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Edited by Paulo A.L.D. Nunes, Pushpam Kumar and Tom Dedeurwaerdere
Chapter 7: The behavioral argument for an expanded valuation framework for biodiversity and ecosystem services
The cornerstone of Walrasian welfare economics is a model of human behavior characterizing consumer preferences as stable, consistent, insatiable, and independent of the preferences of others. The assumptions embodied in Homo economicus underlie the theoretical assumptions and policy recommendations of most economists, whether explicitly acknowledged or not. In this model, economic value comes solely from the preferences of perfectly rational, self-regarding individuals. For example, environmental economics has become predominantly concerned with uncovering the 'true' value of environmental features using techniques such as hedonic pricing and contingent valuation. Preferences revealed by these techniques can then be used in benefit-cost analysis (BCA) to suggest corrections in market prices and/or to assign property rights more completely (Heal, 1998; Stavins, 2008). Recent work in theoretical welfare economics has exposed flaws in the Walrasian model that have led many theorists to reject a basic principle supporting BCA, that is, that preferences can be characterized as independent and exogenous so that interpersonal comparison of utility can be avoided (Boadway, 1974; Chipman and Moore, 1978; Blackorby and Donaldson, 1990; Ng, 1997; Bowles, 1998; Suzumura, 1999; Gowdy, 2004). Furthermore, it has been well-established in the behavioral literature that preferences are other-regarding, and that they vary significantly according to cultural conditioning, relative position, and other reference points (Henrich et al., 2001; Camerer et al., 2005). Understanding the social process of preference formation is critical to formulating sound economic policies (Kahneman et al., 1999; Knetsch, 2005).
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