The Economics of Natural Environments: Studies in the Valuation of Commodity and Amenity Resources

By John V. Krutilla; Anthony C. Fisher | Go to book overview

CHAPTER 6
HELLS CANYON CONTINUED: EVALUATION OF ENVIRONMENTAL COSTS

1. INTRODUCTION

In chapter 5 we examined the economic justification for a hydro power development in the Hells Canyon by means of conventional benefit- cost analysis. That is, as a matter of analytic strategy we explicitly stipulated that there were no environmental costs associated with development, historically an implicit assumption in applied benefit--cost analysis. We argued that, in the light of other aspects that tended to bias results of conventional benefit--cost analysis in favor of developing water resource projects, perhaps a critical cost analysis intended to reveal the true opportunity costs would demonstrate that the projects would not show a positive net benefit, even ignoring environmental costs. This is what we did indeed discover in our analysis of the Low Mountain Sheep--Pleasant Valley project. Because it was found to be uneconomic whether or not there were any environmental costs associated with its construction, we could counsel against development on economic grounds without requiring analysis of the environmental costs.

This strategy may serve a useful purpose in many cases involving developmental activities that affect pristine natural areas. This is because construction agencies with pronounced developmental biases, using guidelines for their economic analyses that often stem from anachronistic policies, will advance projects for development with ostensible benefit--cost ratios exceeding unity that, on careful analysis, will be shown to be actually uneconomic. But, of course, there will be other projects, as illustrated by High Mountain Sheep, where the net present value of the development (excluding environmental amenity benefits forgone) will exceed developmental costs even when the analysis is carefully and objectively done. In these cases attention will need to be directed to the evaluation of the amenities associated with the preservation of the area in its pristine state. That is, the benefits of the two alternative uses of the site must be com-

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