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Please use this identifier to cite or link to this item: http://purl.umn.edu/163211

Title: Testing metrics to prioritise environmental projects
Authors: Pannell, David J.
Gibson, Fiona L.
Authors (Email): Gibson, Fiona L (fiona.gibson@uwa.edu.au)
Keywords: Cost Analysis
Prioritisation
Environmental program
Knapsack problem
JEL Codes: Q50
Issue Date: 2014-02-03
Series/Report no.: Working Paper
1401
Abstract: Decision makers responsible for the allocation of funds to environmental projects commonly use project scoring metrics that are not consistent with basic economic theory. As a result, there is often a loss of environmental benefits due to poor prioritisation of projects. The magnitudes of these losses are estimated for various metrics that deviate from theory. We examine cases where relevant variables are omitted from the benefits metric, project costs are omitted, and where parameters are weighted and added when they should be multiplied. Distributions of parameters are estimated from 129 environmental projects from Australia, New Zealand and Italy for which Benefit: Cost Analyses had previously been completed. The cost of using poor prioritisation metrics (in terms of lost environmental values) is often high – up to 80 per cent in the scenarios examined. The cost is greater where the budget is smaller. The most costly errors were found to be omitting information about environmental values, project costs or the effectiveness of management actions, and using a weighted additive decision metric for variables that should be multiplied. The latter three of these are errors that occur commonly in real-world decision metrics, often reducing potential environmental benefits by 30 to 50 per cent.
URI: http://purl.umn.edu/163211
Institution/Association: University of Western Australia, School of Agricultural and Resource Economics>Working Papers
Total Pages: 18
Collections:Working Papers

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