Cost–Benefit Analysis and Water Resources Management

Cost–Benefit Analysis and Water Resources Management

Edited by Roy Brouwer and David Pearce

How are the economic values of water and water quality accounted for in policy and project appraisal? This important book gives an overview of the state-of-the-art in Cost–Benefit Analysis (CBA) in water resources management throughout Europe and North America, along with an examination of current applications.

Chapter 1: Introduction

R. Brouwer and D.W. Pearce

Subjects: economics and finance, environmental economics, valuation, environment, environmental economics, management natural resources, valuation, water


R. Brouwer and D.W. Pearce BASIC ECONOMIC PRINCIPLES Cost–benefit analysis (CBA) is around 70 years old if we date its first practical application to water resource developments in the USA in the 1930s. The theory of CBA is much older and its origins can be more precisely set in the 1840s with the writings of the French engineer and economist Jules Dupuit (Pearce, 2002). Dupuit was concerned with the issue of how to make public choices about investments that had no necessary commercial returns, such as roads and bridges. He established the notion of what today we call consumer’s surplus, the consumer’s net benefit from consuming something and measured by the excess of willingness to pay over the cost of acquiring the good. Along with any producers’ surplus – the return received by the producer over and above the minimum he/she would accept to supply the good – it is the change in consumers’ surplus that measures the benefit of providing more of a good. Moreover, these measures of surplus are general and apply regardless of whether the good in question is supplied through a market or if it is a public good, generally supplied by governments. That CBA was applied early on to water resources, albeit in very primitive fashion by today’s standards, is no accident. Water has competing uses and for some of those uses it acts very much like a private good: A’s consumption is at the expense of B’s consumption. In other respects it...