Ideal Cost-Benefit Analysis Approach

This section outlines the ideal approach that would be applied to the project if there were no limitations in terms of data or knowledge gaps. The purpose of doing so is to assess the gap between what should be done in an optimal situation, and what could be done in practice (Lvovsky et al., 2000; Pearce and Koundouri, 2003).

The ideal approach to the economic analysis of the POPs Toolkit would be to implement a comprehensive cost-benefit analysis (CBA). A cost-benefit analysis is defined as:

a technique that compares the monetary value of benefits with the monetary value of costs in order to evaluate and prioritize issues …. In its simple form, cost-benefit analysis uses only financial costs and financial benefits…. A more sophisticated cost-benefit analysis approach attempts to put a financial value on intangible costs and benefits (e.g., the cost of environmental damage or the benefit of quicker and easier travel to work) (World Bank, 2009)[1].

The cost-benefit analysis is a widely used and recognized technique for assessing public policies and projects from an economic perspective (Arrow et al., 1996). The cost-benefit analysis allows decision-makers to determine whether financial resources should be allocated to these policies or projects[2]. In the POPs Toolkit, a cost-benefit analysis would ideally be used to assess if the risk management scenarios proposed for the site will provide more benefits than they will cost.

In an ideal scenario, project costs and benefits are estimated separately and compared using present value techniques, as described in the following pages.

 

References:

 

[1] http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS /ENVIRONMENT/0,contentMDK:21324891 ~isCURL:Y~pagePK: 148956~piPK:216618~theSitePK:244381,00.html [Accessed March 9, 2009].

[2] For that purpose, a CBA is more suitable than a cost-effectiveness analysis (CEA). A CEA would have identified the most effective way of spending available resources to address the POP –contamination without indicating whether allocating these resources to this issue is “worthwhile” per se.

The ideal cost-benefit analysis requires large amounts of data
Source: Stefano Mortellaro
Hatfield Consultants The World Bank funded by the Canadian POPs Trust Fund through the      
Canadian International Development Agency
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