Economic Valuation of Cultural Ecosystem Services : The Case of Landscape Aesthetics in the Agritourism Market

Natural and agricultural landscapes provide a wide range of ecosystem services, among them aesthetic landscapes. Since these services have no market value, land use decision makers often ignore them in favor of urban sprawl, with the result that resource allocation may be sub-optimal. Here we suggest a novel method to evaluate the aesthetic landscape services of natural and agricultural ecosystems using the case of the agritourism market in Israel. We model the agritourism market as an oligopolistic market with differentiated products and formulate an equilibrium model with structural, double nested logit demand and pricing equations. The structural equations are expressed as a function of the attributes of the agritourism firm, among which are the components of landscape view. We use aggregate market data and GIS data to estimate the structural model. In the case of urban sprawl, the welfare loss is estimated at between US$108,000 thousand and US$197,000 per km2, depending on the type of ecosystem that is forgone, while in the case of agricultural sprawl over natural areas, the welfare loss is estimated at US$141,000 per km2. This welfare loss can be considered the economic value of landscape aesthetics services to the agritourism market. These findings illustrate the potential of using this valuation method for other ecosystems in other markets