How to Calculate Total Economic Value
Total economic value adds use value, option value, existence value and bequest value, and a cost benefit test compares that sum against what developing the site is worth.
The Total Economic Value formula
Calculator
Enter use, option, existence and bequest value to total them and test the result against a development project.
Recreation, harvests, water and tourism, everything people get by actually using the site.
What people pay to keep open the possibility that they use it themselves later.
Mean willingness to pay to know it is there, times the households who hold that value.
What people pay so that future generations still have it.
What the road, mine or building project is worth once its own costs are taken out.
Use, option, existence and bequest value together put $18 million on the line.
- Non-use value
- $15
- Non-use share of the total
- 83.3%
- Net gain from preserving
- $9
- Total if non-use value were ignored
- $3
- Decision once non-use value is counted
- Preserve the site
Existence plus bequest value is $15 million, held by people who need never set foot there.
83.3% of the value at stake leaves no trace in any market, which is why it has to come from a survey.
Preserving is worth $9 million more than developing on these numbers.
A study counting only use and option value reports $3 million and recommends developing, so leaving non-use value out flips the decision.
Setting non-use value to zero is a choice, not a neutral default, and it tilts every comparison toward the project that destroys the asset.
How to calculate Total Economic Value, step by step
- 1Add up use value. Everything people get by actually using the asset: recreation, harvests, water, grazing, tourism. This is the part that shows up in behavior, so travel cost and property price studies can measure it.
- 2Add option value. What people pay to keep open the possibility that they use it themselves one day, even though they have made no plan to. It is listed separately because it rests on possible future use rather than on use today.
- 3Add existence value. What people pay just to know the asset is there. Nobody buys it, so it comes from a contingent valuation survey: mean willingness to pay times the households who hold that value.
- 4Add bequest value. What people pay so that future generations still have the asset. Existence and bequest together make up the non-use half of the total.
- 5Compare the total with the alternative. Set total economic value beside the net benefit of the project that would replace it. Leaving non-use value out is the same as calling it zero, and that choice tilts the answer toward destroying the asset.
Worked example: Total Economic Value
A road would cut through a remote canyon. Guiding and recreation are worth $2 million of use value, and option value, what people pay to keep the chance of visiting later, is $1 million. A survey of the country's 2 million households finds a mean one time willingness to pay of $6 each to know the canyon is intact, so existence value is 2 million × $6 = $12 million, and bequest value adds $3 million. Non-use value is 12 + 3 = $15 million and total economic value is 2 + 1 + 15 = $18 million, so 83.3 percent of what is at stake is held by people who will never go there. The road is worth $9 million net, so preserving beats developing by $9 million. Count only use and option value, $3 million, and the same project passes instead.
Total Economic Value questions
What is the difference between use value and non-use value?
Use value comes from actually using the asset, whether by visiting, harvesting or drinking the water it supplies, and it can be estimated from real behavior such as travel spending or house prices. Non-use value is held by people who never use it, so no purchase reveals it and it has to be measured by survey. Existence value and bequest value are the two pieces of non-use value.
Is option value a use value or a non-use value?
It sits between the two, which is why the formula lists it on its own. The payment is for keeping open a possible future use by the person paying, so it depends on use in a way existence value never does. Some texts fold it into use value and others treat it as a third category. What matters for the arithmetic is that you count it exactly once.
How is existence value measured?
Almost always by contingent valuation, a survey that describes a specific change and asks people what they would pay for it. Revealed preference methods cannot reach it, because they work by watching people who actually use the resource and existence value is held by people who do not. That reliance on surveys is the main reason these estimates get challenged.
How do you avoid double counting the components?
Define each component over a benefit the others do not include. The usual slip is adding tourism revenue and the recreation value of the same visits, which counts one benefit twice, or adding an existence value that respondents already had in mind when they stated a use value. Careful surveys ask about one clearly bounded change so that respondents are not valuing overlapping things.
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