Basic Principles of Economics
Conducting an economic study to aid in shoreline management decisions can be a useful way to understand current and future costs associated with different shoreline management approaches. However, economic analysis for resource management can be very complex and controversial, as some people disagree with trying to put a "price tag" on ecosystem services and resources.
Local, state, and federal agencies are responsible for making resource management decisions, and economic analyses are one tool to assist in this decision-making process. Economic valuation can be useful since it provides agencies with numbers to compare to dollar figures presented by homeowners or developers concerned with coastal erosion.
The following is an introduction to the basic principles of economics and how economics can be used to value natural resources:
Economics can be used to answer general questions such as:
- What is the value of a good or service?
- What is the value of one good or service compared to another?
- What are the costs and benefits of a decision?
The economic value of a good or service is measured by what a person is willing to give up to have that good or service. In a market-based economy, economic value is typically measured in dollars. How then, do we determine the value of goods that are not bought and sold in a market (such as a wide, sandy beach or a healthy tidal wetland)?
Natural resource economics translates the value of environmental, non-market goods into a dollar value, so they can be compared to market goods. There are several methods that can be used to place an economic value on goods that are not sold in a market.
For example, let's say a city is trying to decide whether some coastal property should be sold and developed for private housing, or turned into a public beach. The immediate value of converting the property to private development could be determined by how much the city could sell the property for. But how do they determine what it is worth to make it a public beach? Several different economic valuation techniques could be used to estimate its value as a public beach: the city could look at how much people spend to visit the beach; if leaving the property undeveloped increases nearby property values; if some people may be willing to pay a tax or fee to have a public beach; or if potential negative impacts or costs would be avoided by not developing the land. By conducting an economic analysis, the city could compare, from an economic perspective, which choice was preferable.