Environmental Engineering Reference
In-Depth Information
social welfare is increased by making the move even if no actual compensation is
made. As such through adding up the social costs and benefits it is possible to say
whether a particular policy has/is likely to lead to a PPI and an improvement in
social welfare. Although the potential for compensation does exist, the lack of
consideration of equity within cost-benefit analysis has been the subject of much
criticism (Jacobs 1997 ; Wilson and Howarth 2002) . This objection is widely held,
particularly the implicit assumption of cost-benefit analysis that the existing income
distribution is optimal (Pearce et al. 2006) . This assumes equality in terms of mar-
ginal utility of income, such that €1 creates the same additional utility regardless of
whether people are rich or poor. Through the use of weighting, cost-benefit analysis
could be adjusted, however, this would need to be undertaken based on some form
of political consensus and is controversial. This is particularly the case as, within
stated preference surveys, individuals are free to consider what they wish, and some
respondents may have considered equity as part of this decision process. Wilson
and Howarth (2002) argue this is particularly the case for environmental goods and
services which are seen to be rich in equity issues. Based on the principles set out
by Habermas (1984) and Dryzek (1990) in the context of environment valuation,
Wilson and Howarth (2002) suggest that valuation of environmental goods should
not result from the aggregation of separately measured individual preferences, but
from a process of free and open debate within which participants can go beyond
private self-interest to consider wider ranging issues such as equity. A fair process
may well lead to a fair outcome, but it is questionable to what extent a fair process
can be developed.
The issue of equity illustrates the more general question of whether the
cost-benefit analysis is just too narrow? This was indeed questioned above for
stated preference responses, where individuals struggle to respond in a way
consistent with the requirements of cost-benefit analysis or as Gowdy (2004)
suggests 'forcing individual preferences through the narrow funnel of rational
choice theory' (p. 246). To consider this issue further there is a need to consider the
results of cost-benefit analysis in practice.
Hanley et al. (1999) present the cost-benefit results from a series of studies of
agri-environmental schemes, where valuations were elicited using stated preference
methods (CVM, CA). The results suggest that in terms of economic efficiency, the
schemes have provided good value for money, where the cost-benefit or PPI tests
being passed in most cases by some margin. At face value this is a very positive
endorsement of agri-environmental schemes, leaving others to consider any
compensation adjustments that might be required. However, interpreting the
meaning of this finding in the context of what has been said above would be putting
too much faith in the valuations generated, for two major reasons.
First, it has been assumed within the valuation studies that the agri-environmental
scheme will deliver in terms of biodiversity and landscape improvements. As such
CBA says nothing about the effectiveness of the policy. This is left to other studies
of the agri-environmental scheme take up rates by farmers, and the results of
environmental monitoring (Hanley et al. 1999) . As noted above, if the scenarios
described within the valuation studies (policy-on and policy-off) do not reflect what
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