PREPARING AN EQUITY ANALYSIS AND RECOMMENDATION

Preparing an Equity Analysis and Recommendation

Preparing an Equity Analysis and Recommendation

Introduction

A consistent analytical framework for plant health decision making is essential. Cost benefit analysis (CBA) provides such a framework, classically by projecting a stream of predicted costs and benefits for management options, expressed in monetary terms, and setting present values on these streams. Further detailed analysis may consider the distribution of benefits in time and space, risk attitudes can be incorporated, and nonmonetized elements can be incorporated. The aim is to provide a transparent and objective framework in which management options can be compared on common economic criteria, generally present monetary value. CBA, as a principle, has been widely adopted as a guide for plant health decisions.

Background

It is a component of the risk management stage of Pest Risk Analysis recommended by the IPPC (1996), its use was recommended in the recent US plant resources safeguarding review (US National Plant Board, 1999), in Australia it has been used and recommended, specifically (Hinchy and Fisher, 1991) and as part of the risk management process (Nairn et al, 1996; Nunn, 1997; James and Anderson, 1998) and the New Zealand Biosecurity Act 1993 specifies what is in effect a CBA to advise on quarantine decisions. It is also recommended as an approach to decisions on biodiversity damage in the EC White Paper on Environmental Liability (EC, 2000). Several alternatives to CBA could also be used, but CBA is a fairly broad concept and other analyses are very similar in intention.

Nairn et al (1996) and Nunn (1997) discuss more subjective analyses that may be appropriate where scientific data is limited, for example “scenario trees” and semi-quantitative assessment. Cook (2000) used a method of break-even analysis, in a sense that inverts CBA, calculating the level of loss that would be needed for a CBA to show no net benefit and then considering the probability of that level being exceeded. The EC Environmental Liability White Paper (EC, 2000) also suggests a “reasonableness test” as an alternative to CBA, which amounts to a subjective consensus that a management approach will be reasonable, given the information available at the time.

Given the general acceptance of CBA and its broad applicability it is adopted in this review. MAFF Plant Health has used forms of CBA in PRA as noted below and in some of the case studies in this review. Note that CBA is not a prescriptive tool. CBA assists, rather than substituting for decision making, in policy formulation. Rather than releasing policy makers from the need to make judgements, it informs those judgements. Its outputs can be interpreted according to different attitudes to risk and it may be complemented by considerations of non-quantified costs or benefits, as long as adequate transparency is maintained. While CBA is widely recommended little guidance is generally given on how it should be carried out, which gives considerable license for subsequent disagreement on the interpretation of the outcome.

Rationale for Cost-Benefit Analysis

Cost-benefit analysis is a systematic framework to ...