Most research on the value of changes in environmental quality focuses on values from the standpoint of individual consumers. Three valuation methods dominate this research – contingent valuation, hedonic pricing, and travel cost models. These are sometimes the only methods considered in references on valuation methods. One example of this is the excellent primer by Champ et al. (2003). Yet, environmental quality can also affect production. For example, infiltration of saline water from shrimp farms can damage harvests on neighbouring rice farms, the loss of spawning grounds when mangroves are cut down can reduce fish catch, and damage from acid rain and other forms of air pollution can reduce timber harvests. This chapter focuses on the valuation of these sorts of effects.
In these cases, environmental quality is acting as a non-market, or unpriced, production input. Damage to the environment reduces the supply of this input, and as a result production falls. Conversely, programmes to improve environmental quality can benefit environmentally sensitive forms of production by raising the supply of such inputs. These production-related benefits can be among the most important benefits generated by environmental improvements. This is especially likely to be the case in developing regions of the world such as South Asia, where agriculture accounts for a larger share of GDP than in higher-income regions and renewable resources such as forests and fisheries underpin local economies.