Economic Theory for the Environment
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Economic Theory for the Environment

Essays in Honour of Karl-Göran Mäler

  • New Horizons in Environmental Economics series

Edited by Bengt Kriström, Partha Dasgupta and Karl-Gustaf Löfgren

Karl-Göran Mäler’s work has been a mainstay of the frontiers of environmental economics for more than three decades. This outstanding book, in his honour, assembles some of the best minds in the economics profession to confront and resolve many of the problems affecting the husbandry of our national environments.
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Chapter 10: Bridging Ecology and Economics: Reflections on the Role of Cost–benefit Analysis and the Design of Interdisciplinary Research

Ing-Marie Gren, Clifford S. Russell and Tore Söderqvist

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10. Bridging ecology and economics: reflections on the role of cost–benefit analysis and the design of interdisciplinary research Ing-Marie Gren, Clifford S. Russell and Tore Söderqvist 1 INTRODUCTION Cost–benefit analysis (CBA) can be viewed as a quite particular response to decision makers’ need for guidance in their selection among different decision alternatives, including the status quo. Suppose that a successful identification of decision alternatives in a certain matter has been accomplished. Following Mäler (1985), suppose also that it is possible to accept an ethical point of departure which says that it is the end states of actions that should determine what actions should be taken in society, rather than the actions in themselves. It is in this case natural to proceed towards a decision by predicting the consequences of each identified decision alternative and finally to base the choice of alternative on a comparison of these consequences. CBA offers a methodology with an elaborated theoretical basis for accomplishing such a comparison, even when both actions and outcomes are complex and multidimensional. A CBA considers positive and negative aggregate consequences for human well-being. The implication of the aggregation across people and dimensions is that increases (decreases) in one determinant of well-being can be traded off against decreases (increases) in other determinants. The degree of trade-off necessary to remain at a given well-being is then a way of characterizing the consequences in economic terms either as benefits or costs. Such trade-offs can be measured in terms of any...

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