13 Economics and Project Management in the Coastal Zone
147
forgone (NB fd ) of alternative development uses of the protected area. The conservation
zone plus buffer zone setup costs may include costs of relocating or compensating existing users:
Finally, a hypothetical project (port, harbour and recreational housing and marina
complex) is used to illustrate the partial and total valuation methods on the basis of the
economically efficient resource usage principle over time (with and without uncertainty) (see Sect. 13-3.1; Pearce and Thrner 1992). The deployment of sustainability constraints/standards is also analysed in the same project choice context.
13.3.1
Port/Marina Complex Project: Partial Valuation Approach
Imagine that a port and marina project is scheduled and that it is to be sited so that it
displaces an existing and environmentally valuable wetland area. Let us further assume
that the project will also generate pollution impacts related to sewerage effluent disposal and other waste emissions/discharges. The basic cost-benefit decision rule (on
the basis of the economic efficiently criterion) is:
Accept a proposal if over time
f t{Bnt - COt - NBfet- TECt}e- rt > 0 ,
where BOt = direct project benefits, COt = direct project costs, NB fet = forgone net production and environmental benefits of the conserved wetland, TEC t = pollution damage costs (net effects on coastal resources' production and environmental benefits) and
r = discount rate.
In a deterministic world in which there is no uncertainty, we need to estimate the
total economic value (TEV) of NBfe and TEC:
TEV = TUV + TNUV ,
where TEV = total economic value, TUV = total use value (relating to wetland and other
coastal resources impacted by pollution) and TNUV = total non-use (existence) value
(see Fig. 13.1). If this TEV is sacrificed because of the development project, then the
basic cost-benefit decision rule [Eq. (13.1)] becomes: Accept if
f t{Bnt - COt - [TUV + TNUV]}e -rt > 0 .
In circumstances where there is uncertainty, for example, supply uncertainty about
the continued availability of the environmental asset in question, but consumers will
almost certainly demand the environmental goods/services in the future, then the concept of option value (OV) is relevant. Option value is the difference between the amount
someone is willing to pay in order to retain the option of future use of an environmental asset (the option price) and the expected value of the ex post consumer surplus
147
forgone (NB fd ) of alternative development uses of the protected area. The conservation
zone plus buffer zone setup costs may include costs of relocating or compensating existing users:
Finally, a hypothetical project (port, harbour and recreational housing and marina
complex) is used to illustrate the partial and total valuation methods on the basis of the
economically efficient resource usage principle over time (with and without uncertainty) (see Sect. 13-3.1; Pearce and Thrner 1992). The deployment of sustainability constraints/standards is also analysed in the same project choice context.
13.3.1
Port/Marina Complex Project: Partial Valuation Approach
Imagine that a port and marina project is scheduled and that it is to be sited so that it
displaces an existing and environmentally valuable wetland area. Let us further assume
that the project will also generate pollution impacts related to sewerage effluent disposal and other waste emissions/discharges. The basic cost-benefit decision rule (on
the basis of the economic efficiently criterion) is:
Accept a proposal if over time
f t{Bnt - COt - NBfet- TECt}e- rt > 0 ,
where BOt = direct project benefits, COt = direct project costs, NB fet = forgone net production and environmental benefits of the conserved wetland, TEC t = pollution damage costs (net effects on coastal resources' production and environmental benefits) and
r = discount rate.
In a deterministic world in which there is no uncertainty, we need to estimate the
total economic value (TEV) of NBfe and TEC:
TEV = TUV + TNUV ,
where TEV = total economic value, TUV = total use value (relating to wetland and other
coastal resources impacted by pollution) and TNUV = total non-use (existence) value
(see Fig. 13.1). If this TEV is sacrificed because of the development project, then the
basic cost-benefit decision rule [Eq. (13.1)] becomes: Accept if
f t{Bnt - COt - [TUV + TNUV]}e -rt > 0 .
In circumstances where there is uncertainty, for example, supply uncertainty about
the continued availability of the environmental asset in question, but consumers will
almost certainly demand the environmental goods/services in the future, then the concept of option value (OV) is relevant. Option value is the difference between the amount
someone is willing to pay in order to retain the option of future use of an environmental asset (the option price) and the expected value of the ex post consumer surplus