Contingency Calculations for Environmental Impacts with Unknown Monetary Values
Dole, David | February 2002
Measuring the monetary value of environmental impacts can be a difficult, time-consuming, and expensive process. Project analysts are often left with no resort but to acknowledge that the monetary values of some impacts are unknown. If a project is not otherwise justified in terms of the known monetary values, the decisionmakers themselves must resolve the uncertainty, implicitly or explicitly, in their decision to accept or reject a project. To do so, decisionmakers must determine whether the net present value of the unknown values is greater than the deficit of the known values—a difficult and awkward comparison for anyone. This paper proposes a method to calculate the value of environmental impacts that is just sufficient to justify a project. The method expresses the value in terms of an annual value per household, so it is relatively easy to interpret. It is also simple to apply, requiring only standard economic and demographic information. As an example, the method is applied to a recent project of the Asian Development Bank (ADB), which among other things aimed to protect a nesting area of migratory turtles in Sri Lanka. This project had a negative net present value at ADB’s standard discount rate, but the project could be justified if Sri Lankans valued the nesting area at less than one cent per household per year.
CitationDole, David. 2002. Contingency Calculations for Environmental Impacts with Unknown Monetary Values. © Asian Development Bank. http://hdl.handle.net/11540/2345. License: CC BY 3.0 IGO.
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