Valuation of various environmental functions needs identification of appropriate valuation tools. Existing literature suggests a number of valuation tools for environmental resources. Some researchers have attempted to categorise these tools into different types. However, we desist from such categorization as no standard classification exists as of now. Rather we present eight commonly used valuation tools. These are
(i) Market prices,
(ii) Efficiency or shadow prices,
(iii) Hedonic pricing method,
(iv) Travel cost method,
(v) Production function method,
(vi) 'Related goods approaches' such as barter exchange, direct substitutes and indirect substitutes,
(vii) 'Constructed market techniques' such as contingent valuation and contingent tanking, and
(viii) 'Cost based valuation methods' such as indirect opportunity cost, restoration cost, replacement cost, relocation cost and preventive expenditure.
Of these methods, market prices and shadow prices deal with natural resources which are marketed while the remaining methods are used in cases where no formal market exists.
Table : Forest Functions and Relevant Valuation Tools
For the different environmental functions suggested valuation tools are given in the above table. The discussion of these methods given below is based to some extent on Lette and de Boo (2002).