ADITYA INSTITUTE OF TECHNOLOGY AND MANAGEMENT(AUTONOMOUS)
Cost-benefit analysis is a set of practical procedures
for guiding public expenditure decisions.
We want our environment to be clean and safe.
But ‘how much’ clean and safe ?
How to measure environmental benefits and costs ?
• Our aim is to
•We will select
Project cost =
cost of resources + cost imposed on third parties
Include only incremental costs
Do not include – interest payments, depreciation
Use and Non-use values
Use values = all use benefits to man
Non-use values =
Direct or Indirect use benefits + option values +
Direct Use Values
Result from primary benefits of the project
e.g. project > higher wages to employees > higher
expenditure > improve quality of life
Not included in CBA
Viewed as transfer between communities rather than
net addition to community income
Risk is attached to all decisions
Uncertainty about demand and supply in future
Pay more to insure demand or supply
Option value =
value that an individual is willing to pay in excess to
expected use value to preserve an asset
Uncertainty continued ….
$ 1.5 M
P = 1
P = 0.5
P = 0.5
$ 5 M
$ - 1 M
$ 2 M
$ 2.5 M
$ 1.5 M
$ - 0.5 M
Steps in CBA
• Environmental components (i) for presenting various option
(ii) Selecting among them
• Role: 2
(i) Environmental mitigation
measures converted into costs
(ii) Management plans
Air Water Soil
i.e, environmental impacts (of a project) are accounted
Role 3: Economic assesment of the environmental
impacts of a project.
1. Impacts are to be: Transformed and stated in clear
2. Not useful for small scale development projects.
3. Not possible to find economic value on
environmental losses or gains that resulted from a
Not always possible
Intangibles like health – Related
impacts of industrial
Site evaluation together with Major design options:
Within (i) economic limitations
Ii) technical limitations
That give LEAST ECONOMIC COST to the community
AGSIP 13 – Resource Economics
Question X: Options A, B and C.
Please choose the option you prefer
most by ticking ONE box.
I pay each
$0 20% 1500 25% 0%
$20 30% 1800 35% 5%
$50 40% 2100 45% 10%
Choice Modelling Valuation Technique – example choice set