Political Consensus In The Third World
by Alister McFarquhar
The paper assesses environment valuation methods including top-down CBA. National and international institutions advocate devolution of decision-making. Good environment planning should involve local populations, local planning and local valuation.
Partial measures of environment valuation of non-market goods and services including the Benefits Transfer Method and Contingent Valuation (CV), and Hedonic Pricing, still frequently used in spite of a poor record, are assessed. The current emphasis in multilateral project evaluation on Financial Rate of Return and the Weighted Average Cost of Capital emphasizes the increasing importance of commercial and national rather than local and social criteria in public projects.
Debate on ethical and economic aspects of environment valuation is summarized with a critique of CBA. In spite of rhetoric to the contrary, a local and democratic approach is not currently reflected in environment valuation in practice.
The writer is indebted to ADB for prolific quotation from their state of the art Manuals (ADB 1996,1997) on Environmental Valuation and Project Appraisal, and to John Boyd and others in ADB, who may prefer anonymity, for guidance on practice. Comments by Ian Sturgess, who sadly died recently, greatly improved the script. This paper is offered to the web in his memory. John Richardson created the production layout of the paper: Apologies to authors of seminal articles on environmental valuation for liberal quotations that are severally too brief to do justice to their contributions. The usual responsibilities lie with the writer.
The paper summarizes methods for valuing environment particularly methods used in the Development Banks. The use of shadow or social prices began in the late fifties in project evaluation in multilateral development banks (MDBs). Curiously, cost benefit analysis (CBA) has hardly been used beyond the MDBs although prescriptive in some US environmental legislation. CBA uses shadow or social prices and tries to capture indirect benefits and costs of a project not part of the financial flows. This has become routine practice only in MDBs. CBA incorporating social prices, as it must to be worth the name, was not used much in the UK before or after the famous Third London Airport inquiry (1972). Even in the multilateral organizations (MO), emphasis has shifted to calculation of the financial rate of return as privatization and cost recovery became more important in the 1990s. Some authorities claim to use CBA, ignoring or unaware of social pricing as an essential element.
Exactly what role CBA plays in the evaluation of projects remains unclear. In the MOs, once a project is conceived on intuitive grounds, it is seldom rejected. This suggests that CBA is used to justify rather than assess. An approved project must show a minimum rate of return, so CBA may be used to modify a project to achieve the required rate of return rather than to eliminate projects which do not provide adequate return as first conceived. Alternatively, data like social prices susceptible to uncertainty may be manipulated to justify a project, although this is difficult to prove.
It is useful to think of environment evaluation in terms of a development project where social appraisal methods are routinely applied. Most development can be viewed as projects, public or private, often subject to planning control. CBA has been routine in the appraisal of MDB projects, but has been in decline as it gives ground to a myriad of alternative and complementary partial social measures of poverty and distribution. However, CBA is enjoying a new lease on life in valuation of the environment. This coincides with a revival of debate on contingent valuation in the planning literature.
This paper questions if repeating the experience of the last four decades in project appraisal and contingency valuation is a useful approach to environment valuation in democratic planning, especially difficult with conflict between local and national objectives. CBA has been used properly to justify state sponsored development supposedly in the interest of the nation state as a whole as its assumptions on mobility of labor require. Now the MOs advocate devolution of planning to local authorities and of property rights to ethnic groups and minorities who suffer directly the environmental consequences of development. Are these laudable objectives consistent with a planning criterion like CBA, which is essentially top-down rather than bottom-up? Before exploring this it is essential to review current practices in project evaluation in MOs in sections II, III and IV.
Section II summarizes financial and economic evaluation method as reflected in manuals published by the development banks. Section III discusses physical environment assessment (EIA, EA) and, specific partial techniques for economic evaluation of environment using primary stated preference methods including, contingency valuation (CV), hedonic pricing (HP), travel cost method (TCM) and secondary benefits transfer method (BTM). Section IV summarizes the state of the art of CBA as practiced in the development banks. Section V reviews the recent debate on environment valuation. Section VI considers the implications of the debate on environment valuation for the continued use of CBA and CV in environment management and planning. Section VII examines the relation between environment management and political consensus as a vital factor in planning.
In private sector investment appraisal, the textbook approach advocates discounted cash flow (DCF), which reduces a stream of benefits and costs to a single net present value (NPV), the difference between discounted benefits and costs. Being a difference, this measure is affected by project size. A project may have an NPV twice an alternative project with a higher rate of return just because of its size.
Sometimes discounted costs and benefits are expressed as a ratio such as the financial internal rate of return (FIRR). The private sector ignores externalities, or costs and benefits that do not affect the private investor. Externalities include environmental damage, pollution, and effects on others not reflected in the markets. A financial analysis ignores the fact that market prices are distorted by government intervention since market prices determine private profit.
A public project appraisal is less interested in FIRR and more in the net benefit of a project for the nation state as a whole. Social or economic benefit must account for externalities by incorporating social or shadow prices, i.e., prices that would occur in the market, were it free from intervention. Sometimes these are based on international or accounting prices in World Bank (WB) and Asian Development Bank (ADB) manuals, and sometimes on domestic prices in distinguished text books such as Mishan (1971).
When externalities and price distortion are allowed for in the cost and benefit stream, the social criteria are the same, i.e., NPV and internal rate of return (IRR), generally called economic internal rate of return (EIRR) to distinguish it from FIRR. Sometimes the benefit cost ratio (BCR) or benefits less costs divided by costs is used. Since the EIRR and BCR criteria are ratios, they are scale-neutral, whereas the NPV being a difference increases with the size of the project. NPV, EIRR (or sometimes IRR), and BCR are related in Table 1.
TABLE 1: Relationships Between NPV, BCR, and EIRR
These criteria can give conflicting results in ranking projects, and in deciding whether to accept or reject a project. Two major problems arise; choice of discount rate (or cost of capital), which is not needed to calculate IRR, but which is needed to interpret it; and the project time horizon. At normal discount rates of 10-12 percent, costs or benefits arising after 20 years are too small to have much influence on NPV or to affect ranking of projects. Projects with less than 10 percent EIRR, the usual threshold for acceptance, may be accepted because of special social contributions now fashionable and politically correct, such as employment of women or ethnic minorities. Different risk between projects does not seem to be a factor taken into account of in relation to rates of return. The marginal cost of capital is assumed to be the same for all projects-standard but dubious practice in business. A complicated decision matrix exists for selecting projects ranked differently by NPV or rate of return, depending on whether there is more than one project and if projects are mutually exclusive. In practice, projects are selected severally in relation to an acceptable in-house rate of return in both public and private sector.
A perennial problem is distribution of income over time and space. The discount rate takes account of the first and is discussed further below. Distribution of benefits between income groups can in theory be dealt with by giving different weights to benefits according to which income group is expected to enjoy them. But this is seldom attempted in practice. Discounting to allow for distribution over time and between generations excites much debate among philosophers, social scientists and economists who are not agreed even within disciplines. This is especially relevant in projects affecting the environment with effects beyond the life of a normal project assessment. In principle this may be dealt with by including terminal environment effects due to a project as a capital sum in the last year of project costs or benefits. This is unlikely to satisfy environmentalists, because of the diminishing effect of discounting at usual rates on any capital allowance in the last year of any project.
Economists usually depend on a utilitarian ethic that does not discriminate between generations. As in political voting, each individual is weighted equally. There remains the problem of the period over which to maximize utility plus the capital stock to be available at the end of the period not to mention how to decide distribution between generations. And should economists maximize total utility or utility per head, i.e., average utility? The philosophers do not help: Barry argues justice cannot be contracted between generations. Even Rawls seems to think there is no answer to the problem of sharing burdens and benefits between generations.
Choosing an appropriate discount rate and calculating social prices are major challenges to be added to the specific difficulties of including environment factors in project valuation. Economists demand discounting: Philosophers reject it (Beckerman, 1995). Rawls (1972), who rejects rationality of time preference, accepts the use of a discount rate to ration investment funds. Some economists following Pigou advocate a lower or even zero discount rate for public or environmental projects. As Beckerman says, if discounting is not in the interests of future generations, it would not be in ours either; and so it is not unfair to them. Further, economists discount not so much utility or welfare but rather the income flow available for consumption.
Discounting raises consumption of all generations by discriminating against poor investments. The implications of the alternative to discounting, a zero discount rate, would minimize consumption in favor of profitless investment. A lower discount rate for environmental projects differentiates wrongly between environmental beauty and other productive investments. Moreover it could be double-counting, as the environmental benefits should be included in the cost and benefit stream of any project ideally measured at prices appropriate for the time and value preferences in society (McFarquhar, 1996).
In practice if not in principle, the choice of discount rate is relatively easy except in the Courts in England where a recent case ended inconclusively in the House of Lords (Castle and McFarquhar, 1999). In the private sector, it is simply the future income stream net of tax discounted at the risk free rate of interest plus an appropriate risk premium. This discount rate may be assessed in the circumstances of each investment, or be prescribed by a private company.
This is robust because the discount rate can be used in principle, if seldom in practice, to reflect risk differences between projects and differences in perception of risk between analysts, borrowers, or lenders. Most textbooks advise using the weighted average cost of capital (WACC), now under increasing criticism, in the private sector. In reality a company probably applies a house rate that provides a threshold for acceptance of new investment. In the public sector, most institutions have a house rate that can be compared with a project EIRR. In US water projects, the acceptable rate it is determined by statute!
With increasing private finance initiative (PFI) in the public sector and policies for cost recovery in urban infrastructure projects, FIRR has become more important. Of course it was always necessary for assessing implications of cash flow and the subsidy component of public projects. In the private sector, FIRR is compared with the weighted average cost of capital in real terms. Whereas the opportunity cost of capital may be fixed for any country, the cost of capital may differ between projects depending on sources of capital (Hufschmit, et al., 1983). See Table 2.
TABLE 2: FIRR vs. WACC, Five Possibilities
This analysis reveals the subsidy requirements of projects which are deemed socially desirable but do not cover costs.
Cost effective analysis (CEA)
This is much simpler and therefore more practical than CBA. It seeks the least cost method for a given objective or the maximum benefit from given expenditure. To the extent that cost estimation uses opportunity costs, CEA suffers the same problems of valuation as CBA but benefits are intuitively assessed in physical terms.
Techniques are partial in the sense that they stop short of a full CBA or CEA with a prescriptive answer. Partial analysis provides input for the planning process whether it is top-down and controlled by the State, or bottom-up, feeding local preferences into a democratic planning system where it exists.
Environmental economists currently attempt to value the environment using standard procedures that have been around, in and out of fashion, for about four decades. For a summary of categories of environmental value and economic value see the Appendix. EIA is not strictly a valuation procedure, but rather is a comprehensive list of physical factors affected by a development or change of use. These factors are then balanced against the net benefits of related projects. This means implicit weights are attributed severally when summing factors.
Methods of valuation are sometimes divided into primary and secondary. Primary methods may be direct or indirect. The former uses stated preferences based on consumer surveys that simulate constructed markets. Respondents are asked what they would be willing to pay (WTP) for various hypothetical environmental alternatives. Values may also be extrapolated from information in parallel markets, say travel cost, of visiting an environmental asset or the effect of public goods with territorial specificity (as most have) on land prices and rent (Foldvary, 1994).
Stated preference estimates derived from surveys of consumer opinion, sometimes called "contingent valuation" (CV), "are very controversial within the economics profession" (IUCN, 1996, p. 874). As Arrow said, "verbal answers don't hurt the way cash payments do" (Cummings at al., 1986). But the approach has legal status in the US for decades. The difficulties of contingent valuation are discussed below in the light of recent debate. This debate goes back several decades and, apart from the recent revival of some issues discussed below in a more interdisciplinary context, has been well summarized (Cummings et al., 1986; Mitchell and Carson, 1988; and Hausman, 1993).
The more recent debate on environmental valuation in general, and on CV in particular, has not yet had an impact on practical and applied methods of environmental valuation and project appraisal in the development banks. See Section V.
The travel cost method (TCM) tries to simulate the attractiveness of a site and is reviewed comprehensively by Fletcher, et al (1980). It cannot easily measure non-use values and the research estimate of cost may differ greatly from an individual perceived cost. For example, is time spent in a car a cost or a benefit? Sites of little utility may attract high value, if the journey is pleasant and vice versa. Hedonic cost methods, e.g., relating house prices to distance from a source of pollution, seem currently to be out of favor, especially as values often contradict hypotheses. For example houses near an airport claiming damage for noise footprint pollution may have higher values than comparable houses elsewhere. Contingent ranking is considered to be easier for consumers to deal with and is described as an indirect primary method.
Given the debate over simple surrogate valuation models, there may not be much future for more complicated models such as random utility or production function approaches (IUCN, 1996. p. 850). These are susceptible to criticism in uses not relating to the environment, and more so when the complexities of the latter are added. Most other revealed preference methods involve estimation of opportunity cost; which, although useful as a concept in principle, is difficult to apply in practice.
The cost of research to provide even contestable estimates of costs and benefits is very large and impractical for most projects. Consequently a secondary method involving a system of short cut estimates has been evolved, namely the "benefits transfer method" (BTM). This involves using secondary data from similar situations in other countries or areas to produce rough estimates of benefits and costs of environmental factors in the environment to be assessed. For example the benefits of a beach in Thailand may be used to approximate the benefits of a beach in the Philippines. This method is mercifully not yet well developed and is a recipe for arbitrary measurement. For a summary of BTM, see Table 3.
In summary, environmental values are hard to measure in practice. Neither surrogate markets based on revealed preferences nor simulated markets are approaches that rise above the swell of criticism. Biodiversity is most difficult to define in scientific and physical terms, and so almost impossible to value. Biodiversity is said to be a public good, non-rival and nonexclusive in consumption. Like many other environmental benefits, it generally has territorial specificity. So, following Foldvary (1994), there is no clear reason why property rights should not be allocated and enforced and the appropriate market rents collected. This thinking is not yet well developed, partly because the bureaucratic elite, often under pressure from minority lobbies, decides what people should value even if they are not currently or ever willing to pay for it.
According to manuals and guidelines, these partial valuation techniques may be incorporated into a comprehensive CBA. But given the debate about their usefulness is it worth it? Perhaps it is better to concentrate effort on EIA; which gives a comprehensive list of environmental physical effects, good and bad, on any project. These physical effects are easier to agree, and can be compared intuitively with the money benefits of a project, excluding environmental effects. This comparison preferably occurs within a democratic planning system that gives full weight to the wishes of local people where a project is situated. The reason for suggesting this approach will be clearer after the next section.
The valuation of non-market goods discussed above reveals the difficulty of environmental valuation in practice. The widespread criticism of environment valuation methods in principle adds to the problem. Neither practice nor principle considers devolving decision making and planning to a more local level, more democratic rather than top-down, and using numerical estimates to inform rather than anticipate a political decision.
There is no alternative to CBA as a comprehensive method of incorporating environment values and other external factors in a single decision criterion. Social prices are essential because of the failure of the market to reveal appropriate prices for environmental costs and benefits. Distortions in market prices are due first to government intervention through taxes, subsidies, and regulations. For example the price of rice in Japan is six times the world price due to government intervention. Second, external factors, which affect both costs and benefits, are not reflected in market prices. This is often due to failure, by design or default, of government to allocate and/or enforce property rights.
TABLE 3: The Benefits Transfer Method: Study Selection Criteria
There are two further problems: the distribution of income within nation states at any point in time, and the distribution of income over time and between generations. The first has been approached in principle and in static economic analysis by attributing different weights to benefits according to which income group receives them in a cost-benefit analysis (CBA). A particular problem arises with environmental issues where the poor may need to deplete the environment to survive. Rich people or nations can afford to conserve their own environment, but are less willing to pay poor countries to conserve theirs.
The distribution of income over time is dealt with by using an appropriate discount rate, although economists still disagree whether it should be large or small. And philosophers often differ from economists, who differ from each other about the proper discount/interest rate, especially where environmental and intergenerational factors are involved. The use of a lower discount rate in the public sector than in the private sector goes back to Pigou (1932) and his antecedents. Assumptions of market failure and normative redistribution of income are the core of welfare economics.
Welfare economic principles are applied in practice as CBA, and were first set out in comprehensive detail in a manual produced over four decades ago by Chenery for UNCLA (Chenery, 1958), but curiously not referenced in the many subsequent textbooks on the subject. This manual described in accounting detail how to calculate "shadow prices," or prices that would obtain if there was no market failure. Many subsequent books have elaborated the methodology and in the 1970s the World Bank produced for each country computer prints of shadow prices to be used in CBA of World Bank
And MDB projects. Every Bank project was in principle subjected to a CBA, which produced a social economic rate of return (EIR), or the true return in a project as if there were no market failure, using estimated social prices rather than distorted prices.
However, only the WB, the other MDB s and some other UN bodies have attempted CBA, which demands social prices, as a routine exercise. It has been used very occasionally in the UK or elsewhere. There are many reasons for the failure of CBA to catch on in rich countries, and its recent demise even in the relatively resource rich MDBs. But welfare economics in general, and CBA in particular, have found a new lease on life in environmental accounting.
First is the problem of estimating appropriate shadow or social prices. Some institutions and manuals, such as the WB's, advocate use of international prices (Little and Mirrlees 1974), while others, such as the UN, favor domestic prices (Mishan, 1971). And some economic theorists thought it did not matter provided the correct shadow exchange rate was used. This was very confusing for potential users of CBA in practice. For the most recent elucidation, see the ADB Manual (1997, pp. 15-34) and assess the general feasibility of the process in practice!
Second, rather than take extensive market failure for granted, as an inescapable factor in project appraisal, the WB has attempted through structural adjustment programs and cost recovery, in irrigation schemes, for example, to bring institutional prices closer to shadow prices. So, emphasis in a period of inescapable global financial constraint on public spending is more on financial rather than social accounting. Equally, environment and pollution externalities may be internalized sometimes by allocating and enforcing property rights where transaction costs are not prohibitive.
Third, the problem of appropriate discount rate has never really been solved and is usually provided exogenously and arbitrarily for public project analysis by the World Bank or by national governments. In the U.S., it is statutorily determined for the Water Authorities.
Fourth, the problem of income distribution is at the center of current debate on poverty and economic growth in both rich and poor countries. Trickle down is returning as a real alternative to welfare or investment programs financed by taxation but which may reduce global competitiveness and inhibit growth. Recent WB (2000) research on poverty indicates that the bottom 20 percent benefit pro rata from economic growth, and that governments are unable to target the truly poor with redistribution programs (McFarquhar, 1996). In practice it is almost impossible to find a CBA in which different weights are attached to benefits according to income level of beneficiaries, although this is advocated by theorists. It is also becoming clearer that if projects are used to redistribute income by an arbitrary (and probably unmonitored) amount, then market signals become confused. A subsidy to sustain a loss making industry may never lead to efficiency.
Fifth, CBA in general, and social/shadow prices in particular, will not stand up in courts, because courts do not tolerate hypotheses. Judges in both the U.S. and the UK have great difficulty with valuation involving simple concepts such as discounting and inflation. The concept of shadow/social prices is nearly impossible to explain. So CBA based on hypothetical costs and benefits may never be acceptable in law except in the U.S.. Most projects, especially those with environmental impact, are subjected in rich countries to planning courts that hear objections in a legal context, and apply a roughly democratic process in the context of political voting (Pearce and Nash, 1981).
Lastly, and perhaps most important, CBA in general, and social pricing in particular, take on an Alice-in-Wonderland quality in the view of its critics. Figures become what one wants them to mean. Projects are chosen first and figures manipulated to support the decision. Even the most conscientious project analyst can be sent back to the desk to reconsider his estimate of shadow prices until he hits upon the right set to fit a predetermined political decision. See Payer (1982).
CBA has been used for project selection in states and multinationals involved in a top-down, state driven investment processes. But in countries where the planning process is more bottom-up, and considers local objections or wishes of indigenous people, CBA is irrelevant as it measures net benefit to the state as a whole. Moreover it is an extremely costly procedure, requiring much professional skill. It reinforces market failure by assuming that efficiencies can be simulated without the signals of undistorted market prices. It distracts attention from the major causes of market failure, namely government price intervention, regulation, and failure to allocate and enforce property rights. No two CBA appraisers would produce the same result in a blind test. The procedure depends on "the Myth of Social Cost" (Cheung, 1974). By aggregating all environmental and external effects in a single cost or benefit stream, it is difficult to assess risk and uncertainty effects in the component parts in a political decision context.
This experience is relevant for environmental economists, who seem to be repeating past mistakes. Environmental economics is simply welfare economics reincarnate with the same estimation procedures and the same problems in practice: difficulty with estimating physical input-output relationships, debate about discount rate, political problems of appropriate norms as regards income distribution, difficulty of simulating market prices for environmental commodities and the implausibility of figures potentially driven by ideology. But estimation is difficult, not worthless, a point pursued below.
Given that both economists and non-economists load heavy criticisms on CV and CBA, why resuscitate these techniques, and why is use of CV becoming more popular in spite of past practical experience? Part of the answer lies in how multilateral and national administrations approach project appraisal. They search for an economic answer properly to inform an institutional political decision. No committee wants to be faced with a choice between incommensurables, a restricted CBA on one hand and a EIA on the other, so an environmental value has to be incorporated in the CBA, regardless of how casual or mongrel the estimated values may be. Of course obtaining even useless CV data is very costly, and project assessments have budgets and deadlines, so inevitably corners are cut. The recent advocacy of BTM where environmental values are derived from other countries or continents is an example, and may discredit CV even among the few who support it. The most recent manual on environmental valuation in ADB does not refer to shadow prices, which shows some uncertainty about incorporating environmental values in CBA, although the stated policy is so to do.
Consider the nature of the decision process. Pearce, et al (1989, p. 53), report that money is simply a convenient measure to inform the political decision process. This seems disingenuous (Lowe, et al, 1993, p.109), since measures are neither socially or politically neutral, nor is their use in a planning decision transparent.
Money implies consumer choice, not citizen choice (see above); and the privilege of existing property rights. Social choices, a potential source of political conflict have been anticipated (Lowe, et al, 1993, p. 110) and shifted into a technical box. This enables political disputes to be relegated into disputes between experts "The genius of cost benefit analysis is to localize conflict among affected individuals and thereby to prevent it from breaking out into the public realm," (Sagoff, 1988b, p. 97). Clearly on a roll, Lowe, et al (1993), continue "one of the shrewdest political moves in the book is to get your problem labeled "technical." "That simultaneously gets rid of any contending versions of the problem and depoliticises yours!" (Schwarz and Thompson, 1990, p. 139). Policy decisions involve a struggle between competing parties and the role of technique is "to find or make a reason for what one has a mind to do," (Lowe, et al, 1993, p. 110) and "decision makers undertake formal decision analyses with their minds already made up," and "the formal analysis is a kind of window dressing,"(Keney and Raiffa, 1976, p.9).
This is similar to how EIA, albeit eschewing economic valuation, is used to support a case for development (Bisset and Tomlinson 1988; Lee and Colley, 1990). This view relates to the use of CBA in multinational organizations where, once a project is selected for assessment, it is very seldom rejected, although CBA may be used to restructure a project into a profitable form. Indeed use of CBA in multinationals has been criticized for decades as ex post justification for projects that will go ahead anyway (Payer, 1982). Of course CBA is such that no two people presented with the same data for appraisal are likely to get the same answer; nor, indeed, the same person looking at the same data on different occasions. The possible exception may be where multinationals prescribe a set of the shadow prices that are used for projects in each country - as they used to do. This partly defeats the object of the process as prices may differ over time and have to be interpreted spatially and adjusted locally.
However the need to have a number to facilitate political and administrative decisions seems to be leading to rapid proliferation of environmental valuation (Sagoff, 1988 b). It is hard to find examples of CBA involving use of shadow prices in the West except, at one time, in the U.S., where it is legally prescribed in some sectors of environmental concern. Given the difficulties with complex criteria, it may be better to concentrate on environmental impact analysis (EIA). This can be compared with the economic return on projects that exclude valuation of the physical environmental factors involved. A decision is then made by trading off implicitly, in a political and democratic planning context, the economic value of the project against the losses incurred by the environment.
In a democracy this would be done in the context of political voting where lobbies or those with local or minority interests or indigenous peoples can express views in public through some sort of appeal procedure in the courts. This is a powerful procedure because each individual makes his own implicit judgement about the relative weights to be attached to each environmental factor, and the overall trade-off between environmental loss and economic gain. Problems of income distribution are partly solved by political voting because each person eventually has one vote in the democratic sanction of the decision-maker. Of course, rich minority lobbies have more power to publicize views, but the poor also protest effectively, at least in rich countries, by obstructing development projects.
By providing one comprehensive criterion to reflect a dubious aggregate, a national welfare function, CBA presumes to replace rather than inform the political democratic planning process. A more transparent form of governance would involve public choice theory, which attempts to assess which groups benefit and which lose in a planned development. This puts more emphasis on property rights of indigenous people, and on the importance of local consent in development driven by the state. Public choice theory fits more naturally into the democratic process. CBA emphasizes the benefit of the state at the expense of local people where a project is situated. Before consigning CBA to the dustbin of experience, it may be useful to review the more recent debate on valuation in general in Section V.
The revival of interest in CBA, CV and valuation of so called public goods has centered on environmental and ecological economics. These tools, which have not proved of widespread practical use in the last few decades, have to be reassessed in relation to the revival of debate on valuation. This is well covered in the literature by several strands, the proponents of which do not interact productively. Some suggest economics is a specialized branch of ecology that deals with humans, the only species known to be capable of reasoning. The rest of ecology deals exclusively with the non-human world, where ethics and morality do not exist. Some say even if it were possible to close the gap between the constraints of economics and the discourse of ecology, not much would be achieved because of the profit motive and the markets' inherent antagonism to the future, especially given the uncertainty of ecological analysis. So the case for conservation relies on risk aversion, although the gap between economics and ecology persists because of bad economics (Rees, 1994, p.1650-1). Various strands in this debate need to be understood.
Political and ecological discourse
Even within ecology, discourses conflict. Much of the early eco-politics, with its hatred of profit and big business, has a foundation in socialism and neo-Marxism. But Marxism is too concerned with human values to protect the environment; whereas deeper, greener, unconstrained priority for the conservation of nature neglects social justice, even to the point of neglecting human survival (Castree, 1994, reviewing Pepper, 1993, p. 496).
The green discourse ranges from anarchical to mystical, driven by desire to intervene and to control global capitalist pressures. The agenda of eco-socialism is to change society to offer "a radical socially just, environmentally benign - but fundamentally anthropocentric perspective on green issues," (Pepper, 1993 page xi) Amen! Castree (1994, p. 497) reports that Pepper thinks Marxism might help "overcome the woolly-mindedness and incoherence," of much green thought; whereas anarchism "explains the weakness of such ecologism," (Castree, 1994, reviewing Pepper, 1993). This ecological discourse is pursued at too high a level of academic abstraction to guide planners and policy makers, never mind voters operating in a political context. But this debate seems to have one foot tentatively on the ground compared with the post-modern discourse, which substitutes perception for scientific reality, and blurs distinctions between the social, technical, and organic in the attempt to interpret nature (Willems-Braun, 1994, pp. 1803-1814).
Hajer (1995, p.39 )says "ecological modernization can be seen as an attempt to take the sting out of the tail of radical environmentalism". This is not a new concept, as might be implied by current debate (Cohen, 1997, reviewing Hajer, p.111). Hajer shows (Cohen, 1997, reviewing Hajer, p. 112) "how language is used to create knowledge claims" (shades of current management science!), which leads to eclectic political responses to environment issues. Cohen says it is not clear that ecological modernism has changed policy formulation "in a more than superficial way." Hajer, coming from the angle of post-modern discourse, calls for a "social learning process. . . within a legal framework," (ibid. 1997, p113). Beckerman (1997), with rigorous economic analysis, favors political consensus rather than the quantitative CBA and CV. This approach has been suggested by McFarquhar, (1996), and is discussed below.
What is clear is that the debate within ecology economics and ethics does not begin to integrate the analysis of social sciences in a way that can be helpful in practical politics. This impasse may be reduced by institutions operating in a more devolved political context. For a recent but inconclusive guide to the relation between environmental discourse and politics, see Garner (1995), Hajer (1995) and Jacobs (1996). See also Gare.(1995) for an exhaustive, and exhausting, review of postmodernism and the environmental crisis.
Anthropocentrism suffuses ecology debate and considers humans the center of the world. Only humans are of ethical value justifying preferential consideration. Hayward (1997, p.49-63), summarizing a number of writers, explains that human centeredness (HC) is unavoidable and unobjectionable; but that, in environmentalism, HC gives rise to the species debate. Speciesism occurs when humans favor their own species over others which have instrumental but not intrinsic worth. Neglecting the dignity of other species leads to human chauvinism. Speciesists may decide an animal lacks moral features qualifying for dignity. HC permeates the debate, which sets the criteria regarding both qualifying features and moral relevance.
Speciesism is difficult to avoid because attitudes develop in the mind of the beholder. But it can be avoided with increasing knowledge showing, for example, that fish are sentient. However, the process always involves "an ineliminable element of anthropocentrism," (Hayward, 1997, p. 56). Selection of non-human values by a human is arbitrary and insidiously anthropocentric. The anthropocentric trades human and arbitrary non-human values. Human chauvinism will not compare humans and non- humans: no evidence would establish equality in terms of moral concern. Since values, which determine ethical action, are the values of the valuer, any attempt at non-anthropocentric ethics depends on human values. Anthropocentrism does "not arise out of a concern of humans with humans but lack of concern for nonhumans," (Hayward, 1997, p. 58) often associated with a lack of concern for other humans! The conclusion is that criticizing anthropocentrism is counterproductive. It is not easy to do justice here to Hayward's seminal analysis concluding that anthropocentrism in ethics is less harmful than trying to avoid it.
For those interested in quantifying values in a CBA, the general debate will seem abstract and para-circular, to parody some of the language. The issue remains; can values be quantified usefully? Whatever the answer, Hayward concludes the debate should avoid anthropocentric considerations.
Opportunity cost (OC), willingness to pay (WTP) and environmental standards
Leaving, temporarily, the ethical for the quantitative, the debate on approximate estimation of environmental values is central. Bowers argues plausibly that environmental standards established as a result of political discourse avoid the valuation problem. In any case, "economics does not have much to say on... how policies are decided beyond some fairly arcane propositions of limited practical import," Bowers (1993, p. 93.). However opportunity costs are relevant for estimating the wealth generations forego in protecting the environment. These OC are not assessed in WTP surveys. But WTP is used to decide individual issues in planning, not general policies, and the aggregation effects are ignored.
Even ironic reports that, in the US, people say they are willing to pay $30 or whatever to preserve an elephant this week, $40 for a rhino next week, and so on until the money for WTP questionnaires runs out, do not deter the supporters of WTP surveys. Beckerman and Pasek (1997, p. 79) report that most critics of CV in environmental valuation, "fail to recognise the problem of resource constraints in environmental policy.... Or its full significance." No resource constraints means there is no problem, no need for economists! Bowers (1993, p. 93.) emphasizes the importance of the opportunity cost of protection, whereas WTP applies to a site or entity which is part of a potential policy. WTP, being disaggregated, does not apply to a policy; but rather to its component parts. Bowers reports, "it would be inconsistent to subscribe to a policy yet demand that each application of that policy is subject to separate decision with no presumption in favor of the policy." Moreover, WTP as a procedure leads to no policy ex post, since WTP sample populations differ in all respects.
More relevant is WTP for a policy. "Each application of that policy (cannot be) subject to separate decision," (ibid.). So, Bowers concludes that advocates of WTP "must be thinking of some alternative model of decision-making." To see WTP as a procedure for setting policy is to have no policy at all since aggregate outcomes cannot be guaranteed. Beckerman and Pasek (1997) remind us of the same issues in terms of the "embedding" objection to CVs as serial voting using WTP that ignores resource restraints (a habitat this week, a forest next, an endangered species the following). This highlights the weakness of WTP in dealing with recurring issues.
A further fundamental theoretical weakness of WTP is that it depends on treating all environmental problems as externalities. Conflict between polluter and polluted can be minimized by WTP where trade is possible, or by a Pigovian tax or subsidy where it is not. Both externalities and public goods considerations are often irrelevant or exaggerated. Most positive environmental externalities do not meet the Pigovian assumption of mutual recognition of effects by polluter and polluted, of location in time and space, and "cannot be simply viewed as Pigovian externalities," (Beckerman and Pasek 1997, p.96). On the other hand many quasi-public goods are easily located spatially, and rent could be collected (Foldvary, 1994). Is a tax to subsidize a public park or the opera justifiable in principle by WTP, or by isolated income redistribution objectives; i.e., by providing what people want but some cannot afford or by making the poor taxpayer subsidize pleasures of the rich?
Other difficulties of WTP are summarized in the literature. (Carson, 1991, Table 5.3). Some relate to the overwhelming influence of how a question is put and the fact that the respondent has no reference point. Where there is no direct consumer experience, there is no true contingent valuation (Bowers, 1993, p. 93). Bowers concludes that WTP is relevant in principle where there is no prior commitment to an overall standard; otherwise OC is the relevant valuation. In practice, lack of direct experience on the part of respondents and lack of conditions defining Pigovian externalities generally rules out WTP. No economic meaning can be attached to WTP (ibid. p. 99).
Long time advocates of WTP blandly reject this criticism that there is no " true " value or benchmark. See the survey by Freeman (1994). "If there was a benchmark the inference procedure (WTP) would not be needed," (Pearce, 1995, pp 1300-1337). But surely a benchmark constructed sloppily and dependent on dubious assumptions may be counter-productive for producing a valuation with which most parties might agree. The debate is about the potential contribution of economic techniques to what is essentially a political process. Exaggerated claims of the contribution of economic techniques, especially those found wanting over several decades, are counter-productive to their legitimate use to inform a political decision.
This was recently demonstrated in a BBC broadcast that discredited all attempts at valuation as absurd and odious (BBC Compass, 1997). Academics, politicians and planners are derided for valuing chalk downs at two pounds per British citizen or grizzly bears at $18.50 each in the United States (Sunday Times, 1998) In the same BBC broadcast, Professor Pearce emphasized the rapid increase in demand for CV estimates, and the desperation of planners and politicians for a figure (the impression was, for any figure) to "settle" arguments.
Plural values and valuation
Much of the recent debate has centered on the idea of plural values and what is elusively termed manufactured objectives. Remember, an economic goal is most easily conceived as the maximizing of one objective (function) subject to constraints. Plurality can be considered in terms of alternative "bundles" in the objective function to which specific weights are attached. A non-economic approach depends on intuitive weighting in a political decision context in which the economic assessment is sometimes peripheral, sometimes irrelevant.
Further, relative consumer preference is neglected in relative consumer expenditure. This arises because utility measures do not capture moral aspects of preferences (Beckerman, et al.1997, pp.65-86, Elster, J. and Hylland, A., 1986). In welfare economics this means there is no more reason to accept a given set of preferences in the environment than elsewhere where moral values are involved: Neo-classical utility maximization cannot include incommensurate plural values. Is there something different about the environment that attracts application of theories of plural values and critics of utilitarianism? Criticism centers on the notion that some values are incommensurate with those in CBA or CV. Respondents in CV surveys may say that no amount of money is sufficient to compensate for an environmental loss.
The difficulty is that respondents to CV surveys seem to relate to their role as consumers rather than citizens. But the environment cannot be valued as a marketable good (Beckerman 1995, p.69). For Beckerman and Pasek (1997), environmental goods are incommensurable if they cannot be included in CBA as a single metric. They accept that people exercise choice faced with genuine incommensurate options. This rejects the assumption in economics that choice implies maximization of some unique value.
Bowers (1993, p.99) concludes in his survey on valuation of environment, "where the environmental effect is not subject to direct consumer perception there is no true contingent valuation to which surveys can approximate and the valuations obtained are therefore an artifact of the survey process."
Perceptions of value and social relations
Moreover there seems to be little evidence of a moral system that distinguishes environment values from other values and which excludes trade off considerations (ibid p.72). But modes of valuation appropriate to the environment should be commensurate with other modes based on costs and benefits. Anderson (1993) and others say different values of environment may be founded in a complex of individual perception of goods (environmental) in relation to other people and to the situation in which the goods are perceived. So values differ with the individual's perception of the social and psychological relationships. This contrasts with the notion of narrative, essential in some strands of social science and founded in post-structuralist derivatives, not to mention the influence of Focault and Derrida. On the other hand the meta-narratives of science and religion are, according to Lyotard, no longer credible. So we have to fill the gap with our own narratives reflecting individual perceptions: More chaos theory and cyborgism - no more master plan. For a recent critique of the postmodernity versus antimodernity dispute, see Zimmerman (1994), who discusses deep ecology in relation to reformist environmentalism, Heidegger, the postmodernists, social ecology, transpersonal psychology, eco-feminism, chaos theory, evolutionary liberalism and cyborgism, new age and new paradigm counter culturalism (Gare, 1995, p.114). Confused? Where will it all end? Not likely in a functional conclusion, and more likely not ever
This general line of reasoning admits qualitative values that cannot be aggregated or capable of money equivalence. These would apply to some environmental goods that cannot, as a result, be substituted for other marketable goods. Motives are irrelevant in the purchase of market goods, but discourse may be relevant in decisions about environmental goods, which are public, and where consumption may be affected by relationships.
Beckerman and Pasek (1997) recognize that environmental goods may be different but not necessarily superior, so how is a rational choice to be made? Decisions are made frequently between incommensurates, by relaxing the strict constraints of rationale in neo-classical economics. Choice is based on a differentiated rationality that reflects social perceptions. Such "expressive rationality "eludes both comparability and commensurability," (Beckerman and Pasek, 1997, p.77). Choice involving environment goods can be inconsistent with a money numeraire but still be rational, even if no longer subject to the constraints of welfare economics.
What are the implications of the environmental value debate for planners and policy makers? Why are techniques of CBA and CV, not notably widespread in their use in past decades, now apparently gaining ground? The approach to such questions is better set in a political context, and the language must be comprehensible to planners and policy makers of differing disciplines who actually use CBA and CV techniques rather than to academics who debate their validity.
A useful summary of the valuation debate (Pearce, 1994, pp. 1330-1337) emphasizes that values either transcend costs or must be traded against costs. The discussion which leads to the latter conclusion means more attention to incorporating the choice in a planning context loosely democratic and not dependent solely on CBA or CV. Pearce confirms that the philosophical discussion is academic and separated from actual policy decisions. Some of the valuation difficulty follows from lack of clear definition of environmental rights, which are necessary for market based approaches to environmental problems. How are the rights to conservation implied by unqualified ownership to be reconciled with other human rights such as access to land and subsistence for the poor? Are rights relatively unqualified and individual, or more broad-based and communal with management in the hands of the state owned institutions or NGOs?
Note that the debate on property rights is no less divided between committed ideological camps than the debate on values. Those who prefer market-based solutions to environmental problems tend to favor extensive allocation and precise definition of private property rights. Others consider property rights to be dynamic and dependent for enforcement on social consensus, which suggests communal ownership. Private property rights attract market failure where they are fettered, the market is subject to government intervention, and does not incorporate active redistribution. Communal ownership requires institutional management, and suffers more from government failure and, possibly, agency problems. This debate is not helpful for policy makers, especially in countries attempting to introduce markets and forms of tenure that replace state ownership. The preferred view on private or communal ownership seems to depend on the political prejudice of the beholder.
Equally confusing for policy makers is the reviving debate (Cookson, 1996, pp. 59-74) on welfare economics, which Arrow described as a choice between alternative policies and institutions (Arrow and Scitovsky, 1969). Sagoff's (1994, pp. 285-310) recent critique of welfare economics advocates more emphasis on institutions in that, "no market ever fails to be efficient. Different institutional arrangements... make one society more productive than another," (Cookson, 1996, p. 62). Cookson rejects Sagoff's views on market failure, which properly "embodies a utilitarian concept of equity in addition to the concept of Pareto efficiency," (Cookson, 1996, p. 62). So what are the planners to make of that? Perhaps, intuitively, that policies based on welfare economics are also driven by political prejudice dressed up in the deceptive transvestite clothing of relative impartiality, or "fairness."
Cookson's aggressive and well-documented defense of welfare economics extends to revealed preferences, welfare, and the invisible hand. He illustrates from recent literature that preference revealed by CV can be made more familiar for unfamiliar goods, e.g., environmental goods. Cookson rejects Sagoff's criticism that welfare does not include ethical or citizen values (reminiscent of the choice between the individuals' own personal discount rate and the individuals greater preference for a lower social discount rate) by referring to two senses of utility: The older perception of well-being (welfare) and the newer mathematical function consistent with rational choice (utility) (Cookson, 1996, pp. 64-65).
Cookson says a subjectivist, thinks preferences the only ultimate source of value. The objectivist thinks that they are a good measure of value. The subjectivist thinks that environmental protection is valuable because it is preferred, and the objectivist that it is preferred because it is valuable. Economists have different theories of value (Cookson, 1996, p. 65), in which Sagoff is too Kantian by half! There is increasing discussion of objectivist individual welfare (the feel-good factor - a measure qualified by other considerations) rather than subjectivist individual welfare with preferences the ultimate source of value.(Griffin,1986; Broome, 1991; and Sen and Nussbaum, 1993.) Cookson (1996, p.66) suggests objectivist welfare or feel-good, are spreading in environmental economics (Dasgupta and Nolan, 1994 pp 319 - 348). Whereas feel-good cannot be measured in market transactions, welfare economics is constrained by rational utility and subjective values. So, CBA provides a partial valuation in a wider objectivist concept of feel-good in which welfare based on utility is a component part (Dasgupta and Maler, p. 319-348).
In terms of academic complexity, this debate rivals the most turgid attempts to circumvent deconstruction and discover what follows démodé postmodernism in other social sciences. It mirrors the role of narrative in social understanding of discourse defining ill-being or sickness where perception trumps medical "truth." See also Krebs (1997, p.275). This debate is "hopelessly anthropocentric" (ibid. p.271) and "discourse ethics cannot be saved " (ibid., p.275) because, broadly, morality based on protecting bodily integrity independent of free acceptance is paternalistic and teleological and so incompatible with consensus central to discourse ethics.
Pursuing discourse ethics into the depths of deep ecology, Mason (1997, p. 281) concludes that discourse in public decision making is incompatible with biocentric wilderness values and objectives of preservationists, and that environmental rights must be democratic (Mason, 1997, p. 300). But what are the planners to conclude? Cookson thinks that Sagoff's view that value beyond welfare economics is important, but is relevant only if CBA were an end not a means towards political decisions. However, CV values in CBA should reflect only "existence values" (Krutilla, 1996, pp. 787-796) not other non-use values, political, religious, moral, ethical, traditional and so on (Cookson, 1996, p.67). Two practical problems result.
1. CV is the only explicit method for measuring many indirect environmental effects on known human welfare, and
2. Surveys cannot separate welfare and non- welfare values.
Further, welfare theory does not allow welfare and non-welfare values to be compared.
So to this extent, Sagoff cannot be dismissed as cursorily as by Pearce (1996), who rejects Sagoff's reasoning as circular in favor of existing CV method. Pearce (1994), a long time advocate of CBA and CV based on WTP, also pursues a less esoteric defense of these methods. Pearce sees the main if not the only weakness of CBA and CV as the unrecognized inability to translate non-cash into cash in poor countries (Pearce, 1994, p.333). Pearce recognizes the potential for elitism in rejecting CV, whether it is Sagoff's distinction between welfare and feel-good, or influencing the discourse on what is worth valuing (Vatn and Bromley, 1994, p.139.) This does not remove the essence of the problems of CV discussed above. Pearce seems to think CV can do all the things Bowers(1993) thinks it cannot).
What is vital for practical decisions is the degree of disagreement between acknowledged experts in the field. Criticism based on a distinction between citizen and individual preferences "has no implication in terms of the validity of WTP measures, " (Pearce, 1994, p. 335) nor for future generations, since morality and commitment can be captured in WTP. Pearce mocks Sagoff's doubt that people can indicate what they really prefer as logically inconsistent. But this does not seem to capture the notion that certain types of benefit/welfare and feel-good cannot be aggregated. Current survey techniques and discourse do not lead to an adequate numeraire even if they could.
Lastly, for the defense, CV and CBA do not subvert the political process, and are no worse than politico-legal alternatives that are not democratic anyway. Well perhaps, but often a number in a CV is useful exactly because it is convenient for developers, planners, sources of public finance, courts of inquiry, the judges and the agent who produces numbers, exactly because numbers short-circuit public debate and a more expensive approach to consensus.
Pearce (1994, p. 1336) hammers Vatn and Bromley (1994) for misunderstanding valuation procedures, particularly the use component of functional values; but also on functional transparency, where the argument is obscured by what seems a misprint (Pearce, 1994, p. 1337). Problems of functional uncertainty are no worse in economic valuation than anywhere else. The niceties of this debate are less significant here than the strong defence by Pearce of CV in the face of trenchant critics like Beckerman, Bowers, Bromley and Sagoff, all attacking from different angles.
The reader may think the debate reflects a difference of view between disciplines, economics versus the rest. Economists in the utilitarian tradition who have developed welfare economics can field a strong team. The Cookson list (1996, p. 69) is one short of a soccer team, comprising Smith, Bentham, Mill, Sidgwick, Marshall, Pigou, Hicks, Samuelson, Arrow and Sen. There have been a few celebrated own-goals, notably by Arrow (1967), on the concept of an aggregate social utility function. A former colleague of Arrow recently said Arrow had since recanted on the grounds he had written this critique in callow middle age, and was now wiser and a Democrat! Clearly, Cookson could not have been leaving a place on his team for Beckerman. The risk would not be own-goals, but kicking the ball in the opposite direction.
Clearly economics cannot solve ethical dilemmas. But within economics, Beckerman and Pasek (1997) offer morphine to CV (or any technique measuring environmental values as commensurate with ordinary market values) in case its recent revival in environmental valuation should herald its recovery. They recognize economists' criticisms may be most powerful, but concentrate on the philosophical, advocating a plurality of values. Nevertheless they reject consumer sovereignty and maximization of utility on grounds of criticism by economists, including Sen (1993) that utility maximization neglects underlying moral preferences discussed above. It is "a travesty of the way the consumer approaches environmental choice," (Beckerman and Pasek, 1997, p. 68). There is a long tradition of plural values, whereas commensurability is essential for CV and CBA in environmental valuation.
A critique of CV in environmental values concludes "CV is a deeply flawed methodology which does not estimate what its proponents claim to be estimating," (Diamond and Hausman, 1994, p.65). This is reflected in negative response to CV questionnaires (Beckerman and Pasek, 1997, p. 69, Barry, 1995) indicating that environmental goods cannot be valued like other goods. Although this weakness might be reduced by more detailed inquiry, plurality of values means preference for environmental goods is not commensurate with market goods in any relevant single metric for CBA (ibid, 1997, p. 70). For the confused, one can compare one's children but not their value. But since decisions are made in practice, are some or all implicit environmental values quasi-commensurable in a national context? Beckerman and Pasek plausibly argue the reverse but many decisions circumvent incommensurability. Nor do they think the environment is in a unique moral class or that "moral values trump productive values or other intrinsic values," so trade off is inescapable.
The concept of plural or multiple values seems most relevant. Anderson (1993) sets plural values in the context of society's expectations as Bromley approaches property rights or the social anthropologist embraces narrative. Incommensurable goods are valued but in different metrics. Having dismissed CV and CBA, how is rational choice to be made where trade off is inescapable?
On a broader front of evaluation in ecology, Rees (1994, p. 1651) says that data gaps, the functional transparency of natural processes (we do not know they are valuable until they are gone), and other theoretical problems render futile any attempt at quantifying, let alone pricing, many critical ecological goods and services. The relentless anthropocentrism of the profit motive and other economic incentives, together with the market's inherent antagonism to the future, have produced the moral conundrum confronting us in the first place. Set the discount rate high enough and the incentive is to liquidate any economically viable but slower growing species. However Bowers (1993 p. 99) says the real market failure in CBA follows from "the control of the appraisal process by those with an interest in the outcome."
This section considers the depths of divide between economists and between economics and other disciplines, and what comes next. The debate on CBA has continued for several decades and is not likely to be resolved by its revival in the environment, where the same issues are repeated, albeit at a more complex level. The most likely shift may be towards discourse on deconstruction, which is barely represented in the environmental values debate. For an entertaining brief guide to ramifications of deconstruction debate, see Barnes (1994, pp. 1202-1040). Barnes explains how quantification via mathematics was expected to remove the vagaries in human geography but also ultimately failed since mathematics suffers from its own construction problems (Barnes, 1994, pp. 1021-1040). "The distribution (between everyday language and mathematics) is between the emotional and the factual," (Cole, 1969, p. 154). This difference also confounds the environmental valuation debate. Deconstruction of language alone could absorb academic high spirits in the environment values debate for another decade, but it would not help the planners and decision makers any more than in the past. Those contemplating such a diversion would benefit from reading Barnes' (1994) case against mathematics. Logic is no better in Derrida's deconstruction since its plausibility depends on the persuasiveness of language.
Much of the literature is turgid (though not Barnes), and tends in Rorty's words "to eff the ineffable," (Barnes, 1994, p.124, Rorty,1989). The most likely way forward is to develop institutions that treat the environment as a problem for planners in a democratic decision making context. See McFarquhar (1996). In reality, environmental decisions are driven by notions of who wins, who loses, and NIMBYism. Quantitative information purported to describe the national interest, as CBA and CV, is quite properly, not persuasive in opposing local camps, nor comprehensible (generally) to judges and lawyers, who desist from the hypothetical in any case!
Pearce (1994, p. 1335), in his confident defense of CV and CBA, suggests the main alternative to economic valuation is the legal and political system as the best reflection of citizens rather than individual consumer preferences. This raises other difficulties. Conservation, if legalized, becomes indifferent to its opportunity cost, a particular problem in the Third World. Political systems are not well informed; but are they better informed by valuation, which is contested by experts and hard for the non-expert to interpret? Political systems are seen as not representative and driven by lobby interests. This seems to be a fact of democratic life and should focus attention on how planners can integrate policy making into democratic politics, and how devolved planning can avoid conflict with national objectives, which are often relevant in environmental issues.
Perhaps the strongest case made by an economist for a decision approach that eschews CBA or CV is offered by Beckerman and Pasek (1997). Suggesting that choice between incommensurates is more difficult for society than for an individual, they ask how social valuations, which cannot be an aggregation of individual (emotional) choices, are to be made. What is the alternative to "a unified but artificial system like CBA," (Beckerman and Pasek, 1997, p. 79, Nagel 1979). They advocate discussion and debate, which takes account of resource constraints. Jacobs separates large-scale decisions affecting many people from decisions made by local authorities without debate, but subject to some sort of appeal procedure. But as Jacobs says (Beckerman and Pasek, 1997, p. 84) "public inquiries have almost always been creatures of the state structured to arrive at the outcome the government desires. The judges or inspectors, ...their terms of reference ...accessibility to public and ... pressure groups and their procedures have all been heavily constrained," (Jacobs, 1995, p. 12).
So, the judicial enquiry planning model in the UK is not satisfactory for relatively straightforward issues, never mind complex issues raised by the environment (For a detailed critique of the planning regime in UK see McFarquhar 1999). The embedding problem mitigates against debate. Voting on individual projects does not reveal public ideals any more than a CV survey to "clear one part of one lake (reveals) the public's concern for preserving lakes in general." Most environmental issues are recurring, not one-and-for-all-time decisions (Beckerman and Pasek, 1997, p.80).
Moreover, the beneficiaries of environmental protection can be identified and organized. Those who lose in terms of reduced consumption, welfare or other environment protection, that they might prefer, cannot easily participate in debate. CBA does consider resource costs of environment protection if it informs the political process, but is undemocratic in other ways (Andersen, 1993, pp. 210-212). The failure to consider resource constraints, "has meant there has been very little progress in elaborating the political mechanisms that are required," (Beckerman and Pasek, 1997, p. 82).
This leaves space for the planners to do what they claim to do best, i.e., resolve disputes in a politically acceptable milieu. Meanwhile at the multilateral and national level, there is increasing, if sometimes cosmetic, interest, in devolving planning and power to local government levels. Often this takes the form of devolving responsibility for policies that have failed at central government level, but without allocating to local authorities resources to deal with these policies nor, alternatively, tax collecting powers. Where tax collecting powers are devolved to local government, these powers are sometimes predicated, e.g., in the Philippines, on the assumption that local authorities will be more efficient collectors of tax to be handed over to central government!
These issues are general and central to the federalist and devolution debate, and cannot be rehearsed here. But consider the Three Gorges Dam displacing some 1.3 million people on the Yangtse River in PRC with much environmental damage. If it were a decision for local government it would probably not have gone ahead. It might have been replaced by a series of smaller dams with less engineering risk.
Does it seem unacceptable that local populations should resist successfully, a development considered in the national interest, but which could have been transferred to where it might be more acceptable locally? This is the reverse of a subsidized environmental amenity that benefits locals at national cost. If locals had property rights over their land, generally owned or controlled by the state, and could bargain for a reasonable share of the rent that follows development, they might well have "voted" for the dam. So local resistance to development, whether on genuinely environmental protection grounds or not, may reflect the structure of property rights and entitlement to rent. These would be taken into account and reformed in any political choice system based on social consensus. The recent experience with aboriginal and Indian land does not create confidence in state ownership, neither communist nor imperialist.
Nor is there clear evidence that more devolution of property rights with devolved local government would mitigate against the conservation of environment. Local experience of excessive logging often follows failure to protect customary property rights. Nationalization of forest by the state simply gives the rent to the state, which has the power to sell logging licenses against local opposition, whether driven by care for the environment or a claim over the rent.
Any consideration of re-building appropriate political institutions for dealing with environment must consider property rights. Where land is communal it may appear to facilitate social consensus, but it exposes the weakness of managing institutions, new or existing, especially in developing countries or those emerging from state control. It also reduces the scope for market-based instruments as an efficient approach to environmental problems. Without clear property rights, institutions cannot function effectively.
How valuation can best be used in environmental management is a serious issue (Spash 1996). The attempt to avoid the optimization of CBA, or even a cost-effective approach, still requires economic valuation; particularly arising from the budget constraints. The issue is not, can valuation be avoided, but how best to incorporate it in the democratic political process considering the difficulty of dealing with plural values. However given that the political process accepts some degree of valuation as well as scientific limits, it may be prepared to accept the more modest and transparent cost effective (CE) approach. The greater complexity of CBA and a single numeraire sticks in the throat. But the difference between CBA and CE is one of degree, not of principle; "effectively the argument is over the extent to which scientific and political constraints should operate over the goal of efficiency rather than the rejection of environmental economics," (Spash, 1996, p. 31). But some of the debate rejects welfare economics on the grounds of incommensurable values. The position taken here is that valuation can inform the political process only to the extent that it is transparent (Lowe, et al., 1993, p. 112) and presented in a form which can be understood by the public. To the extent that the evidence is not transparent, replicable, and impartial it will be discredited and properly so.
What type of institutions local, and central, are best able to incorporate valuation in a democratic political debate? The institutions must draw on science and economics and balance local, central, and international government considerations.
The recent trend to advocate devolution and decentralization in MOs implies a reinstatement of local as opposed to state property rights as well as reconsideration of the balance between private and communal. A beginning has been made with an attempt (Lowe, et al., 1993, p. 112) to classify techniques as scientific, economic and social, which recognize plurality and can inform a political debate. In this model results are graded rather than calibrated and presented for a political consensus. It is perhaps up to the planners to fill the gap between this type of information and the political discussion by decision makers. The danger is that environmental economics becomes a surrogate for social research, which should reveal what is excluded from economic assessment, i.e., "what ordinary people desire of everyday life and community," (Lowe, et al., 1993, p. 114).
Currently, the priority for attention is the incorporation in planning of political and democratic institutions, whether national and international or local and central. How are environmental interests of minorities to be protected at a local government level, or conflict resolved between local and central government? The rich literature on federations should inform the debate, but so far seems not to have impinged upon the valuation debate, which tends to be treated as an end in itself rather than a cul-de-sac. To debate details in valuation in absence of adequate institutions operating in a political context is to start at the wrong end.
Total Environmental Value and Total Economic Value
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