Search results
Second, it explores the consequences of changes in relative prices, with an application to long run effects implied by the global warming; it appears that properly taking into account these relative changes may lead to conclusions very different from the usual results of current CBA practice where they are generally ignored.
- Valuation Methods
- Market-Based Techniques
- Surrogate Market Techniques
- Stated Preference Models
- Other Approaches to valuation
- Valuation Methods Applied in Case Studies
- Strengths and Limitations of BCA
- Strengths of CBA
Over the last few decades, economists have devised a wide range of economic techniques to value the environment, some focusing specifically on developing countries (Freeman 1993; Abelson 1996; Pearce et al. 2002; Haab and McConnell 2002; Hanley and Barbier 2009; Glover and Jessup 2006; Glover 2010). The techniques belong broadly to three main categ...
Productivity Changes Method
This approach can be used when an environmental change leads to changes in production levels, costs or prices. Dose–response functions are usually needed to estimate physical changes in production as a consequence of changes in environmental conditions. Where changes occur only in output levels and/or costs, changes in producers’ surplus can be estimated. If the change in productivity also results in a change in market equilibrium price, changes in consumers’ surplus also need to be considere...
Human Capital Approach
This method is frequently used in estimating external damage costs resulting from environmental pollution or other undesirable impacts. Changes in labour productivity can be measured using the human capital approach. Usually, the focus is on adverse health effects, providing estimates of forgone income , costs of medical treatment and costs reflecting psychological discomfort and distress. Reductions in health-related environmental damage costs, resulting from the introduction of environmenta...
Defensive Expenditures
Defensive expenditures indicate the minimum amount that people would be willing to pay to prevent an adverse environmental impact. The relevant environmental benefits may exceed the expenditures involved, but if people are observed to be actually undertaking such expenditures (e.g. the construction of levees to prevent flood damage or the introduction of soundproofing in homes), it can be presumed that their valuation of benefits will be at least as great as the costs incurred. Defensive expe...
Property Value Differentials
In a competitive market, property asset prices and rents reflect the value of service from a property, including productive and consumptive environmental services . The property value approach (or so-called hedonic pricemethod) can be used to estimate the implicit price of environmental attributes . A common application is the use of house prices to estimate environmental values . The same house with a given set of attributes can be expected to command a much higher price in an attractive or...
Travel Cost Method
The travel cost method assumes that the willingness to pay for recreation at a particular site can be inferred from the cost of travel by visitors to the site. The so-called zonal travel cost models are applied by undertaking an on-site survey to ascertain the frequency of visits, distances travelled, the cost of travel (including the implicit value of time), details of each visiting group and other socioeconomic information. Population statistics must be obtained for different zones of trip...
Wage Differentials
The wage differential method values differences in environmental quality or risk in terms of the wages accepted by workers in different locations. It presumes that workers will accept lower wages in environmentally attractive sites and demand higher wages in degraded sites. Statistical models can be used to estimate the implicit environmental values . However, the method is difficult to apply because wages may be subject to various kinds of labour market rigidities and regulations. In additio...
Contingent Valuation
The contingent valuation method (CVM) establishes a hypothetical market for an environmental good or service and uses a survey questionnaire to elicit people’s willingness to pay for some change in the supply or quality of the good or service (Mitchell and Carson 1989; Bateman et al. 2002). CVM is one method of directly measuring existence values and prospective values in an economic evaluation. It can be used to measure use values as well as non-use values . CVM is subject to a wide range of...
Choice Modelling
Choice modelling is a stated preference technique in which respondents choose their most preferred resource use option from a number of alternatives. Each alternative exhibits a number of attributes such as land affected, impacts on threatened species or cost to the household. Statistical models are applied to obtain estimates of people’s WTP for particular environmental attributes as well as the value of aggregate changes in environmental quality. Choice modelling can thus be used to produce...
Benefit Transfer Method
The benefit transfer technique borrows values from a so-called study site and applies them to a site to be evaluated (the policy site). Benefit transfers are used in several of the studies in this volume. In the study of biofuel production by Loan (Chap. 4), pollution damage costs are transferred from other similar studies. Roongtawanreongsri et al. (Chap. 13) use transferred benefits, adjusted for income levels and preferences , to value the ecosystem services provided by a protected forest...
Delphi Technique
This approach uses direct questioning of experts or community representatives to place a value on particular goods or services. It is usually applied in an iterative fashion, in group sessions, to achieve a consensus result.
Environmental valuation is a critical step in the procedure for conducting a CBA. The case studies in this volume feature most of the valuation methods previously discussed. In any full CBA, it is customary to begin with market and financial values and modify them in accordance with the principles of welfare economics, including the incorporation o...
Limitations of Scientific Assessments
In most applications involving natural resources and the environment, the robustness of the economics results depends critically on the integrity and reliability of the scientific modelling and research that has been conducted for the biophysical aspects, especially the interrelationships between the natural environment and human activity . ‘Getting the science right’ is essential; otherwise economics results will be seriously compromised. Scientific uncertainties continue to hamper economic...
Multi-objective Trade-Off Analysis
As noted, in reality decision-makers may focus on a broader set of indicators of wellbeing than economic efficiency . This is especially the case where sustainabilityis the professed aim of policy or where outcomes are assessed in terms of triple bottom line accounting: economic, social and environmental. Sustainability is best regarded as a multi-attribute or multi-objective concept, involving considerations of economic efficiency , ecological integrity, prevention of irreversible damage and...
Ownership of Assessment Process
A final limitation of CBA is that – depending on how the process is coordinated – it may be dominated by technical experts, economists and bureaucrats, with little opportunity for the community or different interest groups to gain a sense of ownership of the assessment process or the results of analysis. Stakeholders may, however, be engaged in assessments by means of surveys, direct consultations, focus group discussions, workshops and other participatory activities. The details of analysis...
Transparency of Analysis
Perhaps the main strength of CBA is that it forces the analyst to undertake a comprehensive assessment of factors that are likely to affect community wellbeing as a consequence of any kind of planned action. The boundaries of analysis – both spatially and temporally – must be clearly defined. If properly conducted, scientific assessments underlying the economic analysis will be objective and soundly based. Valuations undertaken by economists should also be objective, albeit based on a narrow...
Promotion of Sustainable Economic Development
Possibly the greatest advantage of CBA is that it converts all information into a single, easily understood indicator using monetary values as the common measuring rod. In the early years of environmental management and environmental impact assessment, limitations of environmental valuation methods meant that the economic aspects of proposed developments were seen mainly in terms of direct financial benefits to private interests, with environmental effects addressed only in descriptive or qua...
- David James, Canesio Predo
- 2015
Dec 21, 2023 · Understanding the art of cost-benefit analysis (CBA) is your key to informed and strategic decision-making. In this guide, we will demystify the intricacies of CBA, equipping you with the tools and insights to evaluate projects, investments, and initiatives from a financial perspective.
Cost-Benefit Analysis (CBA) is a methodology for appraising the economic value of investment projects or proposals. A CBA seeks to identify the financial, economic and social implications of various project options with a view to identifying the best performing option. The purpose of conducting a CBA is to assess whether a proposed
Topics covered in this guidance note include an introduction to the steps in preparing a CBA (as set out in Table 1), how to deal with costs and benefits that are difficult to measure, taking equity effects into consideration, determining the social discount rate, and some common CBA pitfalls.
Cost-benefit analysis (CBA) refers to the evaluation of changes in economic outcomes resulting from public policy initiatives. These can include public investment projects, tax-transfer policy reforms, regulations, or social expenditures.
People also ask
What is a cost in Cost-Benefit Analysis (CBA)?
What is cost-benefit analysis (CBA)?
How does a CBA differ from a financial analysis?
Should CBA cost be proportional to the value of a project?
When is residual value counted as a benefit in a CBA?
What are the limitations of CBA?
CBA helps predict whether the benefits of a policy outweigh its costs (and by how much), relative to other alternatives. This allows the ranking of alternative policies in terms of a cost–benefit ratio. [4] . Generally, accurate cost–benefit analysis identifies choices which increase welfare from a utilitarian perspective.
