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or water yields or clean water. Other ecosystem services which could be valued similarly include nutrient cycling and the provision of genetic resources. The value of the
ecosystem can then be indirectly inferred from the changes in the value of goods
produced due to changes in the supply of these services because of, say, a loss in the
area of the ecosystem.
5.2.4 Welfare
Economic welfare is a monetary measure of the gains (or losses) achieved by consumers from having cheaper, more abundant (more expensive, scarcer) Nexus products and services. It also measures the gains to producers in the form of profits from
having more Nexus resources available or losses under the converse. Welfare estimates the willingness to pay to avoid some negative force like pollution, or the
willingness to accept compensation in the face of a Nexus management practice
being adopted that worsens their well-being. The producer component is called producers’ surplus. The consumer component is called consumers’ surplus.
Thus, the welfare effects of adopting a Nexus practice involve both producers
and consumers welfare. This is an important distinction because many Nexus type
studies only estimate the effect on producers without considering any consumer
effects. The consumer benefits arise from lower product prices or greater product
availability at a given price. For example, when considering climate change effects
on crop production one should not only consider changes in commodity prices and
producer revenue but also in the cost of consumer food purchases (see Adams et al.
1990 for an example).
In general, treatment of consumer effects means incorporating demand curves
and assumptions other than fixed prices for commodities. In particular, as more is
produced then, assuming that the market share is significant, this will cause prices
to go down giving consumers more for their money or the converse occurs with
prices going up.
Overall, it is useful to do a welfare analysis in conjunction with the evaluation of
a Nexus project on recognized groups of producers and consumers (i.e., farmers,
electricity producers, low-income consumers, urban dwellers, rural parties, overseas parties, etc.) as opposed to aggregate analysis. Such a welfare analysis is commonly called a benefit–cost analysis.
Benefit–Cost Analysis
Benefit–cost analysis is founded on a branch of economics known as welfare
economics. That is, what are the benefits and costs arising when implementing an action when the action affects welfare across elements of the economy?
Who benefits and who bears costs when a project is built and, considering
those who benefit and those who bear costs, are the benefits larger than the
5 Economics
or water yields or clean water. Other ecosystem services which could be valued similarly include nutrient cycling and the provision of genetic resources. The value of the
ecosystem can then be indirectly inferred from the changes in the value of goods
produced due to changes in the supply of these services because of, say, a loss in the
area of the ecosystem.
5.2.4 Welfare
Economic welfare is a monetary measure of the gains (or losses) achieved by consumers from having cheaper, more abundant (more expensive, scarcer) Nexus products and services. It also measures the gains to producers in the form of profits from
having more Nexus resources available or losses under the converse. Welfare estimates the willingness to pay to avoid some negative force like pollution, or the
willingness to accept compensation in the face of a Nexus management practice
being adopted that worsens their well-being. The producer component is called producers’ surplus. The consumer component is called consumers’ surplus.
Thus, the welfare effects of adopting a Nexus practice involve both producers
and consumers welfare. This is an important distinction because many Nexus type
studies only estimate the effect on producers without considering any consumer
effects. The consumer benefits arise from lower product prices or greater product
availability at a given price. For example, when considering climate change effects
on crop production one should not only consider changes in commodity prices and
producer revenue but also in the cost of consumer food purchases (see Adams et al.
1990 for an example).
In general, treatment of consumer effects means incorporating demand curves
and assumptions other than fixed prices for commodities. In particular, as more is
produced then, assuming that the market share is significant, this will cause prices
to go down giving consumers more for their money or the converse occurs with
prices going up.
Overall, it is useful to do a welfare analysis in conjunction with the evaluation of
a Nexus project on recognized groups of producers and consumers (i.e., farmers,
electricity producers, low-income consumers, urban dwellers, rural parties, overseas parties, etc.) as opposed to aggregate analysis. Such a welfare analysis is commonly called a benefit–cost analysis.
Benefit–Cost Analysis
Benefit–cost analysis is founded on a branch of economics known as welfare
economics. That is, what are the benefits and costs arising when implementing an action when the action affects welfare across elements of the economy?
Who benefits and who bears costs when a project is built and, considering
those who benefit and those who bear costs, are the benefits larger than the
5 Economics