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Decision makers responsible for the allocation of funds to environmental projects commonly use project scoring metrics that are not consistent with basic economic theory. As a result, there is often a loss of environmental benefits due to poor prioritisation of projects. The magnitudes of these losses are estimated for various metrics that deviate from theory. We examine cases where relevant variables are omitted from the benefits metric, project costs are omitted, and where parameters are weighted and added when they should be multiplied. Distributions of parameters are estimated from 129 environmental projects from Australia, New Zealand and Italy for which Benefit: Cost Analyses had previously been completed. The cost of using poor prioritisation metrics (in terms of lost environmental values) is often high – up to 80 per cent in the scenarios examined. The cost is greater where the budget is smaller. The most costly errors were found to be omitting information about environmental values, project costs or the effectiveness of management actions, and using a weighted additive decision metric for variables that should be multiplied. The latter three of these are errors that occur commonly in real-world decision metrics, often reducing potential environmental benefits by 30 to 50 per cent.

Keywords: Cost Analysis ; Prioritisation ; Environmental program ; Knapsack problem

Subject(s): Environmental Economics and Policy

Issue Date: Feb 03 2014

Publication Type: Working or Discussion Paper

PURL Identifier: http://purl.umn.edu/163211

Total Pages: 18

JEL Codes: Q50

Series Statement: Working Paper


Record appears in: University of Western Australia > Agricultural and Resource Economics > Working Papers

Autor: Pannell, David J. ; Gibson, Fiona L.

Fuente: http://ageconsearch.umn.edu/record/163211?ln=en

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