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Socio-economic evaluation

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Introduction

Figure 1 Generic flowchart for coastal project evaluation

The overall objective of socio-economic evaluation is to maximize the benefits of future investments in coastline management in a sound and sustainable way (ICZM). Various forms of Socio-Economic evaluation are used to assist in Coastal Management and making decisions regarding the coastal zone.

Any evaluation must have a starting point and purpose. In the case of coastal erosion projects knowledge is needed on "Monitoring and modeling the shoreline", "Engineering the shoreline", "Integrating the shoreline into spatial planning policies" and "Valuating the shoreline". Evaluation can be done in different phases of a project - "ex-ante", "in medias res" or "ex-post" (before, while or after a project is carried out". Regardless which phase of a project the same methods are applied. The steps of an evaluation is shown in the flowchart of Figure 1.

Main methods of analysis

There are three basic forms or analysis. They all have a common starting step and that is the "Table of effects" listing all effects relevant to the evaluation for all alternatives evaluated.

  • Cost-Benefit Analysis (CBA)
  • Cost-Effectiveness Analysis (CEA)
  • Multi-Criteria Analysis (MCA)

Cost-Benefit Analysis (CBA)

The Cost-Benefit Analysis is an evaluation method that gives an overview of the advantages and disadvantages of project alternatives or measures in terms of social welfare. These advantages and disadvantages are presented in the form of cost items and benefit items on a cost-benefit balance sheet. The items are expressed in terms of money (“monetised”) as far as possible to enable the various project alternatives to be compared. The main question in a Cost Benefit Analysis is “Do the benefits outweigh the costs?”. The welfare effect is expressed in the balance of all costs and benefits. The costs and benefits of alternatives can also be compared to determine which alternative is preferable.

Cost-Effectiveness Analysis (CEA)

The aim of a Cost-Effectiveness Analysis is to determine with which measures or packages of measures (project alternative) an objective can be reached at the lowest cost possible (cost minimisation). The analysis method can also be used to determine which project alternative, given the maximum budget, that will contribute most to the achievement of the objective (effect maximisation). With a CEA, either the objective or the available amount of money is fixed.

Multi-Criteria Analysis (MCA)

A Multi-Criteria Analysis give a decision-maker the opportunity to weigh a wide range of different effects against each other in the decision-making process. MCA methods can be used to get large quantities of dissimilar information into a manageable form for decision-making. A MCA produces a “weighted sum” of the project’s effects. For each project alternative, a number of criteria are used to give a weighing to each of the effects considered. The weightings determine how significant an effect is in the project alternative’s overall score. The various alternatives are ranked in order of preference based on overall scores.

Methods for valuation of effects

  • Travel Cost Method (TCM)
  • Hedonic Pricing Method (HPM)
  • Contingent Valuation Method (CVM)
  • Production Factor Method (PFM)
  • Prevention Cost Method (PCM)
  • Shadow Project Method (SPM)
  • Benefit Transfer Method (BTM)

Travel Cost Method (TCM)

The Travel Cost Method primarily measures the recreational value that visitors place on particular recreation areas (parks, beaches, woodland etc.). It is assumed that the costs in terms of time and transportation that an individual incurs in visiting a site reflect the person’s appreciation of that site. The basic principle is that people only visit an area if the expected benefits exceed the costs incurred. The costs incurred are then taken as an indicator of the benefits (recreational values). TCM is a useful method to assess recreational benefits. Travel costs are related to distance and can only capture part of the total value of nature (recreation).

Hedonic Pricing Method (HPM)

Hedonic Pricing Method relates differences in property prices (house and land prices) to variables in the surrounding environment. The basic principle is that property prices are affected to some extent by the characteristics of a particular environment effect. The environment effect can then be given a price tag based on house prices. An environment effect can be seen as positive (proximity to a recreational area, nice view) or negative (water pollution, risk of flooding). It may be to do with differences in time (time series data: prices in 1970 compared to prices in 2005 related to a change in the environment effect). It is also possible to analyse differences between areas with the same type of property but with one important difference in environment variable (cross-section data: the same type of housing in comparable environments with and without the environment effect).

Contingent Valuation Method (CVM)

The basis principle of the Contingent Valuation Method (CVM) is that people have preferences in relation to all goods, and therefore also in relation to goods that are not available on an existing market. The aim of a CVM study is to reveal these hidden preferences by means of questionnaires. People are asked the maximum amount of money they are willing to pay (or willing to accept as compensation) for a hypothetical change of a good. It is assumed that this professed willingness would equate to real willingness if a real market for the good did exist. Only the Contingent Valuation Method can capture both use and non-use values. However, the surveys have to be carefully designed.

Production Factor Method (PFM)

The Production Factor approach rates changes in the productivity of natural or man-made systems as a result of a change in the environment. An example is the reduction in fish catch as a result of deterioration in water quality caused by a factory not cleaning its wastewater sufficiently before discharging it into the river. If the relationship between the water quality (dose) and the fish catch (response) is known, the value of deterioration in water quality can be calculated. The changes to the financial return of production (the fish catch) can be translated through the dose/response relationship into a counter value for the environment effect (the water quality).

Prevention Cost Method (PCM)

The Prevention Cost Method is based on the prevention expenditure incurred by households, companies or governments to mitigate or avoid particular environmental risks or effects. Examples include the cost of sound insulation (double-glazing, noise barriers) to prevent or reduce excessive noise, or the cost of dikes to prevent flooding. People will only incur this prevention expenditure if the expected usefulness of the expenditure is greater than the expected inconvenience created by the environment effect. Willingness to incur this expenditure is an indication of the minimum cost of the effect or of the minimum benefit of mitigation of the effect.

Shadow Project Method (SPM)

The restoration cost method calculates the cost of measures required restoring or compensating for deterioration in or loss of nature and environment as a result of a project. This is also referred to as the Shadow Project Method. The method estimates the cost of specific measures designed to restore or compensate for deterioration in or loss of nature and environment.

Benefit Transfer Method (BTM)

With the Benefit Transfer Method, estimates of the benefits of nature and the environment from earlier studies are taken as an indication of the economic value of the benefits of nature and the environment in a new, similar policy context.

References

  • Boardman,A., Greenberg,D., Vining,A., Weimer,D. (2001) Cost-Benefit Analysis – Concepts and Practice, Second edition.
  • Guide to cost-benefit analysis of investment projects. (2002). European Commission, DG Regional Policy. Download page
  • Guidelines for incorporating cost benefit analysis into the implementation of shoreline management measures. Eurosion project, 2004. Download page
  • Messina, (2005). Socio-economic methods for evaluating decisions in coastal erosion management – State-of-the-art Messina, Component 3, September 2005. Download page
  • Messina, (2006). Guideline for socio-economic valuation of the shoreline. Download page

See also

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The main author of this article is Persson, Mats
Please note that others may also have edited the contents of this article.