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Valuation Methods for Environmental Benefits in Forestry and Watershed Investment Projects


  • Romina Cavatassi

    (Agricultural and Development Economics Division, Food and Agriculture Organization)


The understatement or omission of the environmental costs and benefits associated with forest management options results in project evaluations and policy prescriptions that are less than socially optimal. The aim of this paper is to examine the full range of costs and benefits associated with forests, distinguishing between how these should, and actually are, included in economic analyses. The paper first describes the economic analysis undertaken in the project evaluation procedure of the World Bank. The second section deals with all costs and benefits that typically occur in forestry projects. Costs and benefits are classified as on-site private, onsite public or global according to their nature and area of impact and according to the Total Economic Value approach. The third section illustrates valuation techniques and how these are employed to estimate all forest values. The purpose of the fourth section is to examine how analysis is implemented in project evaluation, focussing on five case studies undertaken by the FAO Investment Centre. The analysis reveals that the main determinants of the economic viability of forestry projects are the on-site private benefits, while a major weakness of project evaluations is the difficulty in including and evaluating on-site public benefits, mainly associated with externalities. Global environmental benefits associated with carbon sequestration proved to be significant for the economic viability of forestry projects.

Suggested Citation

  • Romina Cavatassi, 2004. "Valuation Methods for Environmental Benefits in Forestry and Watershed Investment Projects," Working Papers 04-01, Agricultural and Development Economics Division of the Food and Agriculture Organization of the United Nations (FAO - ESA).
  • Handle: RePEc:fao:wpaper:0401

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    References listed on IDEAS

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    Cited by:

    1. Dranco, Daniel & Luiselli, Luca, 2014. "How much do the common goods of rural and semi-natural landscape cost? A case study," MPRA Paper 66309, University Library of Munich, Germany, revised 2015.
    2. Franco, Daniel, 2012. "Beni comuni, beni pubblici e risorse ambientali: il ruolo dell’azione collettiva
      [Public goods, common goods and natural resources: the role of the collective action]
      ," MPRA Paper 52357, University Library of Munich, Germany, revised Mar 2012.

    More about this item


    Agroforestry; Cost benefit analysis; Economic analysis; Economic value; Environmental protection; Forest management; Forest resources; Forestry; Forestry development; India; Nepal; Philippines; Water management; Watershed management;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q57 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Ecological Economics
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products


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