The value of a watershed as a series of linked multiproduct assets

Abstract

This paper views ecosystem as long-lived multiproduct factories. Increased use of one ecosystem good or service (function) often affects the supplies of other ecosystem functions. The relationships between these functions can be modeled in terms of key variables related to ecosystem management. Thus, the analyst can determine the different mixes of functions an ecosystem can perform. Watersheds can be viewed as a series of ecosystems linked spatially and temporally by the downward flow of water. Changes in the mix of upstream ecosystem functions change the mix of downstream ecosystem functions. The paper presents an approach to valuing one ecosystem as a multiproduct factory using consumer surplus. The author then proceeds to apply the same methodology to a watershed viewed as a series of linked multiproduct assets. Because the flow of water closely links upstream and downstream ecosystems, a watershed can be treated as one unit and valued accordingly. However, this approach obscures a question of particular interest. If erosion in an upstream ecosystem causes it to lose value, but in turn causes the wetlend downstream to gain value. does the value of the watershed rise or not? The paper examines this issue in terms of boundaries, redundancy and defensive expenditures, sustainability, and other factors which must be considered in the economic valuation of the watershed.