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Valuing Environmental Factors in Cost-Benefit Analysis Using Data Envelopment Analysis

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  • Timo Kuosmanen

    (MTT Agrifood Research Finland)

Abstract

Environmental 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.

Suggested Citation

  • Timo Kuosmanen, 2006. "Valuing Environmental Factors in Cost-Benefit Analysis Using Data Envelopment Analysis," Working Papers 2006.96, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2006.96
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    19. Saowalak Roongtawanreongsri & Prakart Sawangchote & Sara Bumrungsri & Chaisri Suksaroj, 2016. "Economic Benefit of Management Options for a Suburban Forest in South Thailand," EEPSEA Research Report rr20160341, Economy and Environment Program for Southeast Asia (EEPSEA), revised Mar 2016.
    20. Manyama, Mkama Thomas & Hepelwa, Aloyce Shaban & Nahonyo, Cuthbert Leonard, 2021. "GIS Based Environmental Cost−Benefit Analysis of Built Environment at Dar es Salaam Coastline Metropolitan," African Journal of Economic Review, African Journal of Economic Review, vol. 9(2), April.
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    More about this item

    Keywords

    Cost-Benefit Analysis; Data Envelopment Analysis; Eco-Efficiency; Environmental Valuation; Environmental Performance; Performance Measurement;
    All these keywords.

    JEL classification:

    • 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

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