TWO men in a hot air balloon flew into a dense cloud. When they emerged into
sunlight, they were lost. Fortunately, one of them saw a man on the ground.
鈥淲here are we?鈥� he shouted. 鈥淵ou鈥檙e in a balloon,鈥� said the man on the ground.
鈥淎h,鈥� said the first balloonist to the second, 鈥渢hat man鈥檚 an economist.鈥� 鈥淗ow
do you know that?鈥� asked the other. 鈥淲hat he said was accurate,鈥� replied the
first, 鈥渂ut it was useless.鈥�
Jokes about economists, like jokes about lawyers, may be unfair but often
contain a grain of truth. But does this hold true for economists鈥� contribution
to one of the big issues facing industrialised societies鈥攈ow we value our
environment? I don鈥檛 think so. What economists do is seldom accurate, but is not
necessarily useless.
The issue has received particular attention in Britain and the US, where cost
benefit analysis (CBA) is a legal requirement in many types of environmental
decision making, and where debate over whether CBA is appropriate has become
polarised. One side says that the environment will implicitly be valued at zero
without CBA; better, they argue, to use CBA as a weapon in the armoury of the
environmental movement than to ignore it. The other side claims that the
environment is beyond price. And that once you give it a price tag, that value,
however carefully defined, is vulnerable to political manipulation that
ultimately renders it meaningless.
Advertisement
A recent dispute over the Kennet, a chalk stream in southern England, would
appear to support the second view. Here, the Environment Agency wanted to
restrict Thames Water鈥檚 licence to pump water from nearby aquifers to alleviate
the problem of perceived low flow. It estimated the river would be worth an
additional 拢13.6 million as a result. But the adjudicating inspector
rejected this, valuing the total net benefit of increased flow in the Kennet at
just 拢700 000.
Such wildly divergent figures make CBA look silly. But the case shows that
the cause of the problem was not so much a disagreement over the size of the
price tag individuals might place on 鈥渘on-use benefits鈥� such as the beauty and
general ecological 鈥渉ealth鈥� of a stream. Rather, the difference revolved around
how many people would be concerned. The agency thought most people in the upper
Thames valley; the inspector said it would be just those in the immediate
vicinity. The agency got its figure from a study in which the river was just one
of several affected by low flow, and where enhanced flow was only a part of a
basket of environmental benefits for which people across the country said they
would willingly pay a small increment. Had the inspector taken account of this,
he might have ruled in the agency鈥檚 favour.
My point is not that CBA provides 鈥渢he鈥� answers鈥斺�漴eplacing voting with
shopping鈥� as some critics contend. It can only ever be an imperfect part of a
larger and more complex decision-making process, though it may improve that
process. And it can provide useful information that is unlikely to surface
otherwise. Take the notorious case of the Wynchester bypass at Twyford
Down鈥攐ne of Britain鈥檚 most controversial roads. If a CBA had been done,
the road might have been sunk in a tunnel instead of gashed through an area of
outstanding natural beauty.
Economics and CBA can help rationalise the means to achieving our ends, if
not the ends themselves. While seeking to shape wider social and environmental
values, greens should not altogether discard such a methodology. Rational
judgments can only be made on the basis of sufficient information. With
environmental issues the uncertainties will always be large but they will not
always be insurmountable. Environmental protection bodies need to have the
resources to be able to quantify in physical terms the benefits from a given
investment in environmental protection. It may not always be possible to make
credible monetary valuation of those benefits, but these bodies should be
prepared to undertake such valuations where, in their judgment, they would
clarify the issues involved.