Importance of Valuation of Environment

There are four distinct types of capital stock that contribute to economic development, viz. man-made capital, human capital, social capital and natural capital. In traditional parlance the input 'capital' is meant to be the man-made capital (also called physical capital). In recent years a lot of research is being undertaken in measurement of the contribution of 'social capital' (which is anthropogenic) and 'natural capital' (which reflects the stock of natural resources) to economic development.

Keeping in view its durability and generation of a flow of valuable goods and services, the stock of natural resources is termed natural capital. By putting in his labour, human capital converts natural capital to manufactured (physical) capital. It is argued that perfect and unlimited substitution between physical capital and natural capital cannot take place since manmade capital cannot be created and sustained without the help of energy and natural resources.