Pricing the environment: a critique

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Abstract
A distinction is drawn between opportunity cost and willingness to pay (wtp) approaches to valuing the environment. Wtp is the appropriate measure in situations where there is no prior commitment to environmental standards, otherwise opportunity cost measures apply. Wtp would not normally or properly be used to formulate environmental standards. For a wide range of environmental attributes, where the conditions of direct perception of the environmental problem do not hold, meaningful expressions of wtp cannot be obtained. In these circumstances the underlying model of the Pigovian externality which leads to attempts to measure wtp is inapplicable. While a decision rule based on wtp could still be used it possesses no welfare significance. The critique has implications for sustainability when defined to require trade-offs between natural and person-made capital. Sustainability is practically achieved by developing a set of environmental standards.

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