8.3.2 Loss of Earnings
This method is similar to the previous one. Here, however, the measurement relates
to changes in human productivity. If the infrastructure project entails environmental
damage, this may require medical costs. Conversely, if the damage could be
prevented, there would be savings. These comprise the lost earnings, used for
evaluation. However, when the method is applied to human life, some ethical
problems crop up. Generally, it is preferable to circumvent putting any monetary
value either on life per se or on the psychological costs of illness and death.
8.3.3 Opportunity Cost
Often, there are alternative uses or possibilities for a resource. Implementing one
alternative (creating a national park or reserve) prevents another one (selling trees as
timber) from being implemented. If the costs or benefits for the latter alternative can
be estimated, these can be used as a proxy for evaluation of the former. This notion
of opportunity cost is used in this method.
Thus, instead of trying to directly determine the benefits obtainable by preserving
a resource for unpriced or unmarketed commodities, it may be preferable or easier to
measure what has to be relinquished for the purpose of conservation. The opportunity-cost method thereby measures the “cost of conservation”. This information will
then enable assessing the options available to the decision-maker. In many cases,
when the opportunity cost of conservation is found to be low, this entails a decision
to conserve or to preserve the resource in its natural state.
8.4 Using Market Prices to Value Costs
Under the generally applicable methods, the last two techniques use market prices to
assess costs that are really incurred:
1. the cost-effectiveness method is quite common in economic and engineering
analysis.
2. the preventive expenditures method cross-checks the direct costs needed for
certain actions.
Neither method tries to determine a monetary value for the benefits obtained from
the project. Only qualitative or physical dimensions of the infrastructure project
output or product are given. For both sets of cost-side approaches, therefore, the
analyst must determine whether the potential benefits justify the costs involved.
8.4 Using Market Prices to Value Costs
225
This method is similar to the previous one. Here, however, the measurement relates
to changes in human productivity. If the infrastructure project entails environmental
damage, this may require medical costs. Conversely, if the damage could be
prevented, there would be savings. These comprise the lost earnings, used for
evaluation. However, when the method is applied to human life, some ethical
problems crop up. Generally, it is preferable to circumvent putting any monetary
value either on life per se or on the psychological costs of illness and death.
8.3.3 Opportunity Cost
Often, there are alternative uses or possibilities for a resource. Implementing one
alternative (creating a national park or reserve) prevents another one (selling trees as
timber) from being implemented. If the costs or benefits for the latter alternative can
be estimated, these can be used as a proxy for evaluation of the former. This notion
of opportunity cost is used in this method.
Thus, instead of trying to directly determine the benefits obtainable by preserving
a resource for unpriced or unmarketed commodities, it may be preferable or easier to
measure what has to be relinquished for the purpose of conservation. The opportunity-cost method thereby measures the “cost of conservation”. This information will
then enable assessing the options available to the decision-maker. In many cases,
when the opportunity cost of conservation is found to be low, this entails a decision
to conserve or to preserve the resource in its natural state.
8.4 Using Market Prices to Value Costs
Under the generally applicable methods, the last two techniques use market prices to
assess costs that are really incurred:
1. the cost-effectiveness method is quite common in economic and engineering
analysis.
2. the preventive expenditures method cross-checks the direct costs needed for
certain actions.
Neither method tries to determine a monetary value for the benefits obtained from
the project. Only qualitative or physical dimensions of the infrastructure project
output or product are given. For both sets of cost-side approaches, therefore, the
analyst must determine whether the potential benefits justify the costs involved.
8.4 Using Market Prices to Value Costs
225