Imagine a recreational area that will be destroyed by a new infrastructure project.
An alternative investment could be conceived which would, in theory, provide a
similar output of goods and services as does the recreational area.
8.7.4 Summary
Cost-side methods are quite useful because they comprise tangible actions which
ensure directly observable market prices. Both the replacement-cost and the relocation-cost techniques (and the associated shadow-project approach) are able to establish the cost of measures required to alleviate negative environmental impacts. If
the replaced or relocated environmental good or service is a suitable replacement for
the damaged resource, then these methods provide an upper limit estimation of the
economic cost of the damage. i.e., if the cost of avoiding the damage is lower than
either of the replacement or relocation cost, then it is meaningful, economically, to
take that course (assuming that benefits preventing the damage are greater than the
costs). However, if the costs of replacement or relocation are not sufficient to
compensate totally for the environmental damage, then they do not provide a true
upper bound of the cost estimates.
Imagine a river, being used for fish production, as well as providing a domestic
water supply. Further to the construction of a factory, the river is polluted from
factory effluents, resulting in a relocation of the water treatment plant. The relocation
cost of the water plant does not represent the upper limit of the factory pollution cost,
because the loss of fish production and of other, perhaps unpriced, goods and
services have not yet been added.
8.8 Survey-Based Methods and Macroeconomic Models
Two distinct classes of techniques are presented in this section.
1. contingent valuation methods, based on surveys are used to evaluate the environmental impacts of infrastructure projects when data on market or substitutemarket prices are absent.
2. macroeconomic models, enable examining how large-scale economic growth
interacts with the environment.
8.8.1 Contingent Valuation Methods
Sometimes, it is not possible to evaluate the environmental impacts of a particular
project with the market or substitute-market methods, particularly when data is not
8.8 Survey-Based Methods and Macroeconomic Models
233
An alternative investment could be conceived which would, in theory, provide a
similar output of goods and services as does the recreational area.
8.7.4 Summary
Cost-side methods are quite useful because they comprise tangible actions which
ensure directly observable market prices. Both the replacement-cost and the relocation-cost techniques (and the associated shadow-project approach) are able to establish the cost of measures required to alleviate negative environmental impacts. If
the replaced or relocated environmental good or service is a suitable replacement for
the damaged resource, then these methods provide an upper limit estimation of the
economic cost of the damage. i.e., if the cost of avoiding the damage is lower than
either of the replacement or relocation cost, then it is meaningful, economically, to
take that course (assuming that benefits preventing the damage are greater than the
costs). However, if the costs of replacement or relocation are not sufficient to
compensate totally for the environmental damage, then they do not provide a true
upper bound of the cost estimates.
Imagine a river, being used for fish production, as well as providing a domestic
water supply. Further to the construction of a factory, the river is polluted from
factory effluents, resulting in a relocation of the water treatment plant. The relocation
cost of the water plant does not represent the upper limit of the factory pollution cost,
because the loss of fish production and of other, perhaps unpriced, goods and
services have not yet been added.
8.8 Survey-Based Methods and Macroeconomic Models
Two distinct classes of techniques are presented in this section.
1. contingent valuation methods, based on surveys are used to evaluate the environmental impacts of infrastructure projects when data on market or substitutemarket prices are absent.
2. macroeconomic models, enable examining how large-scale economic growth
interacts with the environment.
8.8.1 Contingent Valuation Methods
Sometimes, it is not possible to evaluate the environmental impacts of a particular
project with the market or substitute-market methods, particularly when data is not
8.8 Survey-Based Methods and Macroeconomic Models
233