Handbook of Environmental and Resource Economics
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Handbook of Environmental and Resource Economics

Edited by Jeroen C.J.M. van den Bergh

This major reference book comprises specially commissioned surveys in environmental and resource economics written by an international team of experts. Authoritative yet accessible, each entry provides a state-of-the-art summary of key areas that will be invaluable to researchers, practitioners and advanced students.
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Chapter 57: Cost–benefit Analysis of Environmental Policy and Management

N. Hanley


57 Cost-benefit analysis of environmental policy and management Nick Hanley 1. Introduction In many contexts of environmental policy making and management, it seems desirable to develop decision-making aids which have a number of characteristics. These include the ability to handle a wide range of problems; the ability to capture many important aspects of these problems; and the ability to judge how far a policy/project moves society towards some socially defined and accepted goal. Cost-benefit analysis (CBA from now on) has been claimed to be just such a methodology. CBA can be applied to any decision which involves a reallocation of resources within society, from constructing a new bridge to expanding the number of heart operations in our hospitals. CBA also captures many important aspects of such resource allocations. Specifically, it identifies and measures the costs and benefits of such actions to all members of society. These costs and benefits are expressed in a limiting language, it is true (in monetary units), and are also confined to ‘relevant effects’. ‘Relevance’ is accorded to any action which impacts, directly or indirectly, on utility. However, this language allows CBA to express both the intensity and direction of preferences for a resource allocation, as well as allowing the comparison of many different aspects of projects/policies, such as wetland losses with tons of concrete used in constructing a marina. However, this common language is also a weakness of CBA, since aspects of a projectlpolicy which cannot be so measured must perforce be ignored. These include,...

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