Economics and Conservation, 2 Fri. April. 29

REVIEW: Cost Benefit Analysis (CBA) Overview Political observation – CBA was mandated for all new USA policies in What philosophy did this represent (and whose administration was this)? What is the central justification with regard to CBA, government, and the people; why was CBA made "policy" and what was supposedly being accomplished?

REVIEW CBA – 1. Project Definition Central role of setting project boundaries. What is meant by this? Why are the boundaries so important to the outcome of the CBA? How do conflicting interests figure into the setting of CBA boundaries?

REVIEW CBA – 2. Impact Classification Are impacts only negative? Give some examples of impacts. What is meant by magnitude and duration of impacts? Why does this matter?

REVIEW CBA – 2. Impact Classification, cntd. The "tartan finch" example – left – direct impact only; impact with North African breeding grounds on right. How do we quantify the W-W/O in a CBA?

REVIEW CBA – 3. Monetization of Impacts A common currency is required to compare various impacts in order to make the CBA. Usually this is done by monetizing each impact. What are the techniques used to monetize? We will concentrate on how you value things that are not normally expressed in monetary terms – i.e., the value of biodiversity.

REVIEW Use and Non-Use Values

REVIEW Option, Existence and Bequest Values What are these and in particular and how do existence and bequest values differ from each other? Are these traditionally considered as impacts? Are indirect values traditionally considered as impacts? Are indirect, option, existence, and bequest controversial? Why or why not? Who would support these? Who would oppose these? TEV = DV + IDV + OV + NUV

The Process of Monetization 1. "Conventional" Approaches 1. Substitute or alternative cost approach – value of something that is normally not bought in a particular situation is compared to the price of similar item in a similar situation. (e.g., clean lake vs. cost of swimming pool). 2. Production function approach – a change in the value of a particular function. (e.g., degraded soil expressed as lost crop in money terms). 3. (Lost economic) Opportunity cost approach – measures what is given up in money terms in an act of preservation – assumes this is what the preserved diversity is therefore worth. (e.g., value of game and associated economic benefits in a wilderness area).

The Process of Monetization 2. Implicit Market Techniques The behaviors of people can be related to the money they spend in certain activities or the choices they make that result in different costs to them – these are taken to equal the resource reflects the resources value to them. a.Hedonic pricing methods: differential that people are willing to pay (or they discount they expect) for a certain suite of qualities – examples are given with land values adjacent to a reserve. b.Travel cost method: how much is someone willing to pay to travel to a particular location (including fees, equipment, etc.)

The Process of Monetization 3. Hypothetical Market Techniques Contingent valuation methods (CVM) and willingness to pay. Technically – "reveal indifference between some thing and money."

Our own WTP Improved recreational parks in your local region Regional wilderness areas Saving a local endangered cricket Saving a local endangered butterfly Saving polar bears Tiger Timber rattlesnake Creating rainforest preserves Saving HIV

Typical Income for US Family of Four ( $64K) citing US Bureau of Labor Statistics So, you have about $8,600 to spend on everyone's personal items, entertainment, gifts, etc. Think carefully. Would everyone make the same decisions that you make?

WTP for Endangered Species

Evaluation of CVMs Positive 1. Theoretically sound. 2. Relatively easy to gather data – estimation is straightforward. 3. Only technique that is really valuable with non-use value – works on all goods and services. Negative 1. How can you validate these values? 2. Problems with questionnaires. 3. Differences between expert and general public in CV.

Review: Summary of Methods Used in CBAs

CBA Step 4. Project Assessment Costs and benefits associated with the project projected over some time. A simple CBA The developer, conservationist and politician's views?