www.elsevier.com/locate/agee

Agriculture, Ecosystems and Environment 120 (2007) 21–30

A consistent valuation and pricing framework for

non-commodity outputs: Progress and prospects

Alan Randall *

Agricultural, Environmental, and Development Economics, The Ohio State University, 2120 Fyffe Road, Columbus, OH 43210-1067, USA

Received 22 August 2005; accepted 13 March 2006

Available online 16 November 2006

Abstract

The non-commodity outputs of multifunctional agriculture are richly detailed in terms of type, quantity, quality, and accessibility to

demanders. An ideal valuation and pricing framework must be sensitive to these details, while dealing consistently with programs varying

widely in scale and scope. A consistent valuation and pricing framework is outlined, in which multifunctional agriculture programs generate

values (not directly, but via effects that modify the quantity and quality of valued services), and these values (reflecting quantity, quality, and

location of services produced) are implemented at the farm level as green prices. Economic valuation methods for non-commodity services

are introduced, the empirical literature is summarized, methods of generalizing from that literature are discussed, and the current state of

empirical knowledge is assessed. Some strategies are suggested for systematically assessing the economic value of non-commodity outputs of

agriculture, and some principles for effectively implementing MFA policy at the farm level are offered.

# 2006 Elsevier B.V. All rights reserved.

Keywords: Multifunctional agriculture; Economic value; Valuation framework; Valuation methods; Meta-analysis; Benefits transfer; Aggregation issues;

Spatial considerations

1. Introduction

Agriculture produces a broad array of valuable amenities

in addition to commodity outputs. The concept of multi-

functional agriculture (MFA) is intended to capture the

valuable products, beyond food and fiber commodities, that

come from agriculture. A list of these products might include

open space, wildlife habitat, environmental amenities,

recreation and tourism, rural community vitality, ‘‘natural’’

and organic food and fiber products, food safety and security,

production using traditional methods and historical buildings

and equipment, and cultural landscape. If commodity outputs

alone were at stake, free markets would ensure their efficient

production and pricing. The MFA concept has economic

cogency when non-commodity outputs are valued but would

be unpriced (or systematically underpriced), and therefore

underproduced, in a free-market world. The economic

* Tel.: +1 614 292 6423; fax: +1 614 292 4749.

E-mail address: randall.3@osu.edu.

0167-8809/$ – see front matter # 2006 Elsevier B.V. All rights reserved.

doi:10.1016/j.agee.2006.03.036

argument for taking MFA seriously is a market-failure

argument (Romstad, 2004) – free markets fail to value non-

commodity outputs fully, and thus to provide incentives for

their optimal production – implying a role for public policy to

correct the market failure. It could be disputed whether all of

the non-commodity outputs claimed for MFA are subject to

market failure, as would be implied by specific public policies

to augment their production. Market failures pertaining to

food safety and food quality might be resolved via labeling,

food security might be assured via storage strategies rather

than by subsidizing domestic agricultural production, and the

values associated with rural community vitality should be

confined to aesthetic values associated with settlement

patterns in order to avoid falling into the trap of confusing

economic impacts with economic welfare. Even if all of these

objections were granted, there is nevertheless a rich and

lengthy list of legitimate market failures attending multi-

functional agriculture.

Despite a linguistic divide – the term, multifunctionality,

seems to have originated in Europe and still generates some

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–3022

discomfit in New World agricultural circles – MFA

objectives are in fact supported by agricultural policies in

the United States and the European Union. Various US

federal and state programs set aside land in conservation,

wetlands, and grasslands reserves, subsidize environmen-

tally friendly practices, support ‘‘natural’’ and/or organic

production of food and fiber, and provide economic

incentives to encourage agricultural and/or open-space uses

of land. In the European Union, MFA objectives are

supported by agri-environmental programs of many kinds,

regional assistance programs, and structural adjustment

through investment aid. In both the US and the EU,

traditional agricultural commodity programs also support

MFA objectives (it is claimed), to the extent that they are

defended as supporting rural communities and traditional

values associated with farming (typically, the family farm in

the US, and cultural landscape in Europe) (Latacz-Lohmann

and Hodge, 2003).

The objective of this article is to outline what would be

involved in a consistent valuation and pricing framework for

the non-commodity outputs of MFA, and to evaluate the

progress that has been made so far in formalizing such a

framework, adapting non-market valuation methods for

consistency with the framework, and building a body of

empirical evidence about non-commodity values.

Before proceeding to a discussion of how the economic

value of non-commodity production might be assessed, it is

appropriate to ask why: to what purposes might this

information usefully be put? At a minimum, we might assess

the economic value of MFA programs in order to conduct

some kind of benefit cost analysis and policy evaluation.

However, there is more at stake than the benefit cost

question. Optimal MFA policy requires the right kind of

incentives, ideally, explicit prices for non-commodity

outputs. (For convenience, in the following it will be

referred to non-commodity outputs as ‘‘green outputs’’ and

their prices as ‘‘green prices’’.) Consistent with the market-

failure model, green prices are likely to be shadow-prices

imposed by governments, although one can imagine green

markets generating efficient green prices for some kinds of

non-commodity outputs. Note, however, that the market-

failure model is not a license for government to pursue its

whims unconcerned with efficiency; to the contrary, the

model is addressed explicitly to the search for efficient green

prices and efficient levels of green production. An

implication is that, ideally, green prices should be targeted

ultimately to local conditions as they affect demand and

supply, with farm-level monitoring so that payments can be

linked to demonstrated farmer performance. Taking these

concerns seriously places a heavy burden on the valuation

task.

To this point, the discussion of green pricing has

proceeded as though commodity prices were efficient for the

most part. However, systematic distortion of agricultural

commodity prices via subsidies and trade barriers has

become the norm in the wealthier countries. As international

trade negotiations tackle the difficult task of reducing

distortions in commodity markets and trade, MFA policies

come under scrutiny. In particular, when green prices

stimulate commodity production, trade economists worry

that they may represent a creative new approach to the old

agenda of agricultural subsidization and protection (Ander-

son, 2000; Bohman et al., 1999; Thornsbury et al., 2003).

The task of reconciling green pricing and commodity

trade is simple enough in principle: both are justified in so

far as they enhance efficiency and welfare. We can dispose

immediately of commodity price supports in service of MFA

objectives—except in the special case of fixed-proportions

joint production of commodity and non-commodity outputs

(such that commodity and non-commodity production

increase proportionately), they are inefficient, trade-distort-

ing, and fail the test of increasing domestic welfare.

Commodity price supports effectively deliver money to

farmers, but they are seldom an efficient way to encourage

production of non-commodity outputs.

It becomes more complicated to disentangle the trade and

domestic welfare issues when we consider the possibility

that optimal green prices for non-commodity outputs may

nevertheless have output-increasing effects on commodity

production. Several authors have explored the production

relationships between commodity and green outputs (e.g.,

Blandford and Boisvert, 2002; Gatto and Merlo, 1999;

Romstad et al., 2000). When commodity and green

production compete for resources (such that more of one

kind of production tends to mean less of the other), green

prices are unlikely to provoke trade concerns. However,

when commodity and green production are complements

(for example, when least-cost commodity production

processes contribute also to scenic amenities and cultural

landscape), green payments are likely to increase domestic

commodity production, reducing imports or increasing

exports as the case may be. Yet, given optimal green prices,

domestic welfare is optimized and such policies cannot

meaningfully be labeled trade-distorting (Randall, 2003). In

contrast, a policy or trade regime that sets green prices

inefficiently low would be suboptimal for green production

and domestic welfare.

The efficiency argument depends crucially on monitoring

and enforcement of green production obligations. Policies

that pay for green commodity production technologies

without monitoring and enforcement would increase

commodity outputs and distort trade without any beneficial

effects on green production (Randall, 2003), and provide an

opening for skeptical observers (e.g., Thornsbury et al.,

2003), who worry that MFA policies and rhetoric enhance

the opportunities for rent-seeking strategies on the part of

nations inclined toward agricultural protectionism. How-

ever, the market-failure model, with its concern for

enhancing efficiency, provides no support for such policies.

For optimal green pricing, principles of performance-

based policy design have to be applied. If green payments are

not ideally structured, green production may be sub-optimal

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–30 23

and trade distortions may be exacerbated. The right green

prices are contextual, particular, and richly detailed.

Optimality requires targeting down to the sectoral and local

levels, yet that provides great challenges—there is a

multiplicity of non-commodity outputs, each of them is

multidimensional, and value at the farm level involves variety,

quantity, quality, location, and availability of substitutes and

complements. Finally, effective MFA policy requires farm-

level monitoring to complete the nexus between green

payments and green production. All of this places a substantial

burden on the valuation enterprise: some fine distinctions

must be made, in terms of amenity type, quantity, quality, and

accessibility to demanders; and the valuation framework must

be consistent as we move from single to multiple amenities,

and from local to continental spatial scales, and back again.

The outline of the article is as follows: in Section 2, the

requirements for a consistent valuation and pricing frame-

work for non-commodity outputs of agriculture are outlined.

Valuing MFA policies and programs requires researchers to

determine the environmental effects of policy actions,

establish the changes in services and amenities that are

attributable to these effects, and value the changes in

services. Estimated values are conditioned upon quantity,

quality, and location of services produced and of substitutes

and complements. The problem of consistency as we move

from single to multiple amenities, and from local to

continental spatial scales, is addressed. Spatial relationships

matter, but we are only beginning to incorporate these into

valuation schemes.

Section 3 assesses what we know today about the values

of non-commodity services. Valuation methods are sur-

veyed, the empirical literature is summarized, methods of

generalizing from that literature are discussed, and the

Fig. 1. Valuing policie

current state of empirical knowledge is assessed. Section 4

suggests some strategies for assessing the economic value of

non-commodity outputs of agriculture, and offers some

principles for effectively implementing MFA policy at the

farm level. Section 5 offers some concluding comments on

economic valuation in the MFA context, and reminds us that

the economic valuation enterprise is inherently interdisci-

plinary.

2. Multifunctional agriculture—the valuation task

MFA is supported by a complex web of policies and

programs designed to influence farmer decisions so as to

increase production of a considerable variety of non-

commodity outputs farm-by-farm on a regional, national, or

even continental scale. In addition to the well-known

challenges of valuing non-market services, three additional

kinds of challenges arise. First, the task is to value not just

services but policies and programs. Second, spatial

considerations mediate the conditions of production and

demand for non-commodity outputs. Finally, the non-

commodity outputs of agriculture constitute a complex,

multi-dimensional package, and require a valuation frame-

work that is consistent as we move from single to multiple

amenities, and from local to continental spatial scales, and

back again.

The task, familiar but nevertheless challenging to

economists, of valuing non-commodity services is only

the final step in the process of valuing policies and programs

(Fig. 1). This process involves several intervening steps—

linking policies and programs to effects, linking effects to

changes in services, and valuing those changes in services.

s and programs.

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–3024

Programs provide incentives and perhaps constraints that,

interacting with environmental conditions and farmer

decisions, generate effects (e.g., additional areas of

terrestrial habitat are produced). This habitat produces

various non-commodity services (e.g., wildlife improve-

ments that support ecosystem integrity and enhance

recreational opportunities), a process mediated by farmer

and user decisions. These services are valued by users and

passive users. The whole process takes place within a web of

public laws, policies, and regulations.

While the arrangement illustrated in the figure (effects

generate services, which are valued) is typical, valuation

efforts may sometimes be addressed more readily to effects

than to services. People value habitat for its various services

that they use actively or passively, yet it may be convenient

to enquire about their willingness to pay (WTP) for habitat

directly, rather than to specify its services and value each of

them. In other cases, an extra step prior to valuation is

involved—habitat enhances wildlife, which supports

increased wildlife viewing activity, and these additional

activity-days are valued.

Valuing policies and programs requires substantial

natural science input and, ideally, interdisciplinary colla-

boration among natural scientists and economists. Consider

the task of specifying the links from programs to effects. The

step from farmer decisions to effects is perhaps primarily a

task for natural science (Gagnon et al., 2004), but economic

thinking is helpful in predicting how policies and programs

influence farmer decisions. The link between effects and

services seems also to require mostly natural science input,

until we consider that output of services is a matter of supply

and demand, which is influenced by farmer and user/

consumer decisions—again, economics is more central to

the enquiry than might appear at first glance. The link

between services and their values calls most obviously for

economists’ input, but it surely helps to know something

about the ways people access and use services; and natural

and social scientists have a lot to offer, here.

In the context of MFA, spatial issues merit explicit

attention. At every step in the process from policies and

programs to changes in the level of environmental services,

spatial considerations matter: spatial scale and scope, border

effects, and pattern effects produced by various disconti-

nuities and non-linearities. Interdisciplinary collaboration

among spatial modelers and economists is necessary, if

spatial issues are to get the attention they deserve. For

valuing changes in environmental services, scarcity and

substitution/complementarity relationships are, among other

things, spatial in nature and systematically affect non-

market values (Schlapfer and Hanley, 2003). Economists are

just beginning to incorporate explicitly spatial considera-

tions into non-commodity valuation strategies. Already,

there have been some successes—explicitly spatial, ‘‘gen-

eral equilibrium’’ hedonic analyses have been developed

(Epple and Sieg, 1999), and have potential application to

multifunctional agriculture.

MFA produces a complex vector of outputs, varying in

the dimensions of variety, quantity, quality, location, and

availability of substitutes and complements, and generating

use and passive usevalues. From a valuation perspective, then,

multifunctional agriculture is perhaps the ultimate complex

policy. The components of a complex policy typically are not

independent, but are linked by substitution and complemen-

tarity relationships, as well as by mutual scarcity operating

through the budget constraint. It might seem easiest to value

each component independently and add up the values thus

obtained, in order to arrive at a total value for the complex

policy. However, Hoehn and Randall (1989) show that such a

procedure (called independent piecewise valuation) is

generally invalid, whereas, a valid valuation scheme for

complex policies is theoretically and empirically much more

demanding. To avoid the independent piecewise valuation

problem, the outputs of multifunctional agriculture should be

valued as a package on a national or continental scale. Hoehn

(1991) and Hoehn and Loomis (1993) have made progress

toward a practicable framework for consistent valuation of

complex policy. Yet green prices should reflect local

differences in local demand and supply conditions for green

production. While the basic framework has been outlined, it

remains a considerable challenge to achieve consistency in

empirical implementation.

3. What do we know, today, about the value of non-

commodity outputs?

The short answer is that the theory of value for changes in

the level of non-market services is well-developed, valuation

methods are fairly well-established but have their strengths

and weaknesses, and there is a substantial empirical

literature (especially, concerning environmental services

and amenities); but challenges remain in generalizing from

the empirical evidence and applying the results to estimate

the benefits of particular projects, programs, and policies.

The remainder of this section reviews some of the reasoning

and evidence in support of these claims.

3.1. Theory of non-market valuation

Economic valuation attempts to provide an empirical

account of the value to people of the services and amenities

produced, in the present case, by multifunctional agriculture.

This value account should serve simultaneously as a

utilitarian account of the contribution of multifunctional

agriculture to human welfare (Randall, 1999), and as the

source of a set of efficient virtual prices to direct resource

allocation. This perspective of economic valuation as

utilitarian accounting clarifies some crucial issues that

may otherwise seem obscure and confusing: what kinds of

value count, and what evidence of value counts.

The foundation of economic valuation is welfare change

measurement: the value of some proposed action is the

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–30 25

welfare change it will generate, measured in monetary

terms. The conceptually valid measures of welfare change

are WTP for benefits, and willingness to accept (WTA) for

costs. These value concepts are utilitarian, because the

stipulation of willingness ensures that individuals calibrate

their WTP (or WTA) to ensure that they would be as well-off

with the proposed action and WTP paid (or WTA received)

as they would be if no action was taken. Furthermore, these

value concepts are relevant not only to the policy domain but

also to markets, where they are manifested in the form of

buyer’s best offer and seller’s reservation price. To calculate

values for the affected population, these individual values

are aggregated without making any adjustment to reflect

individual differences in income and wealth. For making

policy judgments, this aggregation procedure generates

some controversy because it implies greater value for the

things that well-off people want. Nevertheless it persists,

most likely because alternative ways of aggregating welfare

across individuals are controversial, too.

Individuals may gain utility from an amenity in several

ways: active use, quiet enjoyment, and enjoying the

assurance that the amenity (say, a cultural landscape) is

being maintained in good condition. A complete utilitarian

account of economic value captures the total economic value

of the prospective change in amenity levels, which is the sum

of use value and passive use value. There is no claim that

total economic value, however, captures the totality of value:

there are many different ways of valuing. Total economic

value, then, represents a comprehensive application of the

economic way of valuing. Use value includes the expected

value of future use. If uncertainty attends future availability

of the amenity or future demand for it, and potential users are

risk-averse, use value under uncertainty may include option

value and quasi-option value.

3.2. Valuation methods1

Evidence of value may take several forms, and methods

have been developed to exploit these forms of evidence.

There is a considerable variety of valuation methods in use,

and they vary in several relevant dimensions—conceptual

foundations, range of applicability, limitations, and caveats

that apply. Methods are divided into two categories. Those

based on evidence from existing markets include calcula-

tions based on market prices and/or consumers’ surplus, the

avoidance cost method, the replacement cost method, weak

complementarity methods (e.g., travel cost), and hedonic

price analysis. Stated preference methods include contingent

valuation and choice experiments.

Market prices or (better yet) market demands for the

amenity itself, market demands for related goods (e.g.,

1 The following discussion is impressionistic. More complete expositions

are provided by Champ et al. (2003), Freeman (2003), and Haab and

McConnell (2002). The NRCS Ecosystem Benefits website provides a

good introduction for non-specialists: (http://www.smcm.edu/Users/

cmmattia/assets/professionalDevelopment/research/NRCS/index.htm).

demands for travel services and housing may be related to

the presence of recreation and aesthetic amenities), and

expressions of WTP (or WTA) obtained in experiments or

surveys of various kinds, all provide evidence of utility and

value. For example, there is evidence that foods that are

‘‘natural’’, organic, locally grown, and/or processed in

heritage buildings using traditional methods enjoy a price

premium in the marketplace (van der Lans et al., 2001). With

well-developed markets, this price premium may capture all

of the use value of these non-commodity attributes, although

there remains the possibility of passive use values (people

who do not purchase these products may nevertheless be

willing to pay something to ensure their continued

availability). For that reason, all these forms of evidence

should be taken seriously. There is room, however, for

debate about whether some forms of value evidence should

be taken more seriously than others. Economists often prefer

behavioral evidence to stated values in principle, arguing

that the threshold of commitment is higher in undertaking

costly behaviors than in ‘‘merely’’ stating a value.

Researchers have identified various apparent inconsistencies

in stated preference data sets, and some have interpreted this

as evidence of systematic bias in methods, especially

contingent valuation (Hausman, 1993). However, two kinds

of countervailing issues arise. First, behavioral evidence is

incomplete, and not equally available for all relevant kinds

of value. Use value is likely to be reflected (at least, in part)

in behavioral evidence such as purchases, visits, and so on.

But there is no general expectation that passive use values

leave behavioral traces—contributions to voluntary organi-

zations providing preservation, and political support for pro-

preservation policies may offer glimpses, at best, of passive

use value. Thus, stated preference methods are necessary

when passive use value and total economic value are at issue.

Second, many forms of behavioral evidence (e.g., visits to

recreational sites) do not generate value estimates directly;

value can be estimated only with the aid of various

researcher-chosen analytical assumptions and conventions

that are arbitrary to some degree but may influence the value

estimates obtained. Two examples highlight different

aspects of the problem. Randall (1994) emphasizes the

difficulties inherent in accounting for the real costs of

recreational travel. The information needs of the random

utility model – the travel cost model of choice (McFadden,

2002) – can be effectively overwhelming, and simplifying

analytical assumptions and conventions (adopted to sub-

stitute structure for information) may influence results

obtained.

Progress in valuation methods requires that the range of

valid application of market-based methods be expanded and/

or the credibility issues with stated preference methods be

resolved. Several promising developments provide a basis

for optimism. The thriving research program in experi-

mental economics is documenting that data generated by

‘‘real money’’ experiments exhibit quirks that are similar in

direction, if not always in degree to those that occur with

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–3026

contingent valuation (Camerer and Hogarth, 1999; Horowitz

and McConnell, 2002; List and Shogren, 1998; McFadden,

1999). Some of the unexpected results obtained with stated

preference methods seem rooted in robust patterns of human

behavior, rather than problems with the SP methods

themselves. More generally, the familiar categories of

valuation methods seem to be breaking down. Advances in

information and communications technologies are facilitat-

ing the melding of quantitative and qualitative methods,

surveys and experiments, and modes of administration.

Furthermore, combining existing methods, a process already

underway, will expand our capacity to calibrate valuations

and extend their range (Cameron, 1992; Adamowicz et al.,

1994; Adamowicz et al., 1998).

3.3. Generalizing from the empirical literature

Already, there is a substantial literature addressing

aspects of the green benefits of European agriculture. Drake

(1992), Hanley et al. (1999), and several of the papers in

Willis et al. (1999) provide examples. In keeping with the

market failure model, this empirical literature is mostly

about services and amenities with public-goods attributes.

This includes a broad array of environmental services,

including wildlife and habitat, landscape aesthetics, and

water quality. Cultural landscape, regarded as an amenity, is

clearly included; and although cultural landscape does not

loom large among the cultural heritage resources assessed in

Navrud and Ready (2002), the methods used therein are

clearly applicable to cultural landscape. Rural vitality is

included in many lists of non-commodity outputs of MFA,

but it does not fit well into the market-failure/public-goods

model (Ollikainen and Lankoski, 2005); a non-market

valuation literature for rural vitality has not emerged.

There is a much larger literature reporting environmental

valuation studies worldwide. A complete compendium is

elusive, but the magnitude of some incomplete lists is

impressive. Carson (2003) reports more than 5000 studies

using contingent valuation methods. Navrud and Vagnes

(2000) identified 650 European studies, and one would

expect the number to be considerably greater today. Richard

Bishop (personal communication) maintains a bibliography

of wetlands valuation studies that has grown to about 400

entries. Villa et al. (2002) list 146 ecosystem valuation

studies worldwide. Environmental valuation databases listed

Table 1

Environmental valuation studies—databases convenient for meta-analysis

Database Reference, country Subject

EVRI De Civita et al. (1998), Canada Environment, h

Envalue James et al. (2004), Australia Environment, h

RUVD Kaval and Loomis (2003), USA Recreation

RED European Commission (2003), EU Externalities

ValueBase Sundberg and Soderqvist (2004), Sweden Environment, h

n.r.: not reported. Source: Genty (2005).

by Genty (2005) contain a total of more than 2350 studies,

although some duplication across the different databases

seems inevitable.

New studies will continue to be desirable, if relatively

expensive, and should be done to further develop and test

methods, and to augment, update, and improve the body of

empirical evidence. Nevertheless, it is inevitable that

attention be addressed also to generalizing from the

substantial body of existing valuation research.

Meta-analysis has become the standard method of

searching for general patterns in a body of existing specific

research results (Hedges and Olkin, 1985; Hedges, 1992;

Lipsey and Wilson, 2001). Borisova-Kidder (2006) has

identified 28 completed meta-analyses of environmental

services. Representative studies include Smith and Huang

(1995) on air pollution, Dalhuisen et al. (2003) on residential

water demand, and Rosenberger and Loomis (2000) on

outdoor recreation. A general model of the following type is

estimated with regression techniques:

WTPi; j;k;l ¼ f ðDService j;k; Subst=com j;k; Demographici;k;

Research procedure j;k;lÞ;

where the four categories of independent variables are

expressed as vectors, and i is the person or household, j

the service type, k the location, and l is the valuation project.

WTP per capita (or per household) is hypothesized to be

influenced by the change in level(s) of environmental ser-

vice(s), the availability of substitute services, relevant demo-

graphic variables, and the research procedures used in value

estimation. For meta-analysis, each study constitutes a

single observation (if it reports a single valuation) or a

single panel of observations if it reports valuations of,

say, several options that vary in scale and scope of environ-

mental improvements. To enjoy a reasonable prospect of

success, a meta-analysis project requires a sufficiently large

set of independent studies, each with methods and results

reported in sufficient detail, and all sharing at least a degree

of methodological consistency.

Economists, responding to the extensive data require-

ments of meta-analysis, have assembled environmental

valuation databases for that purpose. Table 1 lists three

internet-searchable databases that have potential application

to environmental services of MFA (EVRI, Envalue, RED)

and two additional databases (RUVD and ValueBase) that,

Countries Number of studies Number of valuations

ealth World 1028 n.r.

ealth World 387 n.r.

World 209 1239

EU 96 n.r.

ealth Sweden 96 410

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–30 27

while not internet-searchable, are readily transformable for

meta-analysis. The total number of studies included exceeds

1800 (although, again, some duplicate entries are likely).

However, the existing empirical literature is not quite so rich

as may at first appear. When we start eliminating studies for

various good reasons – some address amenities unrelated to

agriculture, some do not report sufficient information to

enable independent assessment of their validity, some

provide no evidence of peer review, etc. – the numbers

diminish markedly. Borisova-Kidder (2006) has identified a

set of US and European valuation studies that withstand

various elimination tests: 171 US and 68 European wildlife

and/or habitat valuation studies, 4 US and 12 European

studies valuing open space, 72 US and 27 European

wetlands studies, and 45 US and 25 European studies

valuing improvements in water quality. While it is likely that

further searching may add to this list of ‘‘usable’’ studies, it

is clear that even modest scrutiny leads to considerable

attrition among the thousands of studies that appear on

various lists. Nevertheless, a substantial body of usable

studies remains.

But, even here, there is less that meets the eye. The

methodological norms of the economics discipline place

high priority on originality, novelty, and innovation in theory

and methods, and correspondingly low priority on accu-

mulating generalizable empirical evidence from primary

data. Meta-analysis is hindered in two ways—the basic

details of data gathering, handling, and analysis often are

reported inadequately; and, while the use of standard

protocols would advance the quest for empirical knowledge,

the publication norms in economics (originality is prized,

and rejection rates are high) serve to discourage their use. As

a result, meta-analyses of economic valuation studies must

deal with relatively noisy data sets.

Borisova-Kidder (2006) has identified a number of

existing meta-analyses of environmental service values that

may cast light on the value of non-commodity outputs of

agriculture: for wildlife-related recreation (which has

potential implications for habitat that remain incompletely

developed), five US meta-analyses, one Canadian, and one

European; for wetlands, three meta-analyses, all multi-

national; for surface water quality, one US meta-analysis;

and for multiple services, one US and one European meta-

analysis. This list does not include the results of Borisova-

Kidder (2006), who has estimated new meta-analyses for US

wetlands, surface water quality, and terrestrial habitat.

Despite the fairly high noise factor in data sets of valuation

studies, some clear signals have emerged from her work.

Successes include the ability to control for some familiar

empirical effects of methodological differences among

studies, and to estimate the marginal influence on WTP of

scale and scope of service improvements, and (in some

cases) demographic characteristics of the human demander

populations studied. For wetlands, the size of the wetland

has positive and significant impact on WTP, the amount of

wetlands in the vicinity (potential substitutes) is negative

and significant, and income is positive and significant. A

considerable variety of market-based, behavioral, and stated

preference methods are represented in the data, and some

methodological variables (as well as some wetlands service

types and regions) were significant. For water quality, the

extent of the quality improvement and the size of the water

body affected had positive and significant impact on WTP,

income was positive but not significant, some methodolo-

gical variables were significant, and WTP for improvements

to saltwater bodies was greater than for freshwater bodies.

For terrestrial habitat, the area of land affected had positive

and significant impact on WTP, as did the provision of

viewing and open space services.

3.4. Benefits transfer

Benefits transfer (BT) seeks to economize on valuation

research costs by applying the findings of particular local

valuation studies to a broader set of sites (Bergstrom and

DeCivita, 1999; Smith et al., 2001; van den Bergh and

Button, 1999). BT may take various forms. In its simplest

configuration, benefits estimated at one site are applied (with

only ad hoc modifications) to illuminate policy options at

another site. Unfortunately, empirical tests of simple BT

models have not yet vindicated the decision-makers’

enthusiasm for the savings in research costs that BT

promises (Navrud and Ready, 2007). A more sophisticated

approach is based on meta-analysis. Benefit estimates are

obtained for a policy site by plugging policy-site-specific

values for right-hand-side variables into an estimated meta-

analytic equation. Assuming the meta-analytic equation is

reasonably robust, this approach is preferred because it

replaces the ad hoc adjustments of the simple approach with

estimated effects generalized from the inventory of

empirical studies that pass some tests of quality and

relevance. However, Genty (2005) warns that estimated

meta-analytic equations of non-commodity values tend to be

unbiased but imprecise, which suggests that application to

particular policy sites may be hampered by wide confidence

limits.

4. Valuation strategies for multifunctional

agriculture

Suppose that, from Section 2, we have a fairly good sense

of what is needed for a consistent framework for valuating

and pricing the non-commodity outputs of MFA. We must be

able to assess the effects of MFA policies and programs in

natural-science terms, relate effects to services that people

demand, and estimate values in economic terms. Each step

must incorporate spatial considerations as appropriate. The

valuation framework must be consistent as we aggregate and

disaggregate effects and services, and move from local to

national and continental scales. Suppose also that, from

Section 3, we have a fairly good set of estimates of WTP for

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–3028

some of the major environmental services of MFA—

specifically some services (or effects) in some places and, in

some cases, meta-analysis estimates relating value indica-

tors (WTP) to measures of some categories of service

quantities, regions, quality indicators, substitutes and

complements. Our glass is half-empty – the value

information ‘‘on the shelf’’ is incomplete and varies in

quality. But it is also half-full – state-of-the-art theory and

methods are capable of supporting a sustained program of

empirical research to fill-in the gaps in value information and

provide some empirical support for estimating a consistent

valuation framework for MFA policies and programs. How

can we move forward?

The green accounting literature attempts an important

piece of the task as defined in Section 2: to get a more

complete picture of what we might call the multifunctional

economy by adjusting the standard economic accounts to

include changes in resource stocks and the flows of

environmental services. In practice, the adjustments are

made, usually at the national level, by quantifying the

relevant stocks and flows and pricing them using non-market

methods where necessary. The basic framework can be

applied to whole economies or major economic sectors –

EFTEC (2004) provides an application to agriculture in the

United Kingdom. While this literature attempts only part of

the task – the accounts are not responsive to local differences

in type, quality, substitutes and complements, and little

consideration is given to the spatial and complex policy

considerations raised in Section 2 – there are limits to what

potentially can be accomplished using off-the-shelf esti-

mates of non-commodity values.

Given the opportunity to design and implement new

studies, some of these limits could be challenged. Two

strategies may be suggested that, while less than ideal, might

serve to generate decently good estimates of the value of

non-commodity outputs for MFA that are consistent as we

move from single components to complex policies and from

local to continental spatial scales.

First, we might consider a top–down contingent valuation

strategy, in which a holistic total valuation is decomposed to

generate local and particular component values (Hoehn,

1991). Boman et al. (2003) have outlined a practicable

framework for implementing this approach that incorporates

serious attempts to approximate the sometimes demanding

theoretical requirements of ideal valuation. Such a strategy

would likely underestimate holistic and component values,

which is not a bad thing when the goal is to develop a set of

green prices to provide incentives for non-commodity

production. It seems best not to overshoot at the outset—the

green prices can always be adjusted upward later, if

experience suggests (Randall, 2002).

An alternative approach would use choice experiments

and the techniques of random utility modeling and conjoint

analysis to estimate a consistent set of particular and local

virtual prices for the green products of agriculture. The need

to account for a multiplicity of services and local differences

in type, quality, substitutes and complements imposes

rather massive data requirements, but these would be

addressed by gathering data from a sufficiently large sample

of respondents each addressing only a small randomly

assigned sample from the whole array of alternatives

(McFadden, 1978; Ben-Akiva and Lerman, 1985, esp. 261–

275). The concept has been demonstrated in a study of more

than 1300 recreational sites (Parsons and Kealy, 1992), yet

the non-commodity outputs of MFA pose a task of much

greater magnitude.

These valuation structures, being holistic, are founded of

necessity upon SP methods, such as contingent valuation

and choice experiments. Nevertheless, market-based meth-

ods can provide important reality checks in the form of

convergent validity tests for valuations of amenities that are

susceptible to both kinds of methods.

For reasonably efficient targeting, virtual prices must

reflect demand and value. To accommodate the rich detail of

non-commodity output, the valuation process would ideally

be designed to produce not point estimates but functions

relating value to product quality, availability of substitutes

and complements, the size and demographic characteristics

of the demander population, and perhaps other variables.

Efficient green-pricing involves the interaction of supply –

which reflects at the local level the direct and opportunity

costs of producing green things – and demand. Important

conceptual difficulties arise in estimating supply by

attempting to observe costs (Buchanan, 1969). A preferred

approach might be to focus on estimating green demands,

preferably value functions capable of generating context-

dependent, farm-level, virtual demand-prices. Then, con-

ceding that farmers know more than anyone else about their

own supply conditions, the planner would then attempt to

implement an ideal bidding process for farmers seeking

contracts to produce green things.

In principle, economic efficiency is best served by

calibrating farm-level green prices as finely, and monitoring

farm level performance in multifunctional production as

rigorously, as is feasible. The logical limits to feasibility are

set by transactions, monitoring, and enforcement costs:

targeted green prices at the local level should not be pursued

beyond the point where these costs exceed the benefits of

finer calibration, at the margin. The goal of keeping these

costs within reason might be facilitated by specifying

particular technologies (e.g., artisanal cheese), and age and

style of farm buildings (as is done for historic districts), and

by establishing particular multifunctional agriculture zones

where particular virtual prices would be paid to farmers in

compliance (Randall, 2002). Flury et al. (2005) use a

regionalized linear programming model to demonstrate the

potential efficiency gains from regional targeting of green

payments. In their case, payments would rise with altitude,

and fall with increasing commodity productivity. Never-

theless, effective monitoring of green production is likely to

require at least the credible threat of inspection and

punishment for non-compliance.

A. Randall / Agriculture, Ecosystems and Environment 120 (2007) 21–30 29

5. Concluding comments

Coherent MFA policy bears more relationship to public

goods policy than to commodity price policy. It is aimed first

at delivering green products and services efficiently to the

public, and only instrumentally at delivering money to

farmers who supply those green things.

The idea of systematically green-pricing the non-

commodity outputs of multifunctional agriculture raises

serious challenges for policy-makers and the valuation

specialists who would provide empirical support for the

effort. Ideal green prices are contextual and richly detailed,

and must be estimated on a national or continental scale, but

implemented so as to reflect local demand and supply

conditions. Consistency as we move from single-component

to complex policies, and from local to continental spatial

scales, is a substantial conceptual and empirical challenge.

Finally, efficient green-pricing policy requires that green

prices be targeted to the local level and green production be

monitored with at least a credible threat of penalty for non-

compliance.

Nevertheless, in green pricing as in many other things,

unattainable perfection should not stand in the way of

attainable good. Good-faith efforts to do decently well at

green-pricing, targeting, and monitoring would do much

to improve the multifunctional performance of agricul-

ture.

While the discipline of economics provides the frame-

work for assessing economic value, empirical implementa-

tion requires much more – detailed understanding of the

processes through which programs influence the quantity

and quality of non-commodity services, and the relation-

ships between landscape and human society influence the

demand for these services – and this understanding calls on

the expertise of many natural and social science disciplines,

and would surely be advanced by intensive interdisciplinary

collaboration and cross-fertilization.

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