AEP-32306 Cost-Benefit Analysis and Environmental Valuation

Course

Credits 6.00

Language of instruction:

English

Assumed knowledge on:

Fundamental concepts of microeconomics, such as indifference curves, utility maximisation, consumer surplus, producer surplus, decision trees (as taught in ENR-21306); basic knowledge of statistics, such as expected values, mean, standard deviation.

Continuation courses:

Thesis Agricultural Economics and/or Environmental and Natural Resource Economics.

Contents:

This advanced course covers on the one hand the economic analysis of investments and policy changes (Cost-Benefit Analysis), on the other hand it treats the valuation of environmental effects of such projects or policies (Environmental Valuation). Investments are often in productive sectors, such as in land consolidation, polders, irrigation and drainage projects, or in infrastructure, for example roads and railways, or, less often, in nature conservation projects. Policy changes that can be appraised are, for example, taxes, price-support measures and market regulations. CBA is a decision-making tool for policy makers, using financial and economic criteria. Emphasis is put on the theory of cost-benefit analysis: welfare economic foundations, financial versus economic analysis, valuation of commodities, capital, labour and foreign exchange, discount rate, shadow pricing, effects on income distribution, and environmental effects. The last element is extensively treated under the headings travel cost methods, contingent valuation, hedonic pricing, existence value, and irreversibility, risks and uncertainty.
This is an advanced course that builds on knowledge offered in introductory microeconomics or environmental economics courses such as ENR-21306, DEC-10306, or UEC-21806. Students are strongly recommended to take one of these introductory courses before enrolling in this course.

Learning outcomes:

After successful completion of this course students are expected to be able to:
- demonstrate a thorough understanding of the theory of cost-benefit analysis as founded on micro-economic theory;
- show a good ability in the application of project, programme and policy appraisal;
- pass an informed judgement on such economic interventions;
- demonstrate a thorough understanding of environmental valuation methods and to apply such methods.

Activities:

- attending lectures;
- participating in practicals;
- preparation for lectures and practical;
- prepare a case study related to project appraisal and valuation of the environment.
The student should submit a short report on this case study (group work), studying general literature and contents of lectures for examination.

Examination:

- written exam with open questions (70%);
- group reports (30%).
To pass a minimum mark of 5.0 is required for the group reports and 5.50 for the written exam.

Literature:

Students are recommended to use either of the following:
- Boardman, A.E., D.H. Greenberg, A.R. Vining, D.L. Weimer (2014). Cost-Benefit Analysis: Concepts and Practice. Pearson New International Edition. Pearson Education, Inc., Upper Saddle River, USA. (Good, accessible book on CBA. Available at the WUR shop or online. Unfortunately the international edition lacks a chapter on contingent valuation)
- Pearce, D., G. Atkinson, S. Mourato (2006). Cost-Benefit Analysis and the Environment: Recent Developments. OECD, Paris. (Somewhat less accessible but can be downloaded from a WU computer from http://www.oecd-ilibrary.org/content/book/9789264010055-en. Contains a chapter on contingent valuation and choice modelling)