COST -BENEFIT ANALYSIS IN THE BUILT AND NATURAL ENVIRONMENT

Cost -Benefit Analysis in the Built and Natural Environment

Cost -Benefit Analysis in the Built and Natural Environment

Incorporating ecological consequences is especially a topic in financial cost-benefit analysis. It is presumed that the book reader has acquainted him/herself with the rudimentary characteristics of cost-benefit analysis, encompassing how financial cost-benefit analysis builds on economic cost-benefit analysis; topics that are administered with in the two cited notion notes.

Environmental Economics tends to develop tests that are made from neoclassical theory and studies that are part of what is known as the "Natural Resource Economics." The main idea of ??this approach is that environmental problems arise from what is known as market failure. In situations where the market is not functioning as an optimal allocation of resources, the environment in general and many natural resources are linked to the concepts of externalities, public goods and common resources. The presence of these market failures is usually associated with the absence of markets for these goods and services. When there is no market, there is a lack of information for decision making of individuals, to be completed with some type of conjecture. The problem is that such conjectures hardly condign with reality associated with the phenomenon under study and therefore the decisions that are derived from the same result in a suboptimal allocation of resources. Faced with such situations the task of environmental economics lies in providing analysis and instruments to correct these deviations. This type of study primarily aims to direct or indirect valuation in monetary terms of the changes in the quality of some environmental good or service. (Porter, 2002, 66)

In this regard, recognizes two types of approaches for economic analysis of environmental impacts. First, we consider the possibility of using the standard cost-benefit criterion, comparing the benefits and costs associated with a particular action to determine whether it is worthwhile or not addressing it. This approach is generally used to compare different alternatives or projects for which it is necessary to identify the associated environmental impacts and assign economic value to the results arising there from. An example might be the analysis of various water treatment technologies and improvements in the health of the community that they can generate.

However, in some cases may not be feasible or desirable to deal with a traditional cost-benefit analysis. For example, there are some natural areas that are considered unique in the world, and for this reason, it is agreed that should be preserved regardless of the cost of it. Moreover, there may be cases where there is a high level of uncertainty about the benefits they can provide the environmental goods and services under study, both present and future, which creates significant problems when assigning values appropriate monetary. When the loss of these environmental services may be irreversible, it is desirable to choose a strategy that minimizes the losses associated with environmental damage unless the social cost of it is too ...