

situations.

Valuation techniques enable us to estimate in

money terms the direct and indirect use value, as

well as the option, quasi-option, bequest and

existence values. Specically discussed here are

ve methods, which are also used in many of the

chapters that follow. These techniques are: (i)

Effect on Production (EoP); Replacement Costs

(RC); Damage Costs (DC); Travel Costs (TC); and

the Contingent Valuation Method (CVM). These

techniques correspond to the various types of

values, as shown in Table 3. For details on other

techniques, see Barton (1994). Note that both TC

and CVM have many shortcomings, including

problems of designing, implementing and

interpreting questionnaires. However, in the cases

where they are used, they are typically the only

techniques available, as Table 3 shows.

Effect on Production (EoP): This technique, also

referred to as the “change in productivity”

method, uses the difference in output (pro-

duction) as the basis for valuing reef services. The

technique mainly applies here to sheries and

tourism (producer surplus) and estimates the

difference in value of productive output before

and after the impact of a threat or a management

intervention. Coral bleaching may, for instance,

lead to fewer dive tourists and, therefore, lower

tourism revenues. Hence, the change in net prot

(i.e. effect on production) can be calculated, and

this can be used as a proxy for the loss in tourism

value. For sheries, the technique is used to

calculate the loss in the sheries value from a

specic threat, such as coral mining, or the gain

in the sheries value from a management

intervention, such as the introduction of a marine

reserve. The main challenge is the calculation of

the changes in productivity in physical terms

between the “with” and “without” scenario.

An examples of the EoP method is provided in

Alcala and Russ (1990), who report on a decline

of US$54 000 in the total yield of reef shes off

Sumilon Island (Philippines) after the breakdown

of protective management. McAllister (1998)

gives estimates of reef productivity for reefs in

excellent condition (18 mt/km

/yr), in good

condition (13 mt/km

/yr) and in fair condition

(8 mt/km

/yr). Based on changes in condition

over time and estimates of net prots associated

with these yields, McAllister estimates the

sheries loss in the Philippines at US$80 million

per year.

Replacement Costs (RC): The replacement cost

approach is used to value the ecosystem service of

coastal protection. Data on investments to

control coastal erosion are used as a proxy for the

coastal protection service of a healthy coral reef.

The cost of replacing the coral reef with protective

Type of Value Valuation Method

Direct Use Values

tourism (consumer surplus)

tourism (producer surplus)

sheries

Travel Cost (TC)

Effect on Production (EoP)

Indirect Use Values

coastal protection

Replacement Costs (RC); Damage Costs (DC)

Non-use values

Option Values

Quasi-option Values

Bequest Values

Existence Values

Contingent Valuation Method (CVM)

Table 3. Correspondence between the types of value and the valuation methods

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constructions, such as revetments and underwater

wave breakers, is used.

A study quoted in Spurgeon (1992) indicates that

on Tarawa Atoll in Kiribati, coastal defences

costing US$90 720 had to be built to prevent

coastal erosion. Berg et al. (1998) give a detailed

analysis of the replacement costs following years

of coral mining in Sri Lanka. The average cost

varies between US$246 000 and US$836 000/km

of protected coastline. Cesar (1996) quotes a case

in Bali, Indonesia, where coastal protection

expenditures of US$1 million were spent over

several years for 500 m of coastline protection.

Finally, Riopelle (1995) cites information on a

hotel in West Lombok which has spent US$880

000 over a seven-year period to restore their

beach stretch of around 250 m, allegedly

damaged by past coral mining.

Damage Costs (DC): In the absence of coastal

protection, the monetary damage to property and

infrastructure from surge and storms can be

enormous. Hence, the damage cost approach uses

the value of the expected loss of the “stock at risk”

as a straightforward proxy for the value of the

coastal protection service.

Berg et al. (1998) use the cost of land loss as a

proxy for the annual cost of coastal erosion due

to coral mining in Sri Lanka. Depending on land

price and use, these costs are between US$160

and US$172 000/km of reef per year. Cesar

(1996) uses a combination of the value of

agricultural land and the costs of coastal

infrastructure and houses to arrive at a range of

US$90 up to US$110 000/km of reef per year for

the value of coastal protection afforded by the

reef.

Travel Costs (TC): This approach is often used to

estimate the welfare associated with the

recreational use of a national park. With this

technique, the travel time or travel costs are used

as an indicator of the total “entry fee” and,

therefore, a person’s willingness to pay to visit a

park. The further away people live from the park,

the higher the costs are to visit it. Because of the

variation in these costs among visitors, the

demand for different prices can be determined, a

“demand curve” for the park can be constructed,

and the associated consumers’ surplus can be

determined. This surplus represents an estimate

of the value of the environmental good in

question (e.g. the National Park).

Pendleton (1995) provided an example of TC. He

used this method to estimate the value of the

Bonaire Marine Park. To obtain the welfare

estimate, Pendleton divides the number of

visitors from each state/country by the population

of the corresponding origin. This visitation rate is

then regressed upon travel costs, giving the

demand curve for reef-oriented vacations to

Bonaire (visitation rate = [0.0725 – 0.0000373] x

travel costs). Based on this estimated demand

curve, on the travel costs from each region and on

an assumption of 20 000 annual visits to the

marine park, the total consumer surplus of

visitors to the Bonaire Marine Park is approxi-

mately US$19.2 million annually. Another

example is a TC study reported in Hundloe et al.

(1987), which attributes a value of AU$144

million per year for tourists visiting the Great

Barrier Reef.

Contingent Valuation Method (CVM): Where

people’s preferences are not revealed by markets,

CVM uses direct questions about willingness to

pay (and/or willingness to accept as compen-

sation) to estimate consumers’ preferences. It

basically asks people what they are willing to pay

for a benet, or what they are willing to accept by

way of compensation to tolerate a loss. This

process of obtaining information may be carried

out either through a direct questionnaire/survey

or by experimental techniques in which subjects

respond to different stimuli in “laboratory”

conditions. CVM seeks to obtain the respondent’s

personal valuations of increases or decreases in

the quantity of some goods, contingent upon a

hypothetical market. Spash (2000) gave an

example of CVM from a survey in Montego Bay

(Jamaica) and Curaçao (Netherlands Antilles) to

investigate the consumer surplus, or individual

utility, of coral reef improvement. The survey

instrument was designed to capture the “non-use”

benets of marine biodiversity, for both local

residents and for visitors. The question to

respondents dealt with their willingness to pay

(WTP) for more coral cover in the park. Expected

WTP for coral reef improvement was US$3.24 per

person in a sample of 1 058 respondents for

Montego Bay. For Curaçao, the number was

US$2.08 per person. But this value was heavily

dependent on whether or not respondents

believed that marine systems possessed inherent

rights, and that humans had inherent duties to

protect marine systems.

There are a number of biases associated with

CVM that are important to note. These biases

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have given CVM a bad name in the eyes of some.

Careful use of CVM is therefore necessary. Barton

(1994) summarizes the following biases, describ-

ed in the literature:

• Hypothetical bias: This refers to the potential

error inherent in the process that is not an

actual situation. Respondents may not take the

interview seriously enough to give bids

reecting their true preferences.

• Strategic bias: People may answer strategically

if they feel that their reply will inuence real

events, i.e. if they feel that their willingness-to-

pay bid may entail actual payment, their values

will be lower than otherwise.

• Information bias: The way in which the

hypothetical situation is described can have a

powerful effect on the reply, and involve several

aspects. Design bias refers to how the questions

are structured. Instrument bias will result if the

respondent reacts (positively or negatively) to

the hypothetical instrument or vehicle of

payment that is suggested (e.g. entry fee).

Starting-point bias refers to the observation

that the starting bid may affect the nal

outcome in a converging bidding process.

An important issue in economic valuation of

natural resources is the concept of benet transfer.

It is often quite costly to carry out studies to

determine the precise TEV of coral reefs in each

location, e.g. a specic marine park. However, it is

sometimes possible to use a meta-analysis of

studies carried out in other, comparable, areas.

For example, if an extensive study has been

carried out for the sheries and tourism potential

in one marine reserve in the Philippines, then it is

not unlikely that these values can form a proxy

for another marine reserve elsewhere in the

Philippines. This practice of transferring monetary

values is referred to as “benet transfer”.

The TEV gives the economic value of an area at a

certain moment. Often, we would like instead to

know the costs and benets of coral reef

protection. In such situations, the costs of

government interventions need to be compared

with the net benets of such interventions.

Economists tend to use extended cost benet

analysis (extended CBA) to evaluate the

interventions. For a background to extended CBA,

see Belli et al. (2001).

Review of literature

The literature related to the economic valuation

of coral reefs shows that past research has focused

very much on direct use values of coral reefs and,

to a lesser extent, on indirect use and non-use

values. Research on the TEV of coral reefs is

limited. It is not surprising that most of the past

studies focused on use values of coral reefs as

these are the easiest to measure and also are

probably of most interest to stakeholders, in

particular, policy decision-makers.

The literature review indicates that most of the

studies on direct use values of coral reefs focus on

the values generated from sh production,

recreation or tourism, and research and education.

Most of these studies used the productivity

change (EoP) method to estimate the use value

(in terms of revenue) generated. The other

method that is commonly used to estimate the

use values of coral reefs generated from

recreational or tourism activities is the TC

method. The third method being used to estimate

the use value generated from coral reef ecosystems

is CBA.

The productivity change (EoP) method is also

used to estimate indirect use values provided by

coral reefs, e.g. their coastal protection value.

Most studies using EoP estimate the net present

value (NPV) of the stock at risk (e.g. infrastructure)

linked to a loss in coastal protection. This net

present value is used as an approximation of the

coastal protection value of the reef. The other

method commonly used to estimate indirect use

values generated from coral reef ecosystems is the

RC method. For example, Cesar (1996) used RC

to estimate that the reef’s loss of protective

capability is linked linearly to its protective

value.

In contrast, Ruitenbeek and Cartier (1999)

estimated the value of Montego Bay coral reef

using a model incorporating drug values, local

bio-prospecting costs, institutional costs, dis-

covery success rates for marine extracts, and a

hypothetical bio-prospecting program for the

area using National Cancer Institute sampling

protocols. De Groot (1992) used shadow pricing

to estimate the cost of biodiversity maintenance

for the Galapagos National Park.

Of all the valuation techniques developed to

estimate the non-use value of coral reefs, the CVM

is the most commonly used. De Groot (1992)

also used sales of books and lms to estimate the

cultural/artistic inspirational use value of coral

reefs. In the same study, he also considered the

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level of donations to estimate the spiritual use

value of Galapagos National Park in Ecuador.

De Groot (1992) also provided an estimate of the

TEV based on the total annual monetary returns

from direct and indirect use of Galapagos

National Park. In the same study, benet transfer

was used to estimate the annual value of the reefs

based on the similarities between the Dutch

Wadden Sea and Galapagos estuarine areas, with

the assumption that 10 per cent of shery in

Galapagos depend on the nursery function

provided by inlets and mangrove lagoons.

Socioeconomics of coral reefs

Economic analysis of coral reefs goes considerably

beyond pure monetary valuation (Cesar, 2000). It

includes consideration of at least the following

four issues:

• The extent of poverty and income

deterioration due to coral reef degradation;

• The degree to which local populations rely

on reef sheries for subsistence purposes;

• The existence (or otherwise) of other

income generating activities in reef areas;

and

• Stakeholder analysis of which social group

wins and which loses from various threats

and management actions.

In this paper the focus is on stakeholder analysis

and other income generating activities. To

illustrate the stakeholder analysis, Table 4 shows

the private benets that accrue to the various

groups of stakeholders involved in causing threats

to the coral reefs of Indonesia as well as to each of

the persons/families/boats/companies involved.

The aggregated numbers (last column of Table 4)

correspond with the total benets presented in

Table 2 (second column).

Interestingly, at US$0.121 million, net benets

per square kilometer to stakeholder groups are

highest for coral mining. Yet, private benets per

stakeholder (person/boat/company/etc.) are

highest to those involved in poison shing and

logging-induced sedimentation, ranging from

US$2 million per company in the case of logging

to over US$0.4 million per boat in the case of

poison shing. Side-payments are also particularly

high, very roughly estimated at some US$0.3 to

1.5 million for some receivers. At the other

extreme, coral mining is a rather marginal activity

for the mining families involved (for a discussion,

see Cesar et al. 1997).

Case study one: Total economic

value of a coastal area (Jamaica’s

Portland Bight)

Introduction and study area

On 2 April (Earth Day) 1999, the Jamaican

government declared its largest environmental

conservation area, the Portland Bight Protected

Area (PBPA). The PBPA is situated along Jamaica’s

southern coast, just west of Kingston (Jamaica’s

capital). Its marine region runs due south into the

Caribbean Sea along the 200-meter depth contour.

The area has a number of valuable ecological

resources, including coral reefs, wetland systems,

dry limestone forests, and a number of

endangered species. Some of these resources are

currently under threat of over-shing, dynamite

shing, pollutants (such as industrial waste, oil

and sewage), charcoal burning, wood cutting and

marijuana cultivation. The PBPA is classied as a

Individuals

Threat

Fishers Miners, Loggers Others (payments) Total per km

Poison shing 29

(468.6 per boat)

(23.4 per diver)

- 4

(317-1 585 per person)

Blast shing 15 (7.3 per sher) - ? 15

Mining - 67

(1.4 per mining family)

(18-54 per person)

121

Sedimentation

due to logging

- 98

(1 990 per logging family)

? 98

Over-shing 39 (0.2 per sher) - - 39

Table 4. Net benefits to stakeholder groups: (NPV at 10% discount rate over 25 years in US$’000; per km

. Benefits per stakeholder in

parentheses)

Source: Adapted from Cesar (1996) and Cesar et al. (1997).

The column “Others” presents the payments to third persons, sometimes referred to as “political rents”.

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“multi-use conservation area”, combining private

and public lands and activities such as agriculture

and industry alongside residential and wilderness

areas. The goal of the Portland Bight Management

Plan is to ensure the sustainable use of natural

resources and the conservation of threatened

species and ecosystems, while at the same time

meeting the needs of the current generation in

terms of physical and social infrastructure,

services, and income generation (CCAM, 1999).

The PBPA covers 520 km

of land (which includes

82 km

of wetlands and 210 km

of forests), and a

marine area of 1 356 km

. The land area of the

PBPA is 4.7 per cent of Jamaica’s total land mass,

an area larger than the entire island of Barbados.

Coral cays and reefs occur sporadically throughout

the marine area of Portland Bight, notably at the

edge of the island shelf. Mangrove wetlands

predominate along much of the coastline.

Shoreward, benthic regions of the Bight are

dominated by mudats. The Bight functions as

habitat for a number of marine organisms,

including the endangered West Indian Manatee

(Trichecus manatus). The PBPA also contains four

prominent examples of tropical dry limestone

forest, containing a unique evergreen forest as

well as cactus scrubs. The approximately 60 km

Hellshire Hills area is the largest remaining

pristine dry limestone forest in Central America

and the Caribbean. The Hills are home to the last

of the remaining Jamaican Iguana (Cyclura collei),

which is an endangered species endemic to the

island.

Resources, services and functions

The various ecosystems in the PBPA support a

host of different resources, services and functions

(RSFs). The most important ones are discussed

below.

Direct uses: These include sheries, harvesting

pelagic and demersal sh that feed along the

coral reefs and the rest of the island shelf of

Portland Bight. The shing grounds of South

Jamaica cover an area of almost 2 586 km

Lobster, shrimp and conch stocks, although

severely depleted, are an economically valuable

resource. A second direct use is forestry; products

from the limestone woods of the PBPA satisfy

local demand for timber products such as fuel

wood and charcoal. Mangrove wood is also

valued as a source of poles for fences, stakes,

scaffolds, and yamsticks, and is used in housing

construction. In addition, the mangroves and dry

limestone forests provide a host of non-timber

products, such as honey, orchids and medicinal

plants.

Indirect uses: The tourism and recreation sector

is a fundamental component of the Jamaican

economy, in 1997 attracting 1.8 million visitors

and over US$1.3 billion. In comparison with the

north coast, tourism along Jamaica’s south coast

is very undeveloped. The Portland Bight region,

like the rest of Jamaica, appeals to tourists

interested in relaxation, touring, swimming and

sunbathing, and enjoying natural surroundings

(Halcrow 1998). Other indirect uses relate to the

PBPA’s navigation function. Two major ports

located within the Bight are major alumina

storage and shipping complexes and are also used

for the export of goods and the import of oil,

grain, etc. The wetlands allow for natural waste

treatment, sediment retention and coastal

protection. The latter is important to prevent

coastal erosion. The mangrove and limestone

forests x carbon dioxide, a process referred to as

carbon sequestration. This is increasingly

recognized as an important ecosystem service

whereby mangroves offset CO

emissions, thus

helping to slow down the greenhouse effect

(Sathirathai 1998).

Non-uses: Some ecosystem functions are remote

and not accounted for as either direct or indirect

use. The many unique ecosystems contained

within the PBPA make an important contribution

to the biological diversity of the island, and

provide habitat or nesting areas for endangered

species, several of which are endemic to Jamaica.

This non-use function is related to use-functions.

Tourists come to enjoy the biodiversity and

culture, but the idea of “non-use value” is the

intrinsic existence of these functions independent

of human use.

The PBPA management plan and its

associated costs

The management plan for the Portland Bight

Protected Area (PBPA) prepared by the (CCAM)

Caribbean Coastal Area Management was

published in May 1999 and approved by the

Natural Resources Conservation Authority

(NRCA). The plan delineates the boundaries,

denes the management objectives, and outlines

specic management plans for almost every

natural resource in the PBPA. The management

plan describes the 28 different zones, and

explains the plans for community environmental

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education, enforcement and tourism development

within the PBPA. It contains a preliminary

assessment of the resources needed to manage

the PBPA, as well as suggestions as to how the

PBPA might be sustainably nanced. CCAM

intends to take a co-management approach,

promoting the management of the resources in

the project area as a joint effort of the stakeholders,

including the government. In the model being

pursued, co-management takes place through

resource management councils, made up of

representatives of the stakeholders in the resource

– including government agencies, resource users,

the private sector and NGOs.

Operational expenses of the PBPA will be nanced

from government subvention, user fees, income

from a trust fund and prots from tourism

activities and merchandizing. Grant funds will

play a large part in nancing the necessary capital

expenditures. The recurrent costs of the PBPA

Management Plan are estimated at US$1.496

million per year, while the capital investments are

estimated at US$2.422 million. The capital

budget consists of many items (computers, GPS

equipment, vehicles) that are typically written off

in a ve-year period. Using this ve-year write-off

period, the combined recurrent and capital costs

of managing the PBPA are roughly US$19.2

million over 25 years in net present value terms

(10 per cent discount rate). This information is

used in the following comparison of the costs

and benets of the PBPA.

Economic valuation

Each of the resources, services and functions

(RSFs) for the three categories of ecosystems

(marine; wetland; terrestrial) has an economic

value. The main problem with the valuation of

these RSFs is that their measurement in monetary

terms is time-consuming, and in some cases

impossible. Table 5 suggests a very rough rst

guesstimate of the most relevant values for the

Values

ß Direct economic value à ß Indirect economic value à ß Non-use à

Services &

Functions

Eco-

systems

Area

(km

)

Navigation

Recreation (Game, etc.)

Tourism

Forestry (non-timber)

Forestry (charcoal, etc.)

Fishery (habitat; catch)

Carbon xation

Coastal protection

Sediment retention

Waste treatment

Cultural heritage

Biodiversity

Etc.

Marine 1356 xxx - - xxx xx xxx xx xx xxx - xxx x

Seagrass ? xxx - - - - - xx xx x - xxx -

Coral reefs ? xxx - - xx xx - x x xx - xx -

Islets 1 - - - xxx - - - - xxx - - xx

Rest of the shelf ? x - - x xx xxx x x x - - -

Wetlands 82 xx x x xx xx - xxx xxx xx xx xxx -

Mangroves 55 xxx x x xx xx - xxx xxx xxx xx xxx -

Tidal marsh 12 xx - - x - - xxx xxx x - x -

Saline pools 15 x - - x - - x x x - x -

Terrestrial 438 - x x xxx xx - x xx x x xxx xx

Forest 210 - x x xxx xx - x xx x x xxx x

Shrubs, etc. 20 - x x x - - - - x x - -

Agriculture 168 - - - - - - - - - - x

Human/

Industry

40 - - - - - - - - - - xx

Total 1876 xxx x x xxx x xxx x xx xxx x xxx xx

* The higher the guesstimated value of the function, the larger the number of stars (x) – from 0 to 3 stars. The circles around a set of stars indicate that

the specic value for a function/resource can only be calculated for a set of ecosystems combined. The circles in the “Total” row indicate the functions

and resources for which a monetary valuation is given in the text.

Table 5. Categories of ecosystems in PBPA and their perceived economic values*

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various ecosystems in the PBPA. This is achieved

by giving every value for each of the ecosystems a

number of stars (0, 1, 2, or 3) depending on the

likely contribution of the ecosystem to the RSFs.

Not only is measurement of RSFs difcult, but

also certain values can only be calculated for a set

of ecosystems combined. In Table 5, this is

indicated by a circle around a set of ecosystems.

For instance, it is very hard to discuss the sheries

for mangroves, reefs, sea-grass and tidal marshes

separately given the complex interrelationships

between these ecosystems. For the tourism and

recreation function, a somewhat similar situation

exists; most tourists are interested in a package of

cultural and natural experiences, rather than in

individual elements of the package.

Fisheries: The total yield of the Portland Bight

shery in 1997 was 1 088.4 t. This corresponds to

0.8 mt/km

/yr. Haughton (1988) suggested that

the maximum sustainable yield (MSY) for the

south Jamaican shery is 2.2 t/km

(Cesar et al.

2000). Given the relatively low capital intensity,

this is close to the maximum economic yield

(MEY). At low levels of capital, MEY and MSY are

close, while at high levels of capital, the MEY can

be much smaller than the MSY. The discrepancy

between actual yields and the MEY (or MSY)

shows the enormous level of over-shing. Given

the open access nature of Jamaican coastal

sheries, it is assumed that current yields equal

the open access equilibrium (OAE), where all

economic rents are squeezed out of the market.

Espeut and Grant (1990) show reasonable prot

margins for south-shelf shers of 50 per cent (pot

shers) and 54 per cent (net shers). With

growing piracy, sh pot stealing and over-shing,

we assume that prots have declined to zero over

the last decade. This shows that the actual

economic value added has been squeezed out of

the sheries over the last 10 years. Cesar et al.

(2000) estimated that MSY prots are US$5000/

/yr or US$6.78 million for the PBPA at an

average sh price of US$2.8/kg. In the OAE, the

shery value would be zero.

Forestry: In the mangrove and limestone forests,

trees are cut for construction material, fuel wood

and charcoal production. Though some level of

mangrove thinning is sustainable if regulated

properly, wood extraction in the dry limestone

forests is unsustainable due to the absence of

Data are scarce given the illegality of this activity (see Cesar et al. 2000).

This is a very different picture from areas along Jamaica’s northern coast. For example, Gustavson (1998) calculated tourism values for Montego Bay

had a net present value associated with the hundreds of thousands of tourists ranging from US$210 million to US$630 million.

Costanza et al. (1997) give an annual value for coastal ecosystems of US$0.82/km

and for forests of US$0.66/km

. This would give a weighted average

of roughly US$0.75/km

for the relevant parts of the PBPA.

topsoil. In the Hellshire Hills, some 60 people are

involved in charcoal production

, creating a total

gross value per year of US$100 000. Harvesting of

non-timber products takes place at such a small-

scale that, here, the value of these non-timber

resources is put at zero.

Tourism and recreation: With the exception of

Hellshire Bay, a popular beach day-trip destina-

tion for local Kingston residents, the number of

tourists currently visiting the PBPA is very small.

Eco-tourism development possibilities in the

PBPA are suggested in Halcrow (1998). The extent

to which tourism develops depends on expansion

of facilities, marketing, and on reduction of

possible violence and tourism harassment

(Halcrow 1998). Two scenarios are identied in

this case study. In the rst, these constraints are

not adequately dealt with, while, in the second,

gradual and sustainable expansion of eco-tourism

is realized. In the latter scenario, the value of

tourism and recreation is taken to be US$0.75/

/yr based on benet transfers (Costanza et al.

1997)

of US$4.7 million for the whole PBPA

(assuming that one third of the area is of interest

to tourists). In the former scenario, we assume

(tentatively) that tourism prots are one tenth of

this amount (US$470 000), the same as in the

future “without PBPA” case. We further assume

that, currently, the value added from tourism is

zero.

Carbon xation: Growing forests can sequester

carbon. The net growth of dry limestone forests is

very limited and net carbon xation is assumed to

be zero. Mangroves have a much larger potential.

Sathirathai (1998) estimates a value of US$8 200/

/yr based on US$5.67 per tonne of carbon

and a primary productivity for mangroves in

Thailand’s Kanjanadit district of 1 510 t of carbon/

/yr. Using this value as a benet transfer, the

55 km

of mangroves in Portland Bight have an

annual value of US$45 million. It is assumed that

the net area of mangroves remains stable in the

PBPA, but that it would decline by 1 per cent

annually in the absence of good management.

Coastal protection: Mangroves and other

wetlands as well as coral reefs contribute to

coastal protection, as such ecosystems are able to

dissipate wave energy. In recent years, mangrove

destruction has resulted in damage to the coastal

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at US$52.6 million in present value terms (at a 10

per cent discount rate) in the optimistic tourism

scenario and US$40.8 million in the pessimistic

tourism case. Hence, the US$19.2 million costs

over the next 25 years (see above) are well justied

on economic grounds.

Case study two: Costs and benefits

of coral mining in Lombok,

Indonesia

Introduction

One of the key threats to coral reefs is the

extraction of corals for lime production and

construction materials. This is carried out in

many areas around the world, including East

Africa (Dulvy et al. 1995; Andersson and Ngazy

1995), South Asia (Brown and Dunne 1988;

Rajasuriya et al. 1995; Berg et al. 1998), Southeast

Asia (Cesar et al. 1997) and in the Pacic (Salvat

1987). Extraction of corals has a detrimental

effect on the reef ecosystem. For instance, a study

carried out by Dulvy et al. (1995) in Tanzania

showed that live coral cover in mined areas was

one third of that in the unmined sites. In addition

road going into the Portland Ridge. For the

Portland Bight, Cesar et al. (2000) estimated that

the total coastal protection value was around

US$3.55 million in NPV terms or nearly US$400

000 per year (with 10 per cent discount rate). It is

assumed, following Pet-Soede et al. (1999), that a

1 per cent loss in coastal ecosystems leads to a 1

per cent loss in the coastal protection function,

and this in turn leads to a loss of 1 per cent of the

value of the coastline. With a 1 per cent decline in

mangrove stands in the absence of park

management (but no decline with park

management), the benets of the PBPA in terms

of coastal protection are US$4 000 per year.

Biodiversity: To estimate biodiversity in a

developing country, Ruitenbeek (1992) suggests

taking the value of foreign support likely to be

available to protect the biodiverse resource

through NGOs, through the Global Environment

Fund and other means. A recent study for

Indonesia has shown that two marine parks were

able to capitalize on their global value of

biological diversity, by obtaining an average of

US$10 000/km

/year (Cesar et al. 2000). In the

PBPA, the areas of most interest in terms of

biodiversity are the Hellshire Hills, the Portland

Ridge, the wetlands, and the rest of the strip along

the coast. These areas, totalling about 200 km

could be eligible for global grant funding of

around US$10 000/km

/year, or a total annual

cash revenue of US$ 2 million.

Total benets of PBPA: The values of the

ecosystems’ services can be combined to calculate

the total benets of the PBPA (Pendleton 1995).

To do so, the difference in value between a “with

PBPA” scenario and a “without PBPA” scenario

needs to be calculated. However, as discussed, the

aggregation of economic values would still need

to take into account the compatibility of the

different functions for a specic use (Spurgeon

1992; Barton 1994). Of all the services discussed

above, the only one not compatible with

sustainable use is charcoal. Therefore, in the

“with PBPA” scenario, charcoal production will

stop. It is assumed that the changes are complete

in 25 years, so that sheries will be back at its

maximum sustainable yield in 2025.

Comparison of costs and benets: Table 6 pulls

together all the values of the ecosystem. The total

(incremental) benets of the PBPA are estimated

Table 6. Values for ecosystem services in the Portland Bight (US$’000)

“Without

PBPA”

“With PBPA”

Accumulated

difference

2000-2025

(in NPV)

Year 2000 2025 2000 2025

Fisheries 0 0 0 6 780 18 928

Forestry 100 100 0 0 -916

Tourism

(high) 0 470 0 4 700 11 809

Tourism

(low) 0 470 0 470 0

Carbon

xation* 0 0 450 450 4 122

Coastal

protection* 0 0 40 40 366

Biodiversity 0 0 2 000 2 000 18 322

Total

(high

tourism) 100 570 2 490 13 970 52 631

Total (low

tourism) 100 570 2 490 9 740 40 822

*These are calculated in net terms. This means that the “with” scenario

gives the net gains relative to the “without” scenario.

This section is based on Cesar (1996) and Ohman and Cesar (2000).

Note that the numbers in this column are not equal to the difference in the numbers of the previous two columns; they are the net present value of

the accumulated difference over the 25-year period.

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to these direct effects, loss of land and increased

sedimentation have also been reported (e.g.

Salvat 1987; Dulvy et al. 1995). If corals are

collected from a reef, recovery appears to be slow.

Dulvy et al. (1995) stated that recovery of the

reefs to the pre-disturbance live coral cover could

take up to 50 years.

Although coral extraction is destructive, it is a

source of income and subsistence for many

people in the developing world. Yet, by adversely

affecting the foundation of the reef, coral mining

is likely to result in longer term costs to society. In

this case study we analyze the cost and benets of

coral mining in Lombok, Indonesia. In a nancial

analysis we describe the mining business and

estimate its net prots. In the economic analysis,

we also consider the societal costs of coral mining

in terms of associated losses to reef functions,

specically shery, tourism and coastal protection

functions. The case study shows that the societal

costs far outweigh the private gains accruing to a

handful of individuals, even though these

individuals themselves have a clear interest to

continue, partly because of a lack of other income-

generating activities in the area.

Financial analysis: The coral mining

business

Lombok is an island situated in the south central

Indonesian archipelago between Bali and

Sumbawa. Its population of 2.4 million people

depends to a large extent on the island’s coastal

resources. Tourism is an important industry that

is growing rapidly. Other activities include shing

and mangrove forestry (Subani and Wahyono

1987; Cesar 1996). Coral mining for lime

production is a small-scale, but widespread,

industry around the island, with recently 500 to 1

000 families involved in the business. A case

study by Cesar (1996) described a small area in

West Lombok where 60 families have practised

mining on a 2 km long stretch of reef over a 10-

year period. The corals were collected, burnt and

sold as lime.

A crucial input for the mining process is locally

harvested fuel wood. The study found that each

family used roughly 20 m

of fuel wood taken

from a secondary forest. Another interesting

expense in the production of lime for each family

was the side-payments for “protection”, as coral

mining is illegal in Indonesia. This is important

to consider in the nancial analysis as it is a real

cost to the business. Finally, there were no labor

costs, as coral mining in Lombok is a family

business; fathers and sons do the mining and the

women break up the corals and are involved in

the burning and sieving processes.

Economic analysis: Societal costs of

coral mining

Extraction of corals for lime production affects

many essential reef functions. Here, three such

functions are discussed: sheries, tourism and

coastal protection. These three were selected as

they were considered to be quite important and

relatively easy to quantify. The sum of the

quantiable damage can be interpreted as a lower-

boundary of the total mining losses. As a result of

mining activities the functions of coral reefs will

decrease gradually. Figure 2 gives the assumed

paths over time, as elaborated in Cesar (1996).

Fringing coral reefs act as natural wave breakers

and protect against coastal erosion. In the

Lombok study it was assumed that coastal

protection would start breaking down after ve

years of mining. Tourism on the other hand,

would be affected immediately. As divers are

sensitive to the aesthetic appearance, other diving

destinations would become relatively more

popular. Therefore, it was assumed that after two

years, tourism would have vanished. It was further

suggested that no substantial recovery of the

corals would take place within the time frame of

the analysis. For sheries, it was assumed that reef

sheries would disappear and be replaced by a

less valuable pelagic shery.

For the economic valuation of the losses of these

functions, the case study presents two scenarios,

one in which there is limited tourism potential

and little coastal construction (the “low” scenario)

and one in which there is high tourism potential

and considerable coastal infrastructure (the

“high” scenario). All costs are calculated in NPV

terms for a 30-year time horizon. The NPV

expresses the discounted sum of annual costs

over the 30 years. The net loss of the shery

function was valued at US$74 900 in both

scenarios. For the “low” scenario, the loss of the

tourism function was estimated at US$2 900 and

that of the coastal protection function at US$12

000. In the “high” scenario, loss of tourism is

estimated at US$481 900 and erosion costs are

estimated at US$260 000 (see Figure 3 and

Table 7).

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

Figure 2. Destruction of coral reefs over time in the Lombok case study

“Low” scenario (US$’000) “High” scenario (US$’000)

Costs Benets Costs Benets

Direct costs Direct benets Direct costs Direct benets

Labor 0 Sales of lime 302 Labor 0 Sales of lime 302

Wood 67 Wood 67

Side-payments 54 Side-payments 54

Other costs 13 Other costs 13

Side-payments 54 Side-payments 54

Indirect costs Indirect benets Indirect costs Indirect benets

Coastal erosion 12 Coastal erosion 260

Increase in wood prices 67 Increase in wood prices 67

Other functions n/a Other functions n/a

Opportunity costs Opportunity costs

Foregone tourism 3 Foregone tourism 482

Net shery loss 75 Net shery loss 75

Labor costs 101 Labor costs 101

Total costs 392 Total benets 356 Total costs 1 119 Total benets 356

Costs to miners 235 Benets to miners 302 Costs to miners 235 Benets to miners 302

Net present value (economic) -33 Net present value (economic) -762

Net present value (nancial) 67 Net present value (nancial) 67

Table 7. Costs and benefits of coral mining per square kilometer in NPV terms

Figure 3. Costs and benefits of coral mining in a “high” scenario case

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

Table 7 also shows that there are three additional

items in the economic analysis. First, when

calculating mining prots in the nancial analysis,

labor costs were set to zero because only family

labor was involved. For the economic analysis,

however, these costs need to be imputed in some

way, as the mining family could have been

employed elsewhere (“opportunity costs”). These

costs were estimated at US$101 000 in NPV terms.

Secondly, the true costs of fuelwood were

assumed to be larger than the price paid by the

families, because of the unsustainable way in

which the logging was carried out. The economic

costs were assumed to be double the price paid.

Thirdly, the side payment paid by the mining

family for protection is a true cost to that family.

However, from an economic point of view, it is

merely a transfer of resources from one group in

society (the miner) to another (the protector), so

these costs were not incorporated.

Combining the net prots from mining with the

societal costs, Table 7 shows that the economic

cost imposed on society by mining is US$36 000/

for a “low” value scenario (costs are US$392

000 in NPV terms and benets are US$356 000).

For the “high” scenario, the contrast between

costs and benets is even more pronounced:

US$1 119 million versus US$0.356 million. This

means that the NPV of mining is US$-763 000 in

the “high” scenario. For both scenarios, therefore,

coral mining constitutes a signicant, long-term

loss to society.

Case study three: The economic

cost of coral bleaching in the

Indian Ocean

Introduction

The 1998 massive worldwide episode of coral

bleaching and subsequent damage to coral reefs

is likely to result in serious socioeconomic

impacts. With 135 persons per km

, the Indian

Ocean region is the most densely populated

coastal region in the world (WRI 1998). The

majority of the population is poor and the

dependence on sheries for income and animal

protein intake is high. Over-shing is already a

major threat and coral bleaching could worsen

this. In other areas, coastal tourism and diving are

the main income-generating activities; in the

Maldives 45 per cent of the GNP stems directly or

indirectly from tourism revenues. Furthermore,

the land area around the Indian Ocean is prone

to seasonal cyclones; coral reefs form natural

barriers to protect the coastline from erosion. In

Sri Lanka, severe coastline erosion has already

occurred in areas where the reef substrate has

been heavily mined. Countermeasures to prevent

further erosion are already costing the Sri Lankan

government around US$30 million (Berg et al.

1998).

This case study aims to provide a plausible range

of expected damage estimates in monetary terms.

It is based on studies carried out under the “Coral

Reef Degradation in the Indian Ocean” program

(CORDIO). Specically, this case study

summarizes the tourism and sheries studies

carried out in 1999-2000 under this umbrella

program in the Maldives, Sri Lanka, Tanzania and

Kenya. The data are generalized to arrive at an

overall estimate for the Indian Ocean. Monetary

values do not express the true losses to coastal

populations dependent on reefs and to others

enjoying these ecosystems. Yet, these values can

hint at the extent of the problem. And this can

assist in raising awareness of the bleaching

problem.

Uncertainty and scenarios

The uncertainty surrounding many of the

relationships between coral bleaching and coral

mortality on the one hand and ecosystem services

on the other is enormous. In addition to that, the

recovery rate of reef areas after widespread

mortality is difcult to predict. In order to

consider possible future outcomes, two scenarios

are explored. In the rst, damage to the reef is not

too bad and recovery is relatively quick; in the

second, damage is great and there is very slow or

no recovery, with the result that long-term

impacts are severe. These two scenarios were

postulated in Wilkinson et al. (1999) and further

specied as described below.

The optimistic first scenario

• A slight decrease in tourism-generated income

and employment, as some divers stay home or

go elsewhere, and few tourists alter their

behavior.

• Some change in the sh species composition.

(Initially, sh productivity increases with

larger numbers of herbivores; catch reductions

for ornamental sh, etc.).

• No major change in the coastal protection

function, as bio-erosion of dead reefs and

coral growth of new recruits even each other

out.

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The pessimistic second scenario

• Major direct losses in tourism income and

employment, especially when charismatic

marine fauna disappear as a result of bleaching

and resulting mortality.

• Fish productivity drops considerably as the

reef structure disintegrates, resulting in less

protein in the diet, particularly for coastal

communities.

• The reef ceases to function as a protective

barrier, resulting in increased coastal erosion.

Valuation of economic damage

Given the mainly long-term impacts of coral

bleaching and the only limited time that has

elapsed since the bleaching episode of 1998, it is

very difcult to translate the current results from

the CORDIO socioeconomic studies into a long-

term valuation estimate. With this caveat,

estimates of the cost of coral bleaching on

tourism, sheries and other reef services are

presented.

Tourism: Financial and economic costs for the

Maldives and Sri Lanka in 1998-99 are shown in

Table 8. Financial costs are actual costs to the

economy from tourism losses. The economic

costs express the welfare loss to all concerned

individuals transpose in the world due to coral

bleaching in a specic country. This expresses a

global value but not a gure from which a

national government can directly benet. The

description for these two countries and the costs

for 1998-99 closely matches those derived in the

“optimistic scenario”. Although the long-term

impacts are uncertain, it is assumed that they will

follow the optimistic scenario. It is assumed that,

after the second year, tourism growth rates return

to normal, and hence the losses are the

accumulated losses over time due to a two-year

dip in growth rates. Estimates of total coastal

tourism around the Indian Ocean could not be

obtained, but, based on general data in

Westmacott et al. (2000c) and on guesstimates by

the author, it is assumed that relevant affected

tourism in the Indian Ocean is approximately

three times the losses in the Maldives plus ten

times the losses in Sri Lanka. This gives a total

tourism loss of US$389 million for the whole

Indian Ocean in present value terms over a 20-

year time horizon and with a 10 per cent discount

rate.

For the pessimistic scenario, if we assume long-

lasting impacts, the data from Kenya and Tanzania

seem to be relatively close to the scenario

description. These estimates come from a

hypothetical willingness-to-pay (WTP) study,

where tourists were surveyed in relation to a

severe bleaching and associated mortality event.

The nancial cost of coral bleaching in Zanzibar

in 1998-99 was estimated at a mid-point of

US$3.8 million. In Mombasa, this was calculated

at a mid-point of US$16.7 million. The total

economic cost

of the coral bleaching in Zanzibar

was estimated at a mid-point of US$6.2 million

and for Mombasa US$29.2 million. To arrive at

an estimate for the rest of the Indian Ocean, the

Zanzibar and Mombasa estimates were extra-

polated based on available information.

Fisheries: The sheries losses are even more

uncertain than those of tourism. In a recent case

study by McClanahan and Pet-Soede (see

Westmacott et al. 2000a), no signicant impacts

of coral bleaching in Kenya were found. This

follows quite closely the optimistic scenario

described above. If we assume that in the future

this observation will remain, there are zero

nancial losses in sheries. The case of a

pessimistic scenario is problematic as no hard

shery data are available on which to estimate the

losses. On this issue, we follow Wilkinson et al.

(1999) by assuming that the bleaching and

Financial costs

(US$M)

Economic costs

(US$M)

1998-99 NPV 1998-99 NPV

Maldives 3.0 14.8 19.0 93.6

Sri Lanka 0.2 1.0 2.2 10.8

Rest of

the Indian Ocean 11.0 54.4 79.0 389.0

Table 8. Optimistic scenario: Financial and economic costs for the

Maldives, Sri Lanka, and the rest of the Indian Ocean for 1998-99

and net present value (NPV) over 20 years

Here, we take total economic costs as the sum of the nancial and economic costs as presented in Westmacott et al. 2000b.

Financial costs

(US$M)

Economic costs

(US$M)

1998-99 NPV 1998-99 NPV

Zanzibar 3.8 32.6 6.2 52.6

Mombasa 16.7 1 41.9 29.2 248.6

Rest of

the Indian Ocean

205.0 1 744.9 354.0 3 011.4

Table 9. Pessimistic scenario: Financial and economic costs for

Zanzibar, Mombasa and the rest of the Indian Ocean for 1998 and

net present value (NPV) over 20 years

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mortality witnessed in the Indian Ocean leads to

a loss of 25 per cent of reef-related sheries from

year 5 until year 20. In the rst ve years, this

percentage grows linearly from 0 per cent to 25

per cent. Following Costanza et al. (1997), the

value of shery production is assumed to be

US$220/ha/yr.

Other reef services: Other services provided by

reefs include coastal protection, research, etc. For

coastal protection, we assume a value of US$174/

ha/yr (Wilkinson et al. 1999). Other reef services

are valued at US$97/ha/yr, based on Costanza et

al. (1997). The calculations for coastal protection

were based on the assumption that, in the Indian

Ocean, around 25 per cent of reef areas protect

medium to high value infrastructure and 75 per

cent protect low value infrastructure. It was also

assumed that around 50 per cent of the reef areas

have high tourism potential and 50 per cent have

low tourism potential. For this calculation, the

present value data of Cesar (1996) were

annualized. In the pessimistic scenario, bleaching

in the Indian Ocean is assumed to lead to a

decline in reef services of 50 per cent, starting

from year 5, with a lineal growth from 0 per cent

to 50 per cent in the rst 5 years. These percentage

losses in services are multiplied by the annual

value of the services, and summed across the

services to give total annual losses per hectare per

year. This number is multiplied by the 36 100 km

of reefs in the Indian Ocean. Finally, the net

present value over a 20-year period is taken, using

a 10 per cent discount rate.

Summary: Table 10 summarizes the information

above. In the pessimistic scenario, total damages

over a 20-year time period are valued at over

US$8 billion, and arise primarily from coastal

erosion (US$2.2 billion), tourism loss (US$3.3

billion), and shery loss (US$1.4 billion). In the

optimistic scenario described above, the losses

are still considerable, but are of the order of

magnitude less than the damage in the pessimistic

scenario, and stem mainly from a US$0.5 billion

loss of tourism revenue.

Discussion

Why do economists want to value something as

invaluable as coral reefs? The answer could well

be, “because coral reefs are so beautiful that we

want to make sure that our grandchildren can

enjoy them as well.”

Yet, there are many coastal populations who are

unaware of the goods and services that coral reef

ecosystems provide and who do not appreciate

the complex linkages of the natural world.

Creation or transformation of markets for

environmental goods might help overcome these

problems. Markets could also assist in cases

where people use coral reefs unsustainably and

even destructively, and where politicians with

short-term views fail to provide funds for coral

reef management, even though the long-term

costs of inaction are typically much higher than

the funds needed initially.

One important challenge in economic valuation

studies is to identify to whom the benets (real or

virtual) accrue. In TC studies, some of the costs

are paid and accrue to local or foreign business

operators. Most costs are, however, virtual. They

describe, for example, a potential willingness-to-

pay for a specic improvement in reef quality in a

national park. In the case of CVM, all values are

virtual in the sense that there are no actual cash

transactions involved.

A second important challenge is the fact that

valuing all the benets of coral reefs is often

frustrating, and sometimes nearly impossible.

The good news is, however, that not all benets

have to be valued. Assume it can be shown that

net benets to blast shers is lower than societal

losses from the loss of sustainable shing income

and tourism revenues combined. In that case, no

complicated techniques are needed and no major

data collection on the value of bio-prospecting,

biotic services and physical structure services are

required; two services that can be measured in

monetary terms sufce to show the costs of

inaction.

When valuing reef-destructive activities such as

coral mining, the type of valuation presented

above provides information that is useful for

designing reef management plans. Comparing

Scenarios

Coral reef ecosystem services

Optimistic

scenario

Pessimistic

scenario

Food production (e.g. sheries) 0 1 361

Tourism and recreation 494 3 313

Disturbance regulation

(coastal protection)

0 2 152

Other services 114 1 200

Total 608 8 026

Table 10. Estimates of the overall economic valuation of the

socioeconomic impacts of the 1998 coral bleaching event in the

Indian Ocean (Net present value in US$M over a 20-year time horizon

with a 10% discount rate)

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

mining prots with the associated societal costs

can signicantly raise awareness of the long-term

detrimental impacts of coral mining. Furthermore,

an understanding of the nancial returns to coral

miners will increase the appreciation of the

driving forces behind each miner’s behavior and

so improve the design of management plans.

As has been shown in this paper, economic

valuation can be used to raise the awareness of all

those involved in the use and management of

coral reefs, with the result that the beauty of the

coral reefs may be enjoyed forever.

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J.D. van der Werff, S. Westmacott and R. Huber). 1999.

Issues in applied coral reef biodiversity valuation:

Results for Montego Bay, Jamaica. World Bank

Research Committee Project RPO#682-22 Final

Report, World Bank, Washington D.C.

Sathirathai, S. 1998. Economic Valuation of Mangroves

and the Roles of Local Communities in the

Conservation of Natural Resources: Case Study of

Surat Thani, South Thailand, EEPSEA Research Report

Series, Singapore.

Salvat, B. (ed.) 1987. Human Impacts on Coral Reefs: Facts

and Recommendations. Antenne de Tahiti Museum,

E.P.H.E.

Sawyer, D.A. 1992. Taka Bone Rate: Management,

development and resource valuation of an

Indonesian atoll. Dalhousie University, Halifax,

Canada. M.A. thesis.

Seenprachawong, U. 2004. An economic analysis of

coral reefs in the Andaman Sea of Thailand. In these

proceedings.

Spash, C.L., J.D. van der Werff, S. Westmacott and H.J.

Ruitenbeek. 1998. Lexicographic preferences and

the contingent valuation of coral reef biodiversity in

Curaçao and Jamaica. Study prepared for the World

Bank. World Bank, Washington D.C.

Spurgeon, J.P.G. 1992. The economic valuation of coral

reefs. Marine Pollution Bulletin 24:529-536.

Subani, W. and M.M. Wahyono. 1987. Study on

destruction of coastal ecosystem and its impact on

the shery resources on the south coast of Bali, west

and east coast of Lombok, and Jakarta Bay. Journal of

Marine Fisheries Research 42:53-70.

Westmacott, S., H. Cesar and L. Pet-Soede. 2000a.

Socioeconomic assessment of the impacts of the

1998 coral reef bleaching in the Indian ocean. In

D. Souter, D. Obura and O. Linden (eds.) Coral reef

degradation in the Indian Ocean: Status Report 2000.

CORDIO, Sweden.

Westmacott, S., I. Ngugi and J, Andersson. 2000b.

Assessing the impacts of the 1998 coral bleaching

on tourism in Tanzania and Kenya. In S. Westmacott,

H. Cesar and L. Pet-Soede (eds). Assessment of

the socioeconomic impacts of the 1998 coral reef

bleaching in the Indian Ocean. CORDIO, Sweden.

Westmacott, S., H. Cesar, L. Pet-Soede and O. Linden.

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

2000c. Coral bleaching in the Indian Ocean:

Socioeconomic assessment of effects. In H. Cesar.

2000. Collected essays on the economics of coral

reefs. CORDIO, Sweden.

Wilkinson, C.R., O. Linden, H. Cesar, G. Hodgson, J. Rubens

and A.E. Strong. 1999. Ecological and socioeconomic

impacts of 1998 coral mortality in the Indian Ocean:

An ENSO impact and a warning of future change?

Ambio 28(2):196-199.

World Resources Institute (WRI). 1998. World resources

1998-1999. UNEP, UNDP and the World Bank, Oxford

University Press, Oxford, U.K.

Wright, M.G. 1994. An Economic Analysis of Coral Reef

Protection in Negril, Jamaica.Williams College,

Williamstown, Massachusetts. Thesis.

Yeo, B.H. 2004. The recreational benets of coral reefs:

A case study of Pulau Payar Marine Park, Kedah,

Malaysia. In these proceedings.

Study Direct

Use

Indirect

use

Non-

use

Total

economic

value

Benet/

opportunity

cost ratio

1 Cahuita National Park, Costa Rica; Marcondes (1981)

√ √

2 Virgin Islands National Park, St. Johns; Posner et al. (1981)

√ √

3 Great Barrier Reef; Carter et al. (1987)

√

4 Great Barrier Reef ‘Region’; Hundloe et al. (1987)

√ √

5 Bacuit Bay, Philippines; Hodgson and Dixon (1988)

√

6 Philippines; McAllister (1988)

√

7 Galapagos National Park, Ecuador; Edwards (1991)

√

8 Philippines Coral Reefs; McAllister (1991)

√

9 Galapagos National Park; de Groot (1992)

√ √ √ √ √

10 John Pennekamp/Key Largo; Leeworthy (1991)

√

11 Panama Coral Reefs; Spurgeon (1992)

√

12 Valdez Oil Spill, Alaska; Hausman et al. (1992)

√

13 Valdez Oil Spill; Carson et al. (1992)

√

14 Bonaire Marine Park; Dixon et al. (1993)

√

15 Taka Bone Rate Coral Reef Atoll, Indonesia; Sawyer (1992)

√

16 Bonaire Marine Park; Pendleton (1995)

√

17 Coral Reefs at Negril, Jamaica; Wright (1994)

√

18 Indonesia Coral Reefs; Cesar (1996)

√ √

19 Montego Bay Coral Reefs; Spash et al. (1998)

√

20 Montego Bay Coral Reefs; Gustavson (1998)

√ √

21 Great Barrier Reef; Driml (1999)

√

22 Montego Bay Coral Reefs; Ruitenbeek and Cartier (1999)

√

23. Eastbourne, English Channel; King (1995)

√

24 John Pennekamp Coral Reef State Park & adjoining Key Largo

National Marine Sanctuary; Mattson and DeFoor (1985)

√

25. Pulau Payar Marine Park, Malaysia: Non-Use Value;

Ayob et al. (2001)

√

26. Recreational coral bleaching and the demand for coral reefs:

A case study; Ngazy et al. (2004)

√ √

27. An economic analysis of coral reefs in the Andaman Sea of

Thailand; Seenprachawong (2004)

√ √

28. Valuation of recreational benets: An application of the travel

cost model to the Bolinao coral reefs in the Philippines; Ahmed, et al.

(2004)

√

29. Analysis of the recreational value of the coral-surrounded Hon

Mun Islands in Vietnam; Pham and Tran (2004)

√

30. Recreational benets of coral reefs: A case study of Pulau Payar

Marine Park, Kedah, Malaysia; Yeo (2004)

√

Annex I: Economic values for marine systems – a compilation from the literature

Summary table

Reproduced from Cesar (2000), Pearce and Moran (1994), Cartier and Ruitenbeek (1999) and other articles.

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

1 Cahuita National Park, Costa Rica; Marcondes

(1981)

Direct use:

A form of TC appraisal of the recreational value of

the Cahuita National Park, Costa Rica. Consumer

surplus estimates were derived from observed

wage equivalent travel time net of transport costs

multiplied by visitor population. The resulting

benet-cost ratio demonstrated that the park is

economically benecial.

Benet/opportunity cost ratio:

Cahuita National Park ratio 9.54. (A

conventionally assessed ratio rather than one

based on opportunity cost.)

2 Virgin Islands National Park, St. Johns; Posner

et al. (1981)

Direct use:

Conventional benet-cost analysis of the Virgin

Islands National Park, St. Johns, identied

signicant direct and indirect benets associated

with the park, particularly tourist expenditure

and the positive effect on land values in proximity

to the designated area. Little information is

available on the environmental effects of

alternative land uses or the extent of visitors’

consumer surplus. Total benet (1980)

approximated US$8 295/ha over about 2 820 ha

of National Park on St Johns.

Benet/opportunity cost ratio:

Ratio of total (direct and indirect) benets to total

cost 11.5 (A conventionally assessed ratio rather

than one based on opportunity cost.)

3 Great Barrier Reef; Carter et al (1987)

Direct use:

Estimating the socioeconomic effect of the Crown

of Thorns starsh on the Great Barrier Reef. This

TC study provided estimates of consumer surplus

of AU$117.5 million/year for Australian visitors

and AU$26.7 million/year for international

visitors. The study showed that tourism to the reef

is valued (in NPV terms) over and above current

expenditure levels by more than AU$1billion.

4 Great Barrier Reef ‘Region’; Hundloe et al.

(1987)

Direct use:

A TC study of the Great Barrier Reef estimated

AU$144 million/year consumer surplus for

domestic tourists and international tourists,

based on travel cost expenditure by visitors to the

‘Reef Region’.

The same study estimated consumer surplus from

visits to coral sites and the ‘Reef Region’ of the

Great Barrier Reef at AU$106 million/year, based

on TC to coral sites by domestic and international

tourists, and includes all attributes of the ‘Reef

Region’.

A CVM study on the Great Barrier Reef also

provides an estimate of AU$6 million/year

consumer surplus, or over AU$8/adult visitor

WTP to see coral sites in their present (1986-87)

condition; based on a survey of visitors to reef

sites only, thereby excluding all other attributes of

the Great Barrier Reef ‘Reef Region’.

Non-use:

Based on a 1986 mail survey of Australian citizens

older than 15 years, the CVM study estimated

AU$45 million/year consumer surplus or AU$4/

visit WTP to ensure that Great Barrier Reef is

maintained in its current state. Estimate excludes

respondents who had visited the Reef.

5 Bacuit Bay, Philippines; Hodgson and Dixon

(1988)

Direct use:

Using (EoP) productive change method, the

study at Bacuit Bay, Philippines, concluded that

the PV gross revenue for recreation and tourism

of the location is US$6 280 with logging, versus

US$13 334 with logging ban. Computation was

based on mean hotel capacity, occupancy, and

daily rates; and an assumed 10 per cent annual

decline in tourism revenue due to degradation of

seawater quality from sedimentation.

The study also estimated the PV gross revenue for

sheries to be US$9 108 with logging versus

US$17 248 with logging ban, based on assumed

constant returns to scale of natural systems; and

on regression analysis of sediment loading, coral

cover and species, and sh biomass

relationships.

CBA study evaluates management options: (i)

continuation of logging as usual; (ii) logging ban

in Bacuit Bay drainage basin.

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

6 Philippines; McAllister (1988)

Direct use:

Using productivity change, the study estimated

US$80 million/year of loss in sh production in

Philippines caused by dynamiting, muro-ami,

and poisoning of coral reefs; based on estimates

of current and potential production. Production

levels were calculated for varying levels of reef

quality.

Productivity Change was also used to estimate

the aquarium trade in the Philippines. Global

aquarium trade attributable to the Philippine

Coral Reefs (US$10 million in 1988) could be

increased by 50 per cent with sustainable

production practices. The price of Philippine

aquarium species is discounted internationally

due to method of capture.

7 Galapagos National Park, Ecuador; Edwards

(1991)

Direct use:

Using Hedonic Demand Analysis, based on a non-

linear regression using cost, duration, and

itinerary data from travel brochures, as well as

cost and duration survey data, this study

estimated vacation value of Galapagos National

Park, Ecuador at US$312/day/person in 1986.

8 Philippines Coral Reefs; McAllister (1991)

Indirect use:

A Replacement Cost study of coastal protection

afforded by the Philippines coral reefs. The study

estimated US$22 billion, based on construction

costs of concrete tetrapod breakwaters to replace

22 000 km

of reef protection. As reported by

Spurgeon (1992).

9 Galapagos National Park; de Groot (1992)

Direct use:

Using productivity change method on Galapagos

National Park, de Groot estimated US$0.40/ha/yr

(permitted) ornamental product sales; US$0.70/

ha/yr local sh and crustacean harvest; and

US$5.20 /ha/yr construction materials as having

productive use value within the “production

function” category of environmental functions.

The study also estimated US$45/ha/yr for

recreational value for the total protected area,

based on maximum carrying capacity of 40 000

visitors/year, and average expenditure per visit of

US$1 300.

US$2.73/ha/yr was estimated for education and

research of marine areas, based on research

expenditures, and expenditures on eld courses,

fellowships, training courses, education facilities

and materials.

Indirect use:

A Replacement Cost study for organic waste

treatment at Galapagos National Park estimated

US$58/ha/yr based on the costs of articial

purication technology (applies to marine area

only).

Shadow Price was used to estimate the cost for

biodiversity maintenance. Estimate of US$4.9/

ha/yr, equal to 10 per cent of the market value of

any activity reliant on biodiversity maintenance.

Classied as a conservation value of the Galapagos

National Park, in the category of ‘regulation

functions’.

The same study also estimated US$0.55/ha/year

for nature protection; based on the park budget

and the idea that money invested in conservation

management should be seen as productive capital

because of the environmental functions and

socioeconomic benets provided by conservation

of Galapagos National Park.

Non-use:

Based on sales of books and lms, de Groot

estimates US$0.20/ha/yr for cultural/artistic

inspirational use; based on donation, de Groot

estimates US$0.52/ha/yr for spiritual use for

Galapagos National Park.

An option value of US$120/ha/yr was also

estimated, which is equal to the total value of all

the park’s conservation and productive use values

combined. Conservation values include inter alia

habitat/refugia value and recreation, while

productive uses include food, construction

materials, etc.

Total economic value:

Total annual monetary returns from direct and

indirect use of Galapagos National Park

approximate US$120/ha/yr. In present value

terms this represents US$2 400/ha (at 5 per cent

discount rate) or almost US$2.8 billion for the

entire study area.

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

Benet/opportunity cost ratio:

Benet Transfer was used by de Groot on

Galapagos National Park: US$7/ha/yr was

estimated based on the similarities of the Dutch

Wadden Sea and Galapagos estuarine areas. It was

assumed that 10 per cent of shery in Galapagos

depends on the nursery function provided by

inlets and mangrove lagoons.

10 John Pennekamp/Key Largo; Leeworthy

(1991)

Total economic value:

TCM estimates a consumer surplus for recreation

and tourism of US$285 to US$426/person/day,

based on a survey of some 350 park users in 1990

at John Pennekamp/Key Largo, Florida. Nine

models were estimated, nal range was taken

from the two models which best tted the data.

The inclusion of an ‘opportunity cost of time’

variable was found to increase signicantly

consumer surplus estimates.

11 Panama Coral Reefs; Spurgeon (1992)

Direct use:

Based on a percentage of the Smithsonian

Research Institute’s budget for work in Panama,

the education and research value of Panama coral

reefs is estimated at US$2.5 million in 1991. One-

sixth of the 1991 US$15 million budget is

considered attributable to coral reefs in Panama.

On the other hand, the education and research

value of the Belize coral reefs value was estimated

at US$150 000/year, based on annual

expenditures by UK Coral Cay Conservation to

maintain 25 researchers on reefs in Belize.

12 Valdez Oil Spill, Alaska; Hausman et al.

(1992)

Direct use:

A Recreation Demand study estimated the value

of recreation use losses caused by the Valdez oil

spill in Alaska at US$3.8 million (1989).

13 Valdez Oil Spill; Carson et al. (1992)

Non-use:

A CVM study of oil spill by the Exxon Valdez

estimated median per household WTP of US$31

as a one-off amount to prevent future oil spills.

Aggregating over affected households derives an

estimate of US$2.8 billion as the total lost passive-

use values as a result of the Exxon Valdez oil spill.

14 Bonaire Marine Park; Dixon et al. (1993)

Total economic value:

A CVM study on recreation and tourism at the

Bonaire Marine Park reports a mean annual WTP

estimate of US$27.4 for diving. At visitation rates

of 18 700 divers (1992) paying US$10/diver/year

fee, estimated consumer surplus is US$325 000.

Using productivity change, gross tourist revenue

estimated at US$23.2 million (1991). The study

also estimated the revenues and costs of dive

tourism, and the carrying capacity of dive sites

(4 000–6 000/site/year, for a total of 190 000–200

000).

15 Taka Bone Rate Coral Reef Atoll, Indonesia;

Sawyer (1992)

Direct use:

A productivity change study on Taka Bone Rate

Coral Reef Atoll in Indonesia estimates PV gross

revenues (in billion Rp): -2 to 103 without

management vs 47 to 777 with management;

based on shing activity surveys; and sensitivity

analyses wherein sh catch declines are 0-15 per

cent and the discount rates are 5 to 15 per cent.

CBA study evaluates management options: (i) no

management; (ii) establishment of marine park

with regulated shing.

16 Bonaire Marine Park; Pendleton (1995)

Total economic value:

Economic valuation for dive at Bonaire Marine

Park, using productivity change method, net

tourism revenue estimated to be US$7.9 to 8.8

million (1991); based on ownership and prot

data.

TCM study yields consumer surplus of US$19.2

million.

Park NPV study based on 20 year period

discounted at 10 per cent estimates local benets

at US$74.21 million and consumer surplus as

US$1 79.7 million.

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

17 Coral Reefs at Negril, Jamaica; Wright

(1994)

Total economic value:

Based on CVM survey data and 162 000 visitors/

year on Negril, Jamaica, the study elicits WTP of

US$31/person/year for a consumer surplus of

US$5 million/year to maintain coral reef in

current condition; and US$49/person/year for a

surplus of US$8 million/year to restore reefs to

“excellent” condition.

TCM was also used to estimate a demand curve

for vacations; the coral reef consumer surplus was

netted out of vacation consumer surplus to

examine the resultant shift in demand and

reduction in tourist volume if reef quality should

decline.

18 Indonesia Coral Reefs; Cesar (1996)

Direct use:

Using productivity change method on Indonesian

coral reefs, NPV of sheries loss/sq km estimated

at: US$40 000 (poison shing); US$86 000 (blast

shing); US$94 000 (coral mining); US$81 000

(sedimentation); and US$109 000 (over-shing);

based on assumptions about the reef and shery

impacts of these practices. The study uses CBA to

compare the private and social net benets of a

sustainably managed reef shery, with those of a

shery subjected to detrimental shing practices,

coral mining, or sedimentation.

The same method was used to estimate the NPV

of tourism loss/km

of reef in Indonesia. It was

found to be: US$3 000 to US$436 000 (from

poison shing); US$3 000 to US$482 000 (blast

shing and coral mining); and US$192 000

(sedimentation) based on assumptions regarding

the rate of reef degradation associated with each

practice. CBAs for each activity (inc. reef-

destroying activity) estimate the value of tourism

loss. For each activity, reef degradation causes a

decrease in potential tourism revenue. All rates of

change are based on assumptions.

Indirect use:

Using productivity change method, NPV of

coastal protection/km

of reef was estimated at

US$9 000 to US$193 000 (blast shing); US$12

000 to US$260 000 (coral mining); based on

replacement costs, the rate of reef destruction by

each activity, and the rate of decline in the reef’s

ability to protect. CBAs for each reef-destroying

activity include the cost of protective function

losses. For each activity, reef destruction reduces

the protective capability of the reef. The reef’s loss

of protective capability is linked linearly to its

protective value.

19 Montego Bay Coral Reefs; Spash et al.

(1998)

Non-use:

Using CVM on Montego Bay coral reefs, with

survey design specically targeted to dealing with

lexicographic preferences through probing of

zero bids and analysis of zero bids using Tobit

estimation. Expected WTP for non-use value of

tourists ranged from US$1.17 to US$2.98 for 25

per cent coral reef improvement; for locals range

was US$1.66 to US$4.26. Upper values were for

respondents perceiving strong moral duties and

rights; lower were for no such duties/rights. Based

on population characteristics, non-use NPV of

Montego Bay reefs estimated to be US$19.6

million.

A similar CVM survey with similar design as

Montego Bay study was conducted at Curacao

coral reefs. Expected WTP for non-use value of

tourists ranged from US$0.26 to US$5.82, for

locals, range was US$0.19 to US$4.05. Based on

population characteristics, non-use NPV of

Curacao reefs estimated to be US$4.5 million.

20 Montego Bay Coral Reefs; Gustavson (1998)

Direct use:

Using productivity change method, NPV of

US$1.31 million was estimated for artisanal

sheries at Montego Bay Coral Reefs (1996);

including trap, net, handline and spear-shing by

local shers. Cost of inputs is deducted from

gross values to arrive at net values. Base case

assumes shadow price of labour of 75 per cent

market rate; 100 per cent market valuation leads

to negative NPVs for shing.

Recreational NPV of coral reefs at Montego Bay

was estimated at US$315 million (1996) in the

study. Calculation included tourist-related accom-

modation, food and beverage, entertainment,

transportation, retail and miscellaneous services.

Cost of service provision is deducted from gross

values to arrive at net values.

Indirect use:

Using productivity change method, the NPV of

coastal production at Montego Bay coral reefs

was estimated at US$65 million (1996); based on

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Economic Valuation and Socioeconomics of Coral Reefs: Methodological Issues and Three Case Studies

value of land at risk or vulnerable to coastal

erosion along foreshore. Author notes this is

upper value and is dependent on erosion

incidence assumptions in absence of reef, which

are highly speculative.

21 Great Barrier Reef; Driml (1999)

Direct use:

Using productivity change method, gross

revenues of sheries on Great Barrier Reef is

estimated at AU$143 million (1996), based on

1995/6 catch data for major commercial species,

and a survey of current sh prices. Study updates

Driml (1994), estimates presented in Driml

(1997) and Driml et al. (1997).

The study also estimated the gross recreational

value for the Great Barrier Reef at AU$769 million

(1996) using productivity change method. This

includes AU$647 million for commercial tourism

and AU$123 million for recreational shing and

boating; based on volume and price data for

hotel stays and reef trips, and survey data for

private recreational boat use. This study also

updates Driml (1994).

22 Montego Bay Coral Reefs; Ruitenbeek and

Cartier (1999)

Indirect use:

Value of Montego Bay coral reef based on model

incorporating drug values, local bio-prospecting

costs, institutional costs, discovery success rates

for marine extracts, and a hypothetical bio-

prospecting program for the area using National

Cancer Institute sampling protocols. Model

highlights role of revenue-sharing arrangements

and ecosystem yield in deriving total benets and

marginal benets. Average net social value of

species in base case is estimated to be US$7 775.

Based on base case sampling program, total social

NPV of Montego Bay reef area is US$70.09

million. First differential of the benet function

yields US$225 000/% or US$530 000/ha coral

abundance.

23. Eastbourne, English Channel; King (1995)

Direct use:

Using CVM, based on 179 randomly selected

individuals, with 167 responses, the mean WTP

for recreational beach use and reduction in the

frequency of oil spill were estimated at £1.78 and

£1.41 respectively. 80 per cent of the zero WTP

were protest votes. The aggregated annual

recreational use value of the beach was estimated

at £4.5 million. It was estimated as a product of

mean WTP and the total number of beach days

(2.6 million based on the Eastbourne Tourism

Survey conducted in 1990). King considers this as

the lower bound of the value as non-use and

option values are not included in the calculation.

24 John Pennekamp Coral Reef State Park &

adjoining Key Largo National Marine Sanctuary;

Mattson and DeFoor (1985)

Direct use:

Using TC, the study estimated revenue for the

beach use from recreational diving, sightseeing

and snorkelling at US$47.6 million for 1984-

1985, or US$85 per square metre for John

Pennekamp Coral Reef State Park and adjoining

Key Largo National Marine Sanctuary.

Number of visitors was estimated from the

visitors going through the park gate (644 628

people) and those going into the water (467 370

people) from 1 July 1984 to 30 June 1985. About

64 per cent of the total estimated water visitors go

to the reef in dive boats. Travel costs include

expenses on transportation, meals, lodging, dive

trip costs, air tank lls and a portion of diving

gear costs.

25. Pulau Payar Marine Park, Malaysia: Non-

Use Value; Ayob et al. (2001)

Non-use:

Using CVM (referendum) method, the study

aims to elicit the WTP from non-users of Pulau

Payar Marine Park for non-use values. The WTP

for non-use values computed averaged RM31.02

(US$8.16) and dropped to RM30.14 (US$7.93)

with revision. Respondents agreed to contribute

to the fund for bequest value (52 per cent),

existence value (22 per cent) and option value

(17 per cent).

26. Recreational coral bleaching and the

demand for coral reefs: A case study; Ngazy et al.

(2003)

Direct use/Total economic value:

Based on a CVM questionnaire survey with 157

divers, the study elicited an average WTP of

US$84.7 extra per person per year to dive in more

pristine reef sites. Based on the WTP, the authors

estimated the economic loss due to bleaching

ranged between US$1.6 and US$4.8 million

WorldFish Center | Economic Valuation and Policy Priorities for Sustainable Management of Coral Reefs

Estimating the Value of Coral Reef Management Options

depending on whether 25 per cent or 75 per cent

of visitors to Zanzibar dived. The nancial

revenue from diving ranged between US$2.5 and

US$7.4 million on the same assumption.

27. An economic analysis of coral reefs in the

Andaman Sea of Thailand; Seenprachawong

(2003)

Direct use:

Using TCM, the study estimated the annual

benet from the recreational services of Phi Phi at

US$205.41 million. That is, the value of Phi Phi is

about US$6 243 per ha per year.

Total economic value:

CVM was used to estimate utility values associated

with coral reef biodiversity at Phi Phi. The mean

willingness to pay (WTP) per visit was estimated

at US$7.17 for domestic visitors and at US$7.15

for international visitors. The total value of Phi

Phi’s coral reefs was estimated to be US$147 000

a year for domestic visitors and US$1.24 million

a year for international visitors. The CVM study

also estimated the total value (use and non-use)

of the reefs to be US$497.38 million a year,

averaging US$15 118 per ha per year.

28. Valuation of recreational benets: An

application of the travel cost model to the

Bolinao coral reefs in the Philippines; Ahmed,

et al. (2003)

Direct use:

Using TCM, the study estimated an average

consumer surplus of US$223 per person,

equivalent to US$1.3 million based on the crude

estimate of 5 845 visitors to the reef at Bolinao in

the peak season during March to May in 2000.

29. Analysis of the recreational value of the

coral-surrounded Hon Mun Islands in Vietnam;

Pham and Tran (2003)

Direct use:

Using the zonal TCM, the study estimated the

recreational value of the coral-surrounded Hon

Mun Islands to be US$17.9 million a year. The

annual recreational value estimated for the

islands using the individual TCM was

approximately US$8.7 million.

CVM was used to elicit WTP to a MPA trust fund,

with total WTP from domestic tourists estimated

at US$241 239 and WTP from foreign tourists

estimated at US$175 450.

30. Recreational benets of coral reefs: A case

study of Pulau Payar Marine Park, Kedah,

Malaysia; Yeo (2003)

Direct use:

91 per cent of visitors interviewed were willing to

pay an entrance fee to Pulau Payar Marine Park,

estimated at an average WTP of slightly more

than US$4. Using CVM, the annual recreational

value was estimated to be US$390 000.