This document discusses the valuation technique of changes in productivity and its application in Palawan, Philippines. It summarizes that changes in productivity relies on measuring physical changes in production quantities and prices to determine monetary value. It then provides details on how this technique was applied to value logging, fisheries, and tourism industries in Palawan over 10 years. The analysis found that banning logging would lead to higher present value for tourism and fisheries compared to continued logging.

1. GEF
Session 7
Valuing Changes in Production—Basic
Principles with an Example from the
Philippines
John A. Dixon
johnkailua@aol.com
The World Bank Institute
Ashgabad, November 2005

2. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Change in Productivity – more
than just Ps and Qs??
• The most basic valuation technique –
relies on physical measures of changes
in production (the Qs) and prices, often
market prices (the Ps)
• Then, P x Q = a monetary value
• Key assumption – the prices are non-
distorted and reflect opportunity costs

3. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Applications of Change in
Productivity approach
• Natural resource sector – changes in
crop production, forestry, fisheries,
aquifers, others
• Human Health – another form of change
in productivity
• Ecosystems – harder to measure but
possible. E.g. watersheds, coral reefs,
mangroves, others

4. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Cautions
• Cause and effect links need to be clearly
understood – percentage change in
mangroves and decrease in fish catch
• Prices – make sure prices are appropriate for
the commodity and the scale – e.g.
Mendelsohn study on value of tropical
rainforest (per ha) never considered
marketing all the output! Or the Puerto Rican
mangrove damage study – buying mangroves
retail by the hectare!

5. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Advantages
• Produces valuation results in monetary
term and can be easily explained to
Minister of Finance (and the press and
public)!
• Transparent approach that can be
easily re-calculated and used to
provoke a discussion(e.g. if you don’t
like my numbers, give me better ones!)
• Does NOT rely on CVM!!

6. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Valuing Productivity Impacts
in Palawan, Philippines
Palawan – An application of the change
in production approach with
unidirectional externalities
(or, should Mr. Coase visit Palawan?)
3 main user groups (all legal users):
– Loggers
– Traditional fishermen
– Resort operators / scuba divers

7. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Valuation Techniques
• Changes in
Production
– Crops, fisheries,
water
– Health
– Opportunity
cost/ecosystems
• Hedonic
Approaches
– Property value
– Land values
– Wage differential
• Survey Techniques
– CVM (Contingent
Valuation Method)
• Surrogate Markets
– Travel Cost

8. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Change in Production – the study site
PALAWAN

9. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Change in Production – changes in
variables/ productivity over time -- PALAWAN

10. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Change in Production - PALAWAN
The Economic Analysis:
• Examined Generation of Gross Revenues
from three industries
– Logging
– Fisheries
– Tourism
• Assumptions
– Revenue information easier to obtain than cost
data (second best solution); not a BCA!
– Even imperfect information can prompt better
disclosure and increased provision of data

11. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Gross Revenues Over 10 Years (millions $)
Option 1 Option 2
Gross Revenue No logging
Continued
logging
Option 1 -
Option 2
Tourism 47.4 8.2 39.2
Fisheries 28.1 12.8 15.3
Logging 0 12.9 -12.9
75.5 33.9 41.6
Option 1 Option 2
Present Value at 10% D.R. No logging
Continued
logging
Option 1 -
Option 2
Tourism 25.5 6.3 19.2
Fisheries 17.2 9.1 8.1
Logging 0 9.8 -9.8
42.7 25.2 17.5
Change in Production - PALAWAN

12. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Is a Coasian solution
possible??
• Coase Theorem: irregardless of the initial
resource(or property rights) allocation,
with trade it will be possible to reach a
pareto superior outcome
– What do you suggest in the case of Palawan?
– What are the most likely obstacles to a
Coasian solution
– What about equity issues?

13. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Other alternatives include
(and their pros and cons)
• Government imposed logging ban (but
question of an “economic taking”)??
• Fisherman and tourism resort operators
join forces to “buy out” the loggers –
what are the problems with this??
• Alternative logging practices – can
these solve the externality problem and
allow continued logging??

14. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Palawan revisited
• Loggers stopped initially and then
returned
• Reef damaged but has recovered over
the past 10 years
• Tourism has expanded – but this is a
case of before/after analysis NOT with
and without analysis!
• Valuable for planning land use in other
sites

15. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Change in Production – the lessons from
the PALAWAN study
1. Modest research costs to produce useful results
2. Value of combined ecological-economic analysis
3. Broader applicability of approach
4. Valuation and evaluation techniques exist that
can be used
5. Useful for convincing decision makers that these
resources have value

16. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
Change in productivity can be
used in many situations
• Changes in recreational values
• Change in agricultural productivity in the
Iran due to changes in water quantity
and quality
• Change in fish catch due to stock
degradation (Caspian; worldwide)
• Change in lake water quality due to
shoreline development

17. Caspian EVE 2005/UNDP and WBI John A. Dixon,
GEF
A Final Note – Gross vs Net
Values
• Change in productivity should normally be
done on a net value basis (seeking changes
in economic values, not gross revenues)
• Sometimes, however, gross values are
presented (as in Palawan)
• The correct measure depends on the
resource and the type of change (lost
production versus complete loss, and
production decisions made)