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Are there environmental limits to cost benefit analysis?

  • Nick Hanley

This paper considers the problem areas found in applying cost-benefit analysis (CBA) to projects involving environmental costs or benefits. This is particularly relevant given recent moves by the UK government to include environmental valuations in CBA exercises, and in other related appraisal activities, following the publication of the Pearce Report. The paper argues that a major problem lies in placing monetary values on non-market goods. The paper also addresses the problems of (i) differences between citizen and consumer values; (ii) complexity of ecosystems; (iii) irreversibility and uniqueness; and (iv) intergenerational equity and discounting. The extent to which CBA is an institution open to capture is also discussed. Copyright Kluwer Academic Publishers 1992

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File URL: http://hdl.handle.net/10.1007/BF00324688
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 2 (1992)
Issue (Month): 1 (January)
Pages: 33-59

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Handle: RePEc:kap:enreec:v:2:y:1992:i:1:p:33-59
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  1. Pearce, David, 1976. "The Limits of Cost-Benefit Analysis as a Guide to Environmental Policy," Kyklos, Wiley Blackwell, vol. 29(1), pages 97-112.
  2. Prince, Raymond, 1985. "A note on environmental risk and the rate of discount: Comment," Journal of Environmental Economics and Management, Elsevier, vol. 12(2), pages 179-180, June.
  3. Olson, Mancur & Bailey, Martin J, 1981. "Positive Time Preference," Journal of Political Economy, University of Chicago Press, vol. 89(1), pages 1-25, February.
  4. Hanley, N D, 1989. " Valuing Non-market Goods Using Contingent Valuation," Journal of Economic Surveys, Wiley Blackwell, vol. 3(3), pages 235-52.
  5. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309.
  6. Adamowicz, Wiktor L. & Graham-Tomasi, Theodore, 1991. "Revealed preference tests of nonmarket goods valuation methods," Journal of Environmental Economics and Management, Elsevier, vol. 20(1), pages 29-45, January.
  7. Gregory, Robin, 1986. "Interpreting measures of economic loss: Evidence from contingent valuation and experimental studies," Journal of Environmental Economics and Management, Elsevier, vol. 13(4), pages 325-337, December.
  8. Smith, V. Kerry, 1990. "Valuing amenity resources under uncertainty: A skeptical view of recent resolutions," Journal of Environmental Economics and Management, Elsevier, vol. 19(2), pages 193-202, September.
  9. Nelson, Robert H, 1987. "The Economics Profession and the Making of Public Policy," Journal of Economic Literature, American Economic Association, vol. 25(1), pages 49-91, March.
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  11. Knetsch, Jack L., 1990. "Environmental policy implications of disparities between willingness to pay and compensation demanded measures of values," Journal of Environmental Economics and Management, Elsevier, vol. 18(3), pages 227-237, May.
  12. Alistair Munro & Nick Hanley, 1991. "Shadow Projects and the Stock of Natural Capital: A Cautionary Note," Working Papers Series 91/8, University of Stirling, Division of Economics.
  13. Hartman, Robert W., 1990. "One thousand points of light seeking a Issue: A case study of CBO's search for a discount rate policy," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S3-S7, March.
  14. Kalle Seip & Jon Strand, 1992. "Willingness to pay for environmental goods in Norway: A contingent valuation study with real payment," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 2(1), pages 91-106, January.
  15. Porter, Richard C., 1982. "The new approach to wilderness preservation through benefit-cost analysis," Journal of Environmental Economics and Management, Elsevier, vol. 9(1), pages 59-80, March.
  16. Kling, Catherine L., 1988. "Comparing welfare estimates of environmental quality changes from recreation demand models," Journal of Environmental Economics and Management, Elsevier, vol. 15(3), pages 331-340, September.
  17. Timothy J. Bartik, 2008. "Evaluating the Benefits of Non-marginal Reductions in Pollution Using Information on Defensive Expenditures," Book chapters authored by Upjohn Institute researchers, in: Joseph Herriges & Catherine L. Kling (ed.), Revealed Preference Approaches to Environmental Valuation, volume 0, pages 459-475 W.E. Upjohn Institute for Employment Research.
  18. Kevin J. Boyle, 1989. "Commodity Specification and the Framing of Contingent-Valuation Questions," Land Economics, University of Wisconsin Press, vol. 65(1), pages 57-63.
  19. Brookshire, David S, et al, 1982. "Valuing Public Goods: A Comparison of Survey and Hedonic Approaches," American Economic Review, American Economic Association, vol. 72(1), pages 165-77, March.
  20. Hanley, Nick, 1990. "The Economics of Nitrate Pollution," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 17(2), pages 129-51.
  21. Solow, Robert M, 1974. "The Economics of Resources or the Resources of Economics," American Economic Review, American Economic Association, vol. 64(2), pages 1-14, May.
  22. Arrow, Kenneth J & Lind, Robert C, 1970. "Uncertainty and the Evaluation of Public Investment Decisions," American Economic Review, American Economic Association, vol. 60(3), pages 364-78, June.
  23. Nick Hanley & Stephen Craig, 1991. "Wilderness Development Decisions and the Krutilla-Fisher Model: The Case of Scotland's 'Flow Country'," Working Papers Series 91/11, University of Stirling, Division of Economics.
  24. Costanza, Robert, 1989. "What is ecological economics?," Ecological Economics, Elsevier, vol. 1(1), pages 1-7, February.
  25. S. P. A. Brown, 1982. "A note on environmental risk and the rate of discount," Working Papers 8202, Federal Reserve Bank of Dallas.
  26. John Hartwick, 1976. "Intergenerational Equity and the Investing of Rents from Exhaustible Resources," Working Papers 220, Queen's University, Department of Economics.
  27. Marvin Duncan & Ann Laing, 1980. "Western water resources: coming problems and the policy alternatives," Economic Review, Federal Reserve Bank of Kansas City, issue Feb, pages 14-22.
  28. Pope, C. III & Perry, Greg, 1989. "Individual versus social discount rates in allocating depletable natural resources over time," Economics Letters, Elsevier, vol. 29(3), pages 257-264.
  29. Lind, Robert C., 1990. "Reassessing the government's discount rate policy in light of new theory and data in a world economy with a high degree of capital mobility," Journal of Environmental Economics and Management, Elsevier, vol. 18(2), pages S8-S28, March.
  30. Norgaard, Richard B., 1989. "The case for methodological pluralism," Ecological Economics, Elsevier, vol. 1(1), pages 37-57, February.
  31. Nick Hanley & Alistair Munro, 1991. "Design Bias in Contingent Valuation Studies: The Impact of Information," Working Papers Series 91/13, University of Stirling, Division of Economics.
  32. Karl C. Samples & John A. Dixon & KMarcia M. Gowen, 1986. "Information Disclosure and Endangered Species Valuation," Land Economics, University of Wisconsin Press, vol. 62(3), pages 306-312.
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