Valuing Environmental Factors in Cost-Benefit Analysis Using Data Envelopment Analysis
AbstractEnvironmental cost-benefit analysis (ECBA) refers to social evaluation of investment projects and policies that involve significant environmental impacts. Valuation of the environmental impacts in monetary terms forms one of the critical steps in ECBA. We propose a new approach for environmental valuation within ECBA framework that is based on data envelopment analysis (DEA) and does not demand any price estimation for environmental impacts using traditional revealed or stated preference methods. We show that DEA can be modified to the context of CBA by using absolute shadow prices instead of traditionally used relative prices. We also discuss how the approach can be used for sensitive analysis which is an important part of ECBA. We illustrate the application of the DEA approach to ECBA by means of a hypothetical numerical example where a household considers investment to a new sport utility vehicle.
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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.96.
Date of creation: Jun 2006
Date of revision:
Cost-Benefit Analysis; Data Envelopment Analysis; Eco-Efficiency; Environmental Valuation; Environmental Performance; Performance Measurement;
Other versions of this item:
- Kuosmanen, Timo & Kortelainen, Mika, 2007. "Valuing environmental factors in cost-benefit analysis using data envelopment analysis," Ecological Economics, Elsevier, vol. 62(1), pages 56-65, April.
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
- Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
This paper has been announced in the following NEP Reports:
- NEP-AGR-2006-07-21 (Agricultural Economics)
- NEP-ALL-2006-07-21 (All new papers)
- NEP-EFF-2006-07-21 (Efficiency & Productivity)
- NEP-ENV-2006-07-21 (Environmental Economics)
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