Demand-Side Value for Ecosystem Services and Implications for Innovative Markets: Experimental Perspectives on the Possibility of Private Markets for Public Goods

Environmental economists invest in measuring the value of the environment but putless efforttoward integrating that value directly into the economy. Experimental economists evaluate the performance of mechanisms to fund public goods but in some cases offer limited insight into practical implications for developing markets. This discussion presents initial insights into applying mechanisms for private provision of public goods based on demand-side values rather than regulatory- based market incentives such as cap-and-trade policies. Consideration of mechanisms to generate revenue inspires field tests that could direct experiments using threshold public goods and Lindahl's framework toward applications that transform value into revenue.Key Words: aesthetic value, auction, cultural ecosystem services, Lindahl pricing, nonmarket valuation, provision point, rebate, wildlife habitatThe concept of ecosystem services places emphasis on the benefits that nature provides for human well-being and has become a significanttopic in discussions of market-like or incentive-based approaches to provision of public goods. My purpose here is to stimulate further a research agenda regarding market-based approaches, an agenda at the frontier of environmental economics. This agenda comes, in part, from a simple observation exemplified by a comment by Geoffrey Heal as we took an academic break at the foot of the Front Range of Wyoming (about 1999], Professor Heal observed that our profession spends an awful lot of effort trying to estimate values for the environment and not much effort in attempting to integrate those values directly into the economy. So my purpose here is to offer some initial insights, to outline some conceptual challenges and example issues surrounding the potential for economists to expend effort toward incorporating individuals' environmental values into the economy.First, we should consider whether there is evidence that private markets for public goods will work. After all, we know that free-riding is a robust individual- level strategy. Yet we also know that philanthropic organizations exist and have a substantial impact for ecosystem services. Second, in an experimental marketto support grassland nesting habitat for birds, Swallow etal. (2008] and Swallow, Anderson, and Uchida (2012] generated around $9,000 in revenue despite not yet having the ability to optimize the price or marketing strategy. Third, Smith (Smith 2012, Smith and Swallow forthcoming) ran a successful field experiment in Virginia's two poorest counties and obtained substantial monetary support for restoration of sea grass and habitat for fall-migrating birds. The perspective I offer here comes from thinking about these latter experiences.Environmental policy and management for rural lands, including agricultural, forest, and wild lands, in the United States has moved from multiple-use management through ecosystem management as key foundational concepts, contributing to development of new, interdisciplinary fields such as conservation biology (Swallow 1996] and sustainability science (Hart and Bell 2013], Over the last decade or so, science and policy discussions have developed the concept of ecosystem services as a focus thatmotivates humans to support conservation. The ecosystem service concept might enable managers to leverage the power of self-interest by placing an explicit emphasis on the benefits that ecosystems and the environment provide to humans. This process led to the Millennium Ecosystem Assessment (2005], which produced a widely adopted taxonomy of ecosystem services. That system identified provisioning services (e.g., seafood, water, wood], regulating services (e.g., climate mitigation, wetlands buffering capacity for flood mitigation], cultural services (e.g., hunting, fishing, hiking landscape appreciation], and supporting services (e.g., ecosystem processes that support production of the other services].Recently, Johnston and Russell (2011] contributed explicit and flexible criteria linking ecosystem services to a general and delightfully parsimonious model of human utility. …