8.4.2 Preventive Expenditures
Do people value their environment enough to spend money to safeguard the quality
of their environment? Usually, the minimum sum of money that people are willing to
spend to prevent environmental damage or damage to themselves may be used to
estimate how people value the quality of their environment. This valuation principle
can also be applied to nations or communities, and is recognised as the “preventiveexpenditure” or “mitigative-expenditure” method. It provides a minimum evaluation
for two reasons:
1. actual expenditures may be limited by income,
2. an additional quantity of consumer’s surplus may still be available, even after the
preventive expenditure has been effected.
While the cost-effectiveness method studies the direct cost of achieving some
pre-set target or standard, this method scrutinises actual expenditures to evaluate the
prominence individuals attribute to environmental impacts.
In theory, a person thinking rationally would incur mitigating costs if:
N
Ã
þ E < N
where
N ¼ original level of perceived damage
N
*
¼ mitigated level of perceived damage
E ¼ mitigation expenditure
It is also believed that a rational person will not stop incurring mitigation costs
until:
N À N
Ã
ð
Þ¼E
The demand for the alleviation of environmental damage may be perceived as a
substitute or proxy demand for environmental protection. Of course, people will
spend only their resources when they believe their personal estimate of the benefits is
greater than or equal to the costs. The personal estimate of those costs can thus be
indirectly determined by considering the quantum of resources assigned to avoiding
them. However, a person’s inclination to incur costs is limited by his aptitude to pay.
Therefore, this method will only provide a minimum assessment of the benefits
received.
The inherent hypotheses in such analyses are that:
(i) accurate data related to the costs of the mitigating expenditures are accessible;
(ii) no secondary benefits are connected with the expenditures.
Preventive expenditures are common and, if used carefully, can offer useful data.
The authority of the method is its dependence on observable market behaviour and is
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8 Analysis of Environmental Impacts of Infrastructure
Do people value their environment enough to spend money to safeguard the quality
of their environment? Usually, the minimum sum of money that people are willing to
spend to prevent environmental damage or damage to themselves may be used to
estimate how people value the quality of their environment. This valuation principle
can also be applied to nations or communities, and is recognised as the “preventiveexpenditure” or “mitigative-expenditure” method. It provides a minimum evaluation
for two reasons:
1. actual expenditures may be limited by income,
2. an additional quantity of consumer’s surplus may still be available, even after the
preventive expenditure has been effected.
While the cost-effectiveness method studies the direct cost of achieving some
pre-set target or standard, this method scrutinises actual expenditures to evaluate the
prominence individuals attribute to environmental impacts.
In theory, a person thinking rationally would incur mitigating costs if:
N
Ã
þ E < N
where
N ¼ original level of perceived damage
N
*
¼ mitigated level of perceived damage
E ¼ mitigation expenditure
It is also believed that a rational person will not stop incurring mitigation costs
until:
N À N
Ã
ð
Þ¼E
The demand for the alleviation of environmental damage may be perceived as a
substitute or proxy demand for environmental protection. Of course, people will
spend only their resources when they believe their personal estimate of the benefits is
greater than or equal to the costs. The personal estimate of those costs can thus be
indirectly determined by considering the quantum of resources assigned to avoiding
them. However, a person’s inclination to incur costs is limited by his aptitude to pay.
Therefore, this method will only provide a minimum assessment of the benefits
received.
The inherent hypotheses in such analyses are that:
(i) accurate data related to the costs of the mitigating expenditures are accessible;
(ii) no secondary benefits are connected with the expenditures.
Preventive expenditures are common and, if used carefully, can offer useful data.
The authority of the method is its dependence on observable market behaviour and is
228
8 Analysis of Environmental Impacts of Infrastructure