Open Collections

UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

The problems with social cost-benefit analysis : economics, ethics and politics Riek, Christine Leviczky 1987

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata


831-UBC_1987_A4_6 R52.pdf [ 8.65MB ]
JSON: 831-1.0096831.json
JSON-LD: 831-1.0096831-ld.json
RDF/XML (Pretty): 831-1.0096831-rdf.xml
RDF/JSON: 831-1.0096831-rdf.json
Turtle: 831-1.0096831-turtle.txt
N-Triples: 831-1.0096831-rdf-ntriples.txt
Original Record: 831-1.0096831-source.json
Full Text

Full Text

T H E PROBLEMS WITH SOCIAL COST-BENEFIT  ANALYSIS  E C O N O M I C S , E T H I C S A N D POLITICS By CHRISTINE L E V I C Z K Y RIEK B.Comm., The University of British Columbia, 1983  A THESIS S U B M I T T E D IN P A R T I A L F U L F I L L M E N T O F T H E REQUIREMENTS FOR T H E D E G R E E O F M A S T E R O F S C I E N C E (BUS.ADMIN.) in T H E F A C U L T Y O F G R A D U A T E STUDIES (Faculty of Commerce and Business Administration)  We accept this thesis as conforming to the required standard  T H E U N I V E R S I T Y O F BRITISH  COLUMBIA  March 1987 © Christine Leviczky Riek, 1987  In  presenting  degree freely  at  this  the  available  copying  of  department publication  of  in  partial  fulfilment  University  of  British  Columbia,  for  this or  thesis  reference  thesis by  this  for  his  and  scholarly  or  thesis  study.  for  her  of I  I further  purposes  gain  requirements  agree  be  It  shall  that  agree  may  representatives.  financial  the  that  be  an  Library  advanced  shall  permission for  granted  is  not  the  for  by  the  understood allowed  that  without  make  it  extensive  head  of  copying my  my or  written  permission.  Department  ,,  of  .  &rOLcUwJ-^  , .. , D t  n  .  ,.  SfujUjU  The University of British C o l u m b i a 1956 Main Mall Vancouver, Canada  V6T 1Y3 Date  DE-6n/81i  C/  rmMtA  30,  ,  fiiUllhj  asdL  ^  C&^ff^jrTLlS  /kLwL^ZirzrtMn*  &wU*4A4 '  ii  ABSTRACT  This thesis examines the problems with social cost-benefit analysis in three areas — economics, ethics and politics — and suggests how these problems might be addressed in government project review processes. Problems in economics are empirical, methodological or theoretical dilemmas that make a social cost-benefit analysis difficult to prepare and interpret. Problems in ethics stem from the value judgments implicit in a social cost-benefit analysis that may be in conflict with the ethical beliefs of some individuals in society. Problems in politics stem from the various powers of individuals in a political process and challenge the relevancy of analysis. A literature survey, primarily of welfare economics but also of environmental ethics and political theory, is used to determine the various problems with social cost-benefit analysis, while a case study is used to illustrate how these problems are reflected in practice. Similarly, ideas for improvement are drawn from the literature of environmental impact assessment and these ideas are illustrated by applying them to the case study. The problems are discussed according to the stage of analysis at which they occur: problem definition, specification of objectives, selection of alternatives, prediction of consequences, and evaluation of alternatives. The case study is of the social cost-benefit analysis of B . C . Hydro's proposed Site C hydroelectric development and the associated project review process of the B . C . Utilities Commission Act. Empirical problems in economics range from: defining "wicked problems"; measuring interpersonal utility; defining and measuring consequences; obtaining adequate data; and evaluating or recognizing intangibles. Methodological problems in economics include: predicting consequences; elements of bias in evaluation techniques; the neglect of non-users in evaluation techniques for non-market resources; option values for environmental resources; and evaluating irreversible project consequences.  Theoretical problems in economics stem from: narrow  problem definitions and incomplete specification of alternatives which hinder achievement of optimal decisions; the theory of "second best"; the Scitovsky reversal paradox; the actual compensation to  need for  take place under certain situations; the use of willingness-to-pay or  willingness-to-be-compensated measures of consumer surplus; the selection of a discount rate; and the effect of risk and uncertainty on evaluation. Ethical problems in social cost-benefit analysis arise from: the existence of multiple and conflicting problem definitions and sets of alternatives; Arrow's Impossibility Theorem which precludes the specification of a social welfare function; value judgments made implicitly in the methods of inquiry in both economics and the science needed for impact prediction; the existence of non-utilitarian frameworks that conflict with the utilitarian emphasis of social cost-benefit analysis; the reductionist nature of valuing environmental resources; the judgments made about individual rights in the selection of willingness-to-pay and  willingness-to-be-compensated  measures; and the judgments made about future generations in the selection of a discount rate. Political problems in social cost-benefit analysis are evident in: the hidden agendas and political goals of politicians, bureaucrats and interest groups; incentives to bias problem definition and alternative selection in order to justify a politically but not necessarily economically justified project; incentives to restrict the boundaries of analysis to provincial boundaries; and incentives to overstate benefits, understate costs and neglect qualitative project effects. Some of the economic, ethical and political problems can be resolved by changing the way that government  project  review processes  operate.  Three  broad  changes  are  recommended: a two-tier review process which clearly separates evaluation from the preceding stages of analysis; an increased use of public and interdepartmental review in the early stages of analysis; and a flexible and experimental approach to evaluation.  iv T A B L E OF CONTENTS  1.0  INTRODUCTION  2.0  T H E DEVELOPMENT OF SOCIAL COST-BENEFIT ANALYSIS:  3.0  1  A HISTORY OF PROJECT EVALUATION  5  2.1  The 1930s and 1940s: Cost-Benefit Analysis  5  2.2  The 1950s: Social Cost-Benefit Analysis  8  2.3  The 1960s: Social Welfare and Economic Welfare  11  2.4  The 1970s: Environmental Impact Assessment  13  2.5  The 1980s: The Integration of SCBA and EIA  15  PROBLEMS, OBJECTIVES, ALTERNATIVES AND CONSEQUENCES IN SOCIAL COST-BENEFIT ANALYSIS  18  3.1  Problem Formulation and Evaluation  18  3.2  Objectives and Evaluation  22  3.2.1 The Efficiency Objective  23  Market Prices and Marginal Cost: The Problem of Second Best  25  Optimal Income Distributions  26  Altering the Distribution of Income: The Scitovsky Reversal Paradox  28  Economic Welfare and Social Costs  28  3.2.2 The Efficiency Objective and Income Distribution Weights  29  3.2.3 The Efficiency Objective and the Redistribution Objective  31  3.2.4 Other Objectives in Evaluation  32  3.2.5 Determining the Social Welfare Function  33  3.2.6 Objectives and Analysis  37  3.3  Alternatives and Evaluation  38  3.4  Identifying Consequences  39  V  4.0  5.0  6.0  E V A L U A T I O N ISSUES I N S O C I A L C O S T - B E N E F I T A N A L Y S I S  47  4.1  Non-market Resources  47  4.1.1 Valuing Non-Market Resources: non-users, bias and option value  49  4.1.2 Valuing Non-Market Resources: economic principles and legal rights  53  4.1.3 Intangible Effects  57  4.2  The Discount Rate  59  4.3  Risk, Uncertainty and Irreversibility  62  V A L U E JUDGMENTS A N D E T H I C A L F R A M E W O R K S IN SOCIAL COST-BENEFIT ANALYSIS  67  5.1  Value Judgments  67  5.1.1 Value Judgment #1: Preferences count  67  5.1.2 Value Judgment #2: Preferences must be weighted  69  5.2  Ethical Frameworks  73  5.3  Value Judgments and Analysis  76  POLITICS A N D SOCIAL COST-BENEFIT A N A L Y S I S  78  6.1  The Decision-Making Process  81  6.2  The Actors in the Decision-Making Process  84  6.3  Goals, Roles, Power and Access  89  6.3.1 Politicians: The Official Policy Leadership  89  6.3.2 Bureaucrats: The Policy and Opinion Elites (I)  91  6.3.3 Proponents: The Policy and Opinion Elites (II)  93  6.3.4 Interest Groups: The Attentive Public  93  Analysis and Politics  96  6.4.1 Analysis and Politicians  96  6.4.2 Analysis and Bureaucrats  97  6.4  vi 6.4.3 Analysis and Interest Groups  7.0  98  A CASE STUDY: THE SITE C HYDROELECTRIC PROJECT  100  7.1  Defining the Problems and Alternatives  105  7.1.1 The Utilities Commission  105  7.1.2 B.C. Hydro  106  7.1.3 SPEC and PVEA  110  7.1.4 Problem Definition, Alternatives and Analysis  111  7.2  Objectives and Evaluation  112  7.3  Identifying Project Impacts  112  7.3.1 Spatial Boundaries  113  7.3.2 Identifying Consequences: Measurement and Prediction  115  7.4  Calculation of Project Benefits  118  7.5  Calculation of Financial Costs  120  7.6  Calculation of Environmental Costs  121  7.6.1 Agriculture  121  7.6.2 Forestry  124  7.6.3 General Recreation  125  7.6.4 Hunting and Trapping  126  7.6.5 Fisheries  127  7.7  Calculation of Social Costs  128  7.8  Evaluation Issues  130  7.8.1 Intangible Effects  130  7.8.2 The Debate over WTP and WTS  131  7.8.3 The Discount Rate  132  A Summary of Benefit and Cost Estimates  133  7.9  7.10 Politics and the Site C Project  136  vii 8.0  IMPROVING SOCIAL COST-BENEFIT ANALYSIS  139  8.1  Addressing the Problems  142  8.1.1 Problem Definition and Alternatives  146  8.1.2 Objectives  149  8.1.3 Consequences  151  8.1.4 Evaluation  153  Redesigning Project Evaluation Processes  156  8.2  BIBLIOGRAPHY  166  LIST OF TABLES  viii  LIST OF FIGURES  ix  ACKNOWLEDGEMENTS  x  viii  LIST OF TABLES  Table I:  A History of Social Cost-Benefit Analysis and Welfare Economics  6  Table II:  Potential Effects of Hydroelectric Developments  41  Table III:  Potential Socio-Economic Impacts  44  Table IV:  Characterizing Interest Groups by Gains and Losses  88  Table V:  B.C. Hydro Project Justification  107  Table VI:  Selected Physical Resource Impacts  116  Table VII: Selected Evaluation Issues  122  Table VIII: Social Impacts of Site C  129  Table IX:  A Comparison of Benefit and Cost Estimates for Site C  134  Table X:  Estimated Net Benefits of Site C  135  Table XI:  A Classification of Problems in SCBA  143  Table XII: Addressing Problems in SCBA  147  ix LIST O F F I G U R E S  Figure 1:  The Project Review Process of the B . C . Utilities Commission Act  83  Figure 2:  The Actors in Decision-Making  85  Figure 3:  Map of B . C . and the Proposed Site C Dam  101  Figure 4:  The Project Review Process of the B . C . Utilities Commission Act  157  Figure 5:  A New Project Review Process  159  X  ACKNOWLEDGEMENTS  I would like to thank the Canadian Environmental Assessment Research Council for their financial support and the following professors at the University of British Columbia for their direction and encouragement: and Ilan B . Vertinsky.  Anthony H . J. Dorcey, Peter N . Nemetz, William T . Stanbury,  1 CHAPTER 1 INTRODUCTION  Social cost-benefit analysis (SCBA) is an economic tool used to help  governments  make  decisions about major public projects. The goal of social cost-benefit analysis is simple, but  its achievement  difficult:  to compare  the benefits  of a  project  Environmentalists, politicians, bureaucrats and city planners have repeatedly cost-benefit analysis and economists, the supposed champions  to its costs. attacked  of SCBA.  social  Environmentalists  claim that SCBA cannot possibly reflect the values that people place on health, quality of life, aesthetic appreciation of wilderness, recreational opportunities and wildlife, to name but a few. Politicians and bureaucrats complain that SCBA, while economic  effects of projects, is incapable  government  decision-making.  considerations their  Planners  useful in determining the  of reflecting the political realities that pervade  think  that  it focusses  too much  on  economic  and too little on broader social concerns. These groups are not alone in  criticism. Perhaps the strongest  themselves. Economists have attacked  challenges  to SCBA  have  come  from economists  its ability to make decisions for the good  of all  society, as well as its ability to make good economic decisions.  If  social cost-benefit analysis is to continue  as a tool for helping  governments  make decisions, its problems must be clearly articulated and solutions put forward.  This  thesis contributes to this goal by synthesizing the problems with SCBA in three areas ethics, economics and politics —  and suggesting  —  how these problems might be remedied.  Problems in economics are empirical, methodological  or theoretical dilemmas  that  make a social cost-benefit analysis difficult to prepare. Problems in ethics stem from the different value judgments implicit in a SCBA  that may be in conflict with  the ethical  frameworks held by individuals in society. Problems in politics challenge analysts to make  2 a SCBA relevant to decision-makers and citizens affected by a project  Wherever possible,  these problems will be illustrated in this thesis by a hypothetical project: a hydroelectric dam and generating station.  Chapter 2 traces the history of project evaluation from the emergence in the 1930s of  cost-benefit  development  analysis (CBA),  of  that  social cost-benefit  focussed  on  analysis  in  economic costs the  late  and  1950s,  that  recognized non-economic environmental and social impacts, and finally  benefits, more  to  the  explicitly  to the creation of  environmental impact assessment in the 1970s and its effect on social cost-benefit analysis. Simultaneously, the discussion traces developments in the theory of welfare economics that underly  the  principles of social cost-benefit  analysis and  explores how these theoretical  underpinnings were reflected in practice.  In Chapters 3 and 4, I describe the five tasks involved in a social analysis:  the  identification  definition of  of  project  a  problem;  alternatives;  the  the  definition  identification  alternative; and the evaluation of consequences  of of  goals the  and  cost-benefit  objectives;  consequences  and alternatives, and the  of  the each  selection of an  alternative (Lindblom, 1965; Bradley, 1973; Coleman, 1977; Hollick, 1981a). Chapter 3 both addresses  the  general  problems  encountered  in  the  first  four  tasks  and  deals  more  specifically with problems in economic theory and methodology that affect those tasks. In particular, much of the discussion in Chapter 3 is devoted to the problems of specifying social goals and measuring goal achievement Chapter 4 discusses the problems encountered in the economic evaluation of environmental resource impacts, such as transforming physical environmental impacts into economic costs and benefits, discounting impacts, and the ways that risk and uncertainty affect evaluation.  Chapter 5 then, turns to the ethical problems and implications of social cost-benefit analysis.  The  value  judgments  implicit  in  traditional  social  cost-benefit  analysis  are  3 explored: whose preferences also  discusses the  the  implication  count and how  utilitarian ethical  of  the  existence  framework underlying social  of  appropriateness of social cost-benefit  Chapter 6 describes the  political forces  developed  for  cost-benefit of  their  non-utilitarian  ethical  weighted.  This chapter  cost-benefit  systems  on  analysis  the  the  evaluation  and  validity  or  analysis as a tool for making "wise" social decisions.  a framework based on Allison (1971) that is used to  affecting  project  are those preferences  use  of  social  processes that  cost-benefit describes  analysis.  the  A general  actors  involved  explore  model  is  in a social  analysis and their goals, their role in project evaluation, the nature and extent  power  to  affect  the  process,  and  their  access  to  the  process.  Based  on  this  model, some hypotheses are proposed about the way politicians, bureaucrats, interest groups and the general public might view the usefulness of social cost-benefit  analysis or attempt  to manipulate its results.  In Chapter 7, I illustrate how the various economic, are reflected cost-benefit  ethical and political problems  in practice by describing the events surrounding the preparation of a social analysis for the proposed Site C hydroelectric development  Columbia. The analysis  illustrates:  how  individuals varied in their problem definitions,  the objectives they chose, in the selection and in the  use  of evaluation  versions of social cost-benefit  methods, analyses;  cost-benefit categorize  8 shifts  analysis the  methodological,  to  problems  the  focus  suggestions with  social  in  of alternatives and identification of consequences, and how  these differences  resulted  in competing  how ethical problems were reflected or recognized;  and how political factors affected the use of social cost-benefit  Chapter  in northern British  of  the  paper  away  for  its  reform  and  cost-benefit  theoretical, ethical and political —  analysis  from  analysis.  the  problems  improvement into  and develop  five  In types  with  Section —  both general  social 8.1, I  empirical,  and specific  suggestions for dealing with them. In Section 8.2, some of these suggestions are applied to  4 the Site C case study by developing a project review process that allows a more flexible use of social cost-benefit analysis. The result is a decreased emphasis on measures of net benefits  and  an  increased  emphasis  on  identifying  and  understanding  the  impacts of  projects on the economy, on the environment, and on society. The reforms suggested here are only a beginning; their success must be tested and refined in practice.  5 CHAPTER 2 THE D E V E L O P M E N T O F SOCIAL C O S T - B E N E F I T A N A L Y S I S : A HISTORY O F PROJECT E V A L U A T I O N  Before  proceeding with  a detailed examination of social  cost-benefit  analysis, we must  clearly define what it is. To do this, it is also necessary to examine what it has been. This chapter traces the history of social cost-benefit analysis and related theory in welfare economics, from the early 1900s to the present, to show how the theory developed and how  it was reflected in practice. By doing so, I hope to clarify some of the confusion  surrounding the definition of such terms as cost-benefit analysis, social cost-benefit analysis and  environmental impact assessment, as well  as dispell some frequent  misunderstandings  about the purpose and scope of social cost-benefit analysis. Table I summarizes the major ideas that will be developed in this chapter. 2.1 T H E 1930s A N D 1940s: C O S T - B E N E F I T A N A L Y S I S The  use  of  cost-benefit  analysis  in  government  decision-making  began  development of project evaluation for water resource developments in the Formal project evaluation techniques developed in the  1930s when the  with  United  the States.  U.S. government  began undertaking major water resource projects such as navigation and flood control. Such projects were undertaken as part of national policy rather than by individual states or by private business because of weak state efforts  in flood control, the  large scale of such  projects, and a lack of private capital (Ehrhardt and Ehrhardt, 1980, p. 94). Controversy  over these large  resulted in financial  resource  losses for government  developments  and created  arose  conflicts  because with  many  projects  downstream users  (Rees, 1985). As a result, the government was increasingly faced with pressure to justify project  developments  and  maximize its real returns  on investment. The question arose:  TABLE I A HISTORY OF SOCIAL COST-BENEFIT A N A L Y S I S A N D WELFARE ECONOMICS  Cost-Benefit Analysis  Welfare Economics  CBA - measured direct economic costs and benefits - focussed on economic welfare  - recognized that non-economic costs and benefits affected project evaluation - recognized economic welfare was part of social welfare  C B A - measured direct and some indirect costs and benefits (externalities) - focussed on economic welfare  - evaluation techniques developed for limited range of externalities - recognized intangibles should be identified - understood value judgments required to include redistribution - identified distribution of economic welfare  S C B A - measured direct and many indirect costs & benefits - recognized intangibles should be included - focussed on economic welfare  - developed theory for using multiple objectives - recognized option values  S C B A - same as 1960s EIA - identified environmental and social impacts - stressed distribution of impacts, costs and benefits  - increased development of evaluation techniques for noneconomic impacts  S C B A - same as 1960s - intangibles treated inconsistently - focussed on economic welfare and its distribution  - further development of evaluation techniques  7 "How  was the  public to judge  whether  a local  water  resources  project  benefitted  the  whole nation?" (Ehrhardt and Ehrhardt, 1980, p. 95). It no longer seemed acceptable to leave decisions about such major  projects  to the  "political  realm where  logrolling  and  porkbarrel politics often predominated the choice" (Ibid., p. 95).  This controversy led to the formal introduction of cost-benefit analysis for public sector  project  evaluation in the  U.S. Flood Control Act  of 1936. Cost-benefit analysis  "gave politics a rationale similarly rigorous to that of profitability in business but which would also rate a project's worth according to the national welfare" (Ibid., p. 95). The Flood Control Act required that "benefits  to whomsoever they  accrue [be]  in excess of  estimated costs" (in Pearce, 1983, p. 14). This deceptively simple rule remains the basic premise of cost-benefit analysis today. It attempts to determine whether or not a public expenditure  or  public policy  contributes  to  the  national  purports to be a way of deciding what society prefers"  welfare:  "cost  benefit  analysis  (Dasgupta and Pearce, 1972, p.  19). Any project that contributes to national welfare is a benefit, while any effect that deters from it is a cost (Dasgupta and Pearce, 1972, p. 19; Downs and Larkey, 1986, p. 108).  However, the interpretation of cost-benefit  analysis today differs considerably from  that which was common in the 1930s. The practice of cost-benefit analysis in the 1930s and the  1940s did not incorporate much of the  theory of welfare economics (Dasgupta  and Pearce, 1972, p. 12; Pearce, 1983, pp. 14-5). During the 1930s, interpretation of the Rood Control Act developed in two ways. First, costs and benefits were defined as direct economic costs and benefits  (Pearce, 1983, p. 15; Rees,  1985, p. 306). Relatively little  attention was given to the environmental and social impacts of projects. Second, practical applications  of  cost-benefit  analysis  developed  an  economic-efficiency perspective;  the  welfare of the nation was interpreted narrowly as economic welfare (see, e.g. Little, 1957,  8 p.. 77; Dasgupta and Pearce, 1972, p. 12). Other social goals such as income redistribution or environmental quality did not enter the cost-benefit equation.  In early had  contrast to the practitioners of cost-benefit  analysis, welfare  economists  of  1900s recognized that projects could result in non-economic costs and benefits  the that  an effect on economic welfare (Pigou, 1912, 1920). Pigou stated that smoke in large towns inflicts a heavy uncharged loss on the community in respect of health, of injury to buildings and vegetables, of expenses of washing clothes and cleaning rooms, of expenses for the provision of extra artificial light, and in many other ways (1912, p. 159).  Welfare economists  were also modest about their ability to measure social welfare. Pigou  (1912, p. 3) recognized that economic welfare is but one part of total social welfare, and that any  "rigid inference from effects on economic welfare to effects on total welfare is  out of the  question" (p.  11). Instead, welfare  economists  relied upon an assumption that  an increase in economic welfare would probably increase total welfare.  2.2 T H E 1950s: SOCIAL COST-BENEFIT  By  the  1950s, cost-benefit  ANALYSIS  analysis had begun to receive  more widespread application in  government decision-making. It became evident to its practitioners that standard procedures were  needed  documents  released  Costs, 1950) of  for conducting cost-benefit in the  early  analysis (Dasgupta and Pearce, 1972). Two U.S.  1950s, the  Green Book (Subcommittee  on Benefits and  and a Budget Circular (U.S. Government, 1952), began to merge the practice  cost-benefit  analysis with the theory of welfare economics (Dasgupta and Pearce, 1972,  p. 12). While these early documents continued to focus on economic welfare and economic analyses  (Subcommittee  on  Benefits  and  Costs,  1950,  pp.  2-3),  they  recognized  that  non-market effects, such as loss of life or provision of recreation, should be expressed in monetary terms, and intangible effects "should be considered and described in such a way that  their  importance and influence  on project formulation and selection  can be clearly  9 indicated" (Ibid, p. 7). However, the detailed guidelines in the equal attention to non-market  Green Book do not give  costs and benefits; the emphasis is on intangible benefits  (pp. 26-7) but financial costs (p. 36). In the late 1950s three seminal articles, by Eckstein (1958), McKean (1958) and Krutilla  and  Eckstein  welfare  economics.  (1958),  These  outlined  works  socio-economic and political  clearer  stressed  links  that  between  governments  cost-benefit could  analysis and  have  objectives in addition to economic efficiency.  a  range  of  Social welfare  was, therefore, not necessarily synonymous with economic welfare (e.g., Litde, 1957). There was also a clearer conceptual basis for supplementing economic costs and benefits with a notion of externalities — costs and benefits not reflected in market transactions but which "alter  the  physical  production possibilities of  other  producers  or  the  satisfactions  that  consumers can get from given resources" (McKean, 1958, p. 136). A cost-benefit analysis should therefore identify the social costs and benefits of projects, which includes both the traditional market effects  of projects and the frequently neglected externalities. The term  social cost-benefit analysis (SCBA) is sometimes used instead of cost-benefit analysis (CBA) to  differentiate  between  public  and  private sector project  evaluation and to stress that  social rather than just financial costs and benefits are to be included.  It is important welfare  and  to understand  externalities at  the  end  what welfare of  the  economists were saying about  1950s.  Krutilla  and  Eckstein  social  (1958)  and  McKean (1958) recognized that when distributional effects were considered to be important, the results of a social cost-benefit analysis could not be the final word on a project's desirability  —  the  analysis could  only  comment  objectively on  the  efficiency  aspects.  Economists could trace the distributional consequences of a project by identifying economic efficiency costs and benefits received by various regions, income groups or other categories. Within  this  economic  efficiency  perspective,  economists  defined  a  wide  variety  of  10 externalities related to water resource such  as  recreational  pollution, resources  changes  in  developments  agricultural  that could affect  productivity,  in  economic efficiency,  scenic  resources  (McKean, 1958, pp. 135-6). McKean also recommended  and in that when  intangibles could not be quantified and when uncertainty was present, the analysis should include separate exhibits on these aspects for the consideration of the decision-maker.  Social cost-benefit  analysis began  to be used in Canada in the late  1950s and  early 1960s, largely in the area of flood control. The Resources for Tomorrow conference held  in Montreal in 1961 resulted  in a  Guide to Benefit-Cost Analysis subsequently  published by the Canadian government in 1965 (Sewell et al., 1965). The Guide described cost-benefit  analysis  from  an  economic  efficiency  perspective,  mentioning  neither  the  possibility of incorporating other objectives nor the possibility of identifying the regional distribution  of efficiency costs  and benefits.  The Guide did stress the identification of  social costs and benefits, including external effects such as changes in scenic resources, the benefit of preserving land in its natural state, the loss of a sport fishery, pollution, and the  destruction  progressive  of wildlife  approach  habitat  for dealing  (pp. 6, 10). Moreover, the with  externalities  that  were  Guide recommended  difficult  to  a  quantify. By  producing a qualitative statement of effects, unquantified externalities could be thought of as . . . preponderantly positive or negative is forced to regard the benefit-cost ratios modified by the value of intangibles. . they can, at times, tip the balance away result in the selection of another (p. 6).  factors. Thus, the analyst of tangibles . . . to be . . Treated in this way from one alternative and  By the beginning of the 1960s, social cost-benefit analysis represented  a technique  for evaluating projects in terms of their contribution to economic welfare and provided a framework  for  incorporating  externalities,  both  quantitative  and  qualitative,  and  for  identifying the distribution of efficiency gains and losses whether by region or by income  11 group. 2.3 T H E 1960s: SOCIAL W E L F A R E VS. E C O N O M I C W E L F A R E  During  the  1960s,  government efficiency  debate  emerged  decision-making. While of  economists 1967)  a  projects,  (Marglin,  attempted  to  because  about  many  other  the  proper  economists  role  chose  of  to  economic  focus  on  social  objectives  required  city planners  (Lichfield,  1966a, 1966b,  1967)  and  more  explicitly  incorporate  multiple  the  political  objectives  analysis in economic  input,  1966c;  in  the  some  and  Hill,  cost-benefit  framework. Yet other economists (e.g., Lipsey and Lancaster, 1957) questioned their ability to  make  any  assumptions  statement  at  all about  underlying welfare  the  economic  economics appeared  efficiency  of projects  because  to be invalid (see Chapters  the  3 and 4  for a detailed discussion). Marglin (1967) identified social objectives such as income redistribution, employment and national self-sufficiency and specified how costs and benefits were to be defined for each  of these objectives  within a social cost-benefit  framework.  This work was  further  developed in a collaborative effort by Dasgupta, Sen and Marglin in 1972 for the United Nations (Dasgupta  et a l , 1972). At about the  Planning Balance Sheet 1969),  also  in  (PBS) was developed  response  to  SCBA's  frequent  same time as Marglin's earlier work, the in England by Nathaniel Lichfield neglect  (in  practice,  not  in  (1966c,  theory)  of  objectives other than economic efficiency. Lichfield was primarily concerned with promoting the use of both economic efficiency and income redistribution as separate components of social welfare, leaving the task of weighting the relative importance of these objectives to decision-makers. Lichfield also stressed the importance of identifying externalities that could not be quantitatively evaluated. The Planning Balance Sheet was not a new technique  but  rather a more explicit statement of one possible formulation of social cost-benefit  analysis  with  way  income  redistribution  as  an  objective,  and  a  restatement  of the  proper  to  12 conduct analysis when intangible effects were present (Lichfield et al., 1975, p. 78).  Shortly after Lichfield's work on the Planning Balance Sheet, Morris Hill developed the Goals Achievement Matrix ( G A M ) which he touted as a more  "rational" method of  evaluation than either PBS or SCBA (Hill, 1967, 1973). In the Goals Achievement Matrix, cost and benefits are calculated according to community objectives, which need not include either  economic  efficiency  or  income  redistribution.  Hill  claimed  that  the  Goals  Achievement Matrix is more rational than the Planning Balance Sheet or social cost-benefit analysis because it does not presume that efficiency and distribution are the sole objectives of  a community; in effect,  Hill  said that cost-benefit  analysis could be based  on any  conception of social welfare. Welfare economists had been saying that for quite some time, and the work by Marglin (1967) and Dasgupta, Sen and Marglin (1972) gave practitioners or  SCBA  better  guidelines  for  proceeding  Nevertheless, Hill's work did help translate  with  this  type  of  multi-objective  the concepts of cost-benefit  analysis.  analysis into the  field of community and regional planning.  The two developments  in the theory  of welfare  economics —  the  definition of  social costs and benefits, including externalities, and the recognition of multiple objectives —  were slow to be adopted in practice. Practical applications of SCBA continued in many  cases  to  be  concerned  only  with  economic  welfare  and  gave  little  attention  to  environmental and social externalities that might affect economic welfare. In the 1970s the environmental and social impacts of projects began to receive more widespread attention in both the  United  States and Canada. Several factors  increased scale and variety of government projects and social consequences environmental more  (Rees,  lobby groups  politically  salient  (Rees,  drew attention  1985; O'Riordan and  made  environmental  contributed to this new focus:  Sewell,  to major environmental  1981);  quality objectives  1985; O'Riordan and  Sewell,  the  1981);  increased protest by and and  social  objectives  high  levels of  13  economic growth in the 1970s and consequent  expectations of sustained long-term growth  made environmental and social goals more affordable (Schramm, 1973; Rees, 1985). When  environmental and  social  impacts were included in a SCBA, some critics  doubted the ability of economists to properly evaluate them because value was measured in  dollars. For some  reason,  dollars were  perceived to  be  inappropriate  measures for  valuing non-economic impacts (Pearce,  1983, pp. 18-9) (see Chapter 4.1 for a detailed  discussion  in  of  methodological problems  evaluation).  This  is  the  dilemma  of  social  cost-benefit analysis: It is precisely because cost-benefit analysts have either ignored these problems, or because they have made bold attempts to value such gains and losses (and boldness is not necessarily a virtue here), that many people have become disenchanted with the procedure. To omit certain gains and losses is to fail to meet the all-encompassing definition of social costs and benefits. To include them is to stand charged with "arbitrariness" or valuing that which cannot be valued (Dasgupta and Pearce, 1972, p. 14). During  the  cost-benefit  1970s, critics also analysis (see,  stressed  the  pervasiveness  of value judgments  e.g., Nash et al., 1975). Soon social cost-benefit  perceived to be not sufficiently  in social  analysis was  "objective" (see Chapter 5 for a detailed discussion).  2.4 T H E 1970s: E N V I R O N M E N T A L I M P A C T ASSESSMENT As a result of these forces, the  early 1970s saw the development of something called  environmental impact assessment (EIA) which  stressed  the analysis of environmental and  social impacts. This development was partly in response to the past failure of economists to incorporate environmental and social impacts in their analyses. As Dasgupta and Pearce noted  in  1972,  "there  applications [of SCBA]  is  also  frequently  little  or  no  relationship  between  practical  and the welfare theory which, one supposes, should underlie the  practice" (1972, p. 14). It would appear that the concepts of social cost-benefit analysis had not been  widely adopted  in practice despite the advances made in identifying  and  14 evaluating environmental and social impacts.  In  1969  the  U.S. government  enacted  the  National Environmental  Policy Act  (NEPA) (PL 91-190, S.1075) and environmental impact assessment came to be regarded as something distinct from SCBA. The purpose integrated planning  use of the and  environmental  in  natural  and social  decisionmaking"  amenities  and  (s.  values  of the  NEPA was, in part, to "insure  sciences and  102A)  and  may  be  the  "insure given  the  environmental design arts in that  presently  appropriate  unquantified  consideration  in  decisionmaking along with economic and technical considerations" (s. 102B).  The  NEPA  consequences  required  government  agencies  to  consider  the  environmental  of major public projects and policies and produce an Environmental Impact  Statement (EIS). This EIS would include a report on: (i) the environmental impact of the proposed action, (ii) any adverse environmental effects which cannot be avoided should the proposal be implemented, (iii) alternatives to the proposed action, (iv) the relationship between local short-term uses of man's environment and the maintenance and enhancement of long-term productivity, and (v) any irreversible and irretrievable commitments of resources which would be involved in the proposed action should it be implemented (s. 102C). The effectiveness  of the  NEPA  has  been criticized because environmental impact  statements developed largely as inventories of physical effects rather than as evaluations of effects  (Rees,  1985). The  results  was  "a new procedure  which  had  to  be  undertaken  before formal decisions were made, [but] did not significantly alter the decision system per se" (Rees, 1985, p. 326).  As environmental impact assessment developed in the U.S. and Canada during the 1970s and 1980s it began to have a wider definition. There was an increasing emphasis on the integration of economic, environmental and social impact identification and, to a  15 lesser extent, evaluation. While some definitions of environmental impact assessment restrict it to impact identification, others have made claims that it is "a process designed to select alternatives,  devise policies or suggest mitigation measures that maximize social  welfare"  [emphasis added] (Hyman et al., 1980, p. 210).  2.5 T H E 1980s: T H E I N T E G R A T I O N O F SCBA A N D EIA In practice, social cost-benefit  analysis and environmental impact assessment are not the  same. Environmental and social impact assessment deals with impact identification, while social cost-benefit underlying  analysis deals  framework;  decision-making  (Hollick,  both  with  are  impact evaluation. But they  rooted  1981a; Wierzbicki,  in  the  rational  1983). SCBA  are similar  comprehensive  in their  model  of  and EIA are rational because  they follow a systematic and logical procedure, and comprehensive because they require the consideration of all alternatives  and consequences  (Hollick, 1981a, p. 81). There are five  basic components of a rational decision model (see, e.g., Bradley, 1973, p. 290; Coleman, 1977, p. 37; Cyert et al., 1956; Hollick, 1981a, p. 81; Lindblom, 1965, pp. 137-8); 1.  the recognition of a problem;  2.  the definition of goals and objectives;  3.  the identification of all feasible alternatives to achieve the goals;  4.  the identification of all consequences of each alternative; and  5.  the evaluation of the consequences  and the selection of that alternative  most  conducive to the pre-selected goals. Both  social cost-benefit  analysis and environmental impact assessment follow the  first four steps, but SCBA proceeds  to the fifth, as well. Social cost-benefit  analysis is  often associated only with this final task of evaluation, but it is not concerned solely with it: .  .  .  social  benefit-cost  analysis  is not a  technique  but an  16 approach. It provides a rational framework for project choice using national objectives and values (Dasgupta, Sen and Marglin, 1972, p. 14). McKean (1958) recognized early in the development of social cost-benefit analysis that the definition cost-benefit  of the  problem, objectives, and  analysis. However, these  guidelines or in the theory  alternatives  tasks  are  was  an  given little  important  i f any  of welfare economics; instead, the  with the concepts and tools of evaluation. There are  component of  attention  literature  in  SCBA  deals primarily  two possible explanations for this  emphasis on evaluation. Firstly, the contribution that economists can make to  cost-benefit  analysis is in the identification of economic impacts and in the evaluation of all types of impacts, whether economic, environmental or social. The definition of goals, objectives and alternatives,  and  the  identification  of.  environmental  multi-disciplinary and political process in which  and  social  economists have  impacts  is  a  no particular expertise.  Secondly, cost-benefit analysis was initially developed for project justification by government budget authorities, and not for project planning by the government agencies in charge of selecting and implementing projects (see Marglin, 1967, p. 18; Downs and Larkey, 1985, p. 114). As a result, economic aspects were paramount.  In associated definition social  contrast, with  the  literature  of  project  planning,  giving  more  of goals, objectives and alternatives,  impacts. EIA also  structures  environmental  for  conducting  addresses how analyses  can  impact  attention and  designed  to  problem  is  more closely  formulation,  the  the prediction of environmental and  information can be  assessment  and  be  gathered,  how  project  how institutional impacts  can  be  managed. Little attention is given to specific evaluation techniques.  The literatures of social cost-benefit have  diverged, but  they  are  also  analysis and environmental impact assessment  complementary.  The  economic  literature  focusses  on  evaluation techniques while the impact assessment literature has more to say about general  17 processes  for  conducting  environmental  impact  impact  assessments and  assessment has  paid more  managing attention  project to  impacts.  linking  the  Increasingly,  project-specific  focus of SCBA and E I A to broader planning concepts by encouraging the development and coordination of regional resource policies, goals and priorities (see, et al., undated;  Marshall et al., 1985; Sadler, undated; O'Riordan and Sewell 1981). While  this thesis will now turn to an analysis of social cost-benefit the  literature  for example, Cornford  analysis, we will return to  of impact assessment in the design of administrative procedures  cost-benefit analysis in the concluding chapter.  for social  18 CHAPTER 3 PROBLEMS, OBJECTIVES, ALTERNATIVES A N D CONSEQUENCES IN SOCIAL COST-BENEFIT  The  previous chapter  identified the  five  basic  tasks  ANALYSIS  involved  in a  social  cost-benefit  analysis as:  In  1.  the recognition of a problem;  2.  the definition of goals and objectives;  3.  the identification of all feasible alternatives;  4.  the identification of the consequences of each alternative; and  5.  the evaluation of consequences alternative.  this chapter  we  begin to  examine  and alternatives, and the selection of the best some  of  the  problems  with  social  analysis by analyzing each of these five tasks in detail. This chapter  cost-benefit  looks at the first  four tasks to determine the effects on analysis of: different problem definitions and goals; the  difficulty  in  determining  a  universal set  of social  goals;  the  theoretical  problems  associated with measuring goal achievement; the importance of generating alternatives; and the  uncertainty  in identifying  and  measuring project  impacts. Chapter  4 then  examines  some problems encountered in the fifth task of analysis, the evaluation of alternatives. 3.1 P R O B L E M F O R M U L A T I O N A N D E V A L U A T I O N Social cost-benefit  analysis begins with a problem. Alternatively, we might say it begins  with an opportunity. How can we meet an anticipated energy shortfall? Should we build a hydroelectric project? Which hydroelectric project should we build? Generally, the nature of problem or opportunity formulation is this: for an analysis to take place, someone must have or anticipate a problem, that is, must be dissatisfied with some aspect of the current or projected state of affairs and want to consider a  19 decision in terms of altering it (Quade, 1975, p. 49). The way a problem is defined affects objectives  will  all other stages of the decision process —  apply, what alternative solutions are  possible, what impacts are  what  likely  to  occur, and what the result of evaluation will be. Defining a problem involves specifying "where you are now and where you want to be" (Downs and Larkey, 1986, p. 131), or alternatively, where you don't want to be in the future.  It also involves identifying the  constraints that apply to a proposed solution: how much it can cost, how quickly it must be  implemented,  as  well  as  the  ethical, legal and  technological constraints  that apply  (Quade, 1975, p. 35; Hollick, 1981a).  What can we say about public policy problems in general? Quade (1975, p. 8) calls them "messy and ill-defined" and suggests that they are "wicked problems" (see also Mason and Mitroff,  1981, p. 9). A wicked problem has two characteristics: it is complex  and that complexity is organized. The complexity of public policy problems means that a problem is actually composed of many problems and difficult  to  isolate  (Mason  and  Mitroff,  1981,  issues which  pp.  4-5).  Because  are  interrelated  this  complexity is  organized, it affects the types of analysis which can be used. Modelling — structural  relationships among system components  suitable  for problems with  behavior"  are  less  "many individual  reliable  when  applied  —  becomes  elements to  and  exploring the  crucial. Statistical  methods  exhibiting independent, probabilistic  problems  with  many  interrelated  of a  wicked  and  inseparable components (Mason and Mitroff, 1981, p. 6).  The Energy  prediction of  demand  future  levels in ten  energy years  demand  might not be  historical growth rates. Demand levels will depend regional and  is an  example  accurately on general  predicted by  problem.  extrapolating  economic conditions, both  world-wide; the price and relative scarcity of energy resources  in general;  government policies affecting industrial expansion or energy conservation; and technological  20  innovation affecting firms' production processes or creating new industries. These are only a few of the many interrelated factors that influence.. energy demand which are themselves difficult to predict  Wicked problems are not only difficult to define, they may be defined differently by different people: many public policy problems are therefore problem  of  determine energy  meeting  the  a  region's  future  energy  best hydroelectric project  project  (hydroelectric,  thermal  to  demand  meet  or  requirements.  future  demand,  nuclear),  non-conventional project (which might encompass  ambiguous. Consider the  or  We might try to  the  the  best conventional  best  conventional  geothermal, solar, wind or tidal  or  energy  projects as well as conservation incentives and/or energy pricing to reduce demand). Each of these possible problem definitions implies a different set of possible solutions. The  types  cost-benefit  of  analysis  public are  policy  only  a  problems  small  that  subset  become  of  the  the  vast  subject  array  of  of  a  social  problems  that  governments face in day-to-day decision-making. As the history of project evaluation has shown, it has typically been only large-scale projects  which are  required to undergo a  social cost-benefit analysis, and it is usually only those large projects likely to have major environmental governments  and  social  effects  that  will  be  do not perform any analysis i f a  evaluated. SCBA  This  is not  is  not  to  say  that  conducted. Over the  last  decade, a variety of mechanisms have developed to manage environmental resources, such as  leases,  licences and  permits,  referral  processes,  project  approval  guidelines, planning  processes, inter-agency committees, and multi-agency task forces (for a detailed description, see Dorcey, 1986).  The cost-benefit  problems analysis  which are  construction. The definition  fall  under  frequently  the  defined  purview by  the  of the problem is affected  of  impact  agency  assessment responsible  and for  social project  by an agency's mandate and its  21 unofficial preferences.  Because SCBA is used primarily for project justification rather- than  for project planning, problems tend to be defined in one of two ways: 1.  Should a particular project be built?  2.  Which of several facilities within an agency's mandate should be built?  Downs and Larkey (1986, p. 119) suggest that the first type of problem definition is the most common in social cost-benefit analysis. Problems are not defined in a broad context in which  the one or few proposed projects  are only a small subset of solutions to a  much larger problem. Problems are not necessarily formulated to optimize the activities of an agency, let alone of a government  as a whole; they are formulated only to ensure  some minimum level of acceptable activity.  The way a problem is defined will affect whether social cost-benefit  analysis can  state that a project should be undertaken because it maximizes social welfare, or if it can only state that social welfare will not decrease because a project is undertaken. This point is  important  to  stress because  the  theory  of  welfare  economics  is designed  statements about optimal resource allocation in society for marginal projects:  to  make  hydroelectric  projects, highways or rapid transit. In contrast, the field of planning attempts to grapple with non-marginal projects: managing the forestry resources of a province, or coordinating industrial  development  with  environmental  protection  in a  region. Analysis  of marginal  projects is useful and appropriate, but if too few alternatives are considered, we cannot be sure that we are undertaking the best possible project  If we look only at one  project  and find its benefits exceed its costs, we do not know that other projects might not be better. Where the single public project that is analyzed comes from is never clear. Why that project and not others? Most public projects probably begin as a gleam in the eye of a citizen or politician who sees potential benefits or in the eye of an engineer in the Army Corps of Engineers who sees a potentially interesting solution to a flooding, irrigation, or water supply problem. There is no persuasive theory of "the optimality of gleams" (Downs and Larkey,  22 1986, p. 119). In summary, perceptions and definitions of problems have important implications for the  subsequent  different  steps  constraints.  in The  analysis.  People  differences  may  may be  define the  problems  result  differently  of accurate but  and  apply  fundamentally  different perceptions based on values, beliefs, the best available information, or the realities of organizational life;  differences  may also be the  result of problems that are dynamic  and inherently difficult to define.  3.2 OBJECTIVES A N D E V A L U A T I O N The goals which society pursues are the criteria by which projects are evaluated. In the words  of Winch  policy,  nor  probable  (1971, p.  choose  consequences  among  15),  "one  alternative  cannot  assess the  policies, unless  of those policies and  the  one  objectives  appropriateness pays  of a particular  attention  both  that are sought"  A  to  the  project's  impacts are defined as movements toward or away from these specified chosen goals. Costs and benefits, in turn, measure the relative value of those impacts. A different  social cost-benefit  analysis  could  be  conducted  according  to  a  number  of  goals. For example, an analysis could be done from the point of view of one  particular  individual  affected  by  a  project  using  his  or  her  personal  goals,  such  as  maximizing income or acting in accordance with certain religious principles. Alternatively, an analysis  might  be  done  according  to  the  objectives  of  bureaucratic  or  political  decision-makers, which might include the goals of staying in power or maximizing the size of budgets and personnel. The theory of welfare cost-benefit  economics, however, says that a social  analysis should focus on social welfare, the general welfare of all individuals  in society (Krutilla, 1961). Just what constitutes as defining the  public interest  social welfare is as difficult to  Possible determinants  determine  of improved social welfare include  23 higher output (the  efficiency objective), a different  redistribution objective), employment the  production  opportunities,  of particularly desirable  goods  distribution of income (the national prestige  or  services  equity or  or self-sufficiency,  (generally,  see  Marglin,  or  1967;  Henderson, 1970; Dasgupta, Sen and Marglin, 1972; Heaver, 1973). In  order  objective  must  translated  into  for be  these  objectives  defined  to  operationally.  "increasing the  country's  provide For  useful  example,  G N P . " The  guidelines economic  for  analysis,  efficiency  each  could  income redistribution objective  be must  specify what redistribution goals are sought, perhaps according to income levels or regions. Similarly, an environmental quality goal would be translated such as certain levels of air quality, water  into more specific objectives  quality, or acceptable  concentrations  of toxic  substances. In addition, the relative importance of one objective versus another must  be  determined if some measure of the overall desirability of each alternative is desired. This would  involve stating  that  economic  efficiency  is, for  example,  twice  as  important  as  environmental quality, or vice versa.  How  can  cost-benefit do  not  an  analyst  decide  which  should  be  used  in  a  social  analysis? Welfare economists say that society's objectives should be used, but  reveal  how these objectives  can be  radically different analyses, and the techniques developed  objective(s)  than  for others.  The following  identified. Different  objectives  can  produce  for dealing with some objectives are better  sections  examine  the  most  common  objectives  addressed in welfare economics: economic efficiency, income redistribution and employment. 3.2.1 The Efficiency Objective The  economic efficiency objective  exclusion incorporate  of  all  other  possible  is used objectives.  in social cost-benefit While  techniques  analysis, almost have  been  to  developed  the to  multiple objectives in SCBA (e.g. Marglin, 1967; Dasgupta, Sen and Marglin,  24 1972; Lichfield  et al., 1975), these are rarely adopted in practice. This emphasis on the  economic efficiency objective perhaps stems from the development of cost-benefit  analysis  as a device for encouraging fiscal responsibility in government decision-making.  Why  should  analysis  focus  only  on  possible. Firstly, the efficiency of government  economic  efficiency?  Several  arguments  decisions should act as a counter-balance  are to  the non-efficiency bias of politicians (Dasgupta and Pearce, 1972, p. 67). Secondly, income redistribution economic  can  occur  efficiency  after  is the  efficient  resource  only component  allocations  of the  have  been  social welfare  made.  function  Thirdly,  —  multiple  objectives do not exist Finally, economic efficiency analysis is more "objective" than more broadly focussed analyses. As noted earlier, this last argument is the one most espoused  by  objectives,  economists.  As Tribe  (1976)  notes,  analytic  tools  which  focus  frequently on  single  to  major  such as economic efficiency, can be very powerful, but are subject  limitations as well. The theory  of welfare  underlying structure of social cost-benefit  economics reveals several weak links in analysis that create doubt about the  the  ability of  analysis to lead to conclusive statements about economic efficiency. These weaknesses will be explored in this section.  The  welfare  economics  theory  applying  changes in individual welfare, or consumer  to  social cost-benefit  analysis  looks  at  surplus, that result from proposed projects or  policies. By using the economic efficiency objective, the economist assumes that changes in an individual's level of consumption are an adequate measure of changes in welfare. A variety  of decision rules  determine  could be  applied  to  these  individual  changes  in  welfare  to  how social welfare is affected. Possible decision rules include, among others: (i)  the Pareto criterion, which involves selecting only those projects that do not decrease the welfare  of  even  one  person;  (ii)  the  potential  Pareto  criterion (also  known  as  the  Hicks-Kaldor rule or compensation principle), by which a project is undertaken if the sum  25 of  welfare changes  for those who benefit  from a project  those whose welfare decreases; or (iii) the  is greater than  the  sum for  "actual" compensation principle, which is the  potential Pareto rule modified by a requirement that compensation of the "losers" by the "winners" actually occur.  The selection of a decision rule is ultimately an ethical choice (see Section 4.2 for a  detailed  discussion;  also  Nash  et  al.,  1975).  Cost-benefit  analysis  adopts  the  Hicks-Kaldor rule which says that a project would be undertaken if total project costs are greater than total benefits  (for an example of relaxing the Hicks-Kaldor rule in SCBA,  see Brent, 1984). There is no requirement  in the  Hicks-Kaldor  rule  that  compensation  actually take place (Pearce, 1976).  Krutilla  (1967,  p.  227)  identified  three  conditions  that  must  hold  for  the  Hicks-Kaldor rule to lead to an increase in economic welfare: 1. prices equal marginal cost in all sectors of the economy; 2. the income distribution is optimal, or ideal; and 3. the project effects do not alter the existing distribution of income. How  likely is it that the above three conditions will hold, so that the Hicks-Kaldor rule  will actually lead to an increase in economic welfare? Each of these conditions will  be  addressed in turn. Market Prices and Marginal Cost: The Problem of "Second Best"  In  an  economy,  all  prices  equal  marginal  cost  only  in  equilibrium in  a  perfectly  competitive economy. In reality, there are often violations of this rule, such as imperfect factor and product markets,  economies of scale, or divergences between  marginal private  cost and marginal social cost (Dasgupta and Pearce, 1972, pp. 105-9). Shadow pricing is undertaken  to correct these violations and to assign prices to non-market  resources.  A  26  shadow price is simply "the argument  that it is more  price the economist attributes  appropriate  for  the  purpose  to a good or factor on the  of economic evaluation than  its  existing market price, if any" (Mishan, 1982, p. 83).  Although shadow prices can be applied in a social cost-benefit analysis, a problem can  result if such shadow prices are not used in all sectors of the economy. When the  prices of all goods and services in society do not equal their marginal cost, a "first best" world does not exist and the state of "second best" arises (in general, see Lipsey and Lancaster, 1957). The theory of second best states that, if all prices do not equal marginal cost, there is no theoretical proof that the Hicks-Kaldor rule will actually result in an improvement in economic welfare (see also Krutilla, 1967; Winch, 1971). This means that selecting projects whose total benefits exceed total cost may not result in an improvement in economic welfare. It also implies that, if shadow prices are not used in all sectors of the economy, there is no guarantee that their use in the public sector alone will result in an increase in economic welfare.  Optimal Income Distributions The second condition for the Hicks-Kaldor test to lead to an increase in economic welfare is that the existing distribution of income must be optimal. Optimality means that society would not feel better off by changing the existing distribution of income in any way:  "people  deserve rewards  equal  to  their  contribution [to  society], and  distribution of income is good" (Nash et al., 1975, p. 126). Implicitly, social analysis  accepts  the  existing distribution of income as  the  optimal one  hence  the  cost-benefit  by relying on  market prices. These market prices are determined by the distribution of income (Foster, 1966).  27 Is it reasonable  to assume that the income distribution existing today is optimal?  While some members of society might believe that poor or unemployed citizens deserve their lot, many would disagree. If the income distribution is not optimal, is it nevertheless reasonable  to proceed with analysis using this assumption?  Several arguments to  support  this have been put forward. For example, the income distribution may not be optimal, but the costs of redistribution might be greater than the benefits of redistribution; hence, some inequity is tolerated achieved through occur  after  distribution  (Krutilla,  1961). Similary, if redistribution could be more  direct means such  the  efficient  need  not  allocation  affect  project  as transfers and of  resources  selection  subsidies,  is  (Foster,  then  determined 1966;  effectively  redistribution could and  concerns  Henderson,  1970,  about  p.  287).  Alternatively, the redistributive effects of a project may be trivial (Foster, 1966) or cancel out across a number of projects (Dasgupta and Pearce, 1972, p. 92). This final argument, however,  "does  judgments"  not  (Krutilla,  mean  that  benefit-cost  1961, p. 229), as it still  analysis  is  free  of  distributional  accepts price data based  value  on the existing  distribution of income. According to Foster (1966, p. 310), it is better to argue that the distribution of income is optimal because a democratic society has the power to change it: "One can only counter by flat denial that the existing distribution of income is generally agreed  to be the  best possible, or by producing  evidence  that this is not  in fact a  consensus or even a majority view."  But what  if the  existing income  distribution is not  previous arguments apply? Then, according to Krutilla  optimal, and  (1961), the  use  none of  of the  the  efficiency  objective alone will not guarantee an increase in economic welfare. Changes in consumer surplus  cannot  be  measured  directly by  market  prices  because people's  "deservingness"  might differ from the incomes they actually receive. Market prices could be weighted to reflect  a more  Section 3.2.2).  preferred  income  distribution (the  implications of this  are  discussed in  28 The results of these musings about income distribution are mixed. Whether or not the existing distribution is optimal seems arguable. The validity of ignoring redistribution as an objective depends on (i) how far from optimal is the current distribution, and (ii) i f it is not optimal, how effective, efficient and desirable are more direct methods of income redistribution (Henderson, 1970, p. 288).  Altering the Distribution of Income: The Scitovsky Reversal Paradox Additional Hicks-Kaldor  test  difficulties arise to lead  with  the third  to an increase  condition which  in economic  welfare.  must What  hold happens  for the if the  distribution of income is not the same both before and after the project is implemented? If a project  changes  the distribution of income, economic welfare is maximized only i f  compensation  actually  takes  place  (Krutilla,  1961).  If a  project  changes  the existing  distribution of income regardless of such compensation, it may be possible to fall into a trap: "we can hypothesise a project involving a move back to the initial position and this project that  may be sanctioned  initial  position"  by the very same test used to justify the move away from  (Pearce,  1983, p. 17). This is known as the Scitovsky reversal  paradox, in which Policy X may be abandoned at time t=0 in favor of Policy Y based on their respective  net benefits;  but when both policies are re-evaluated  (after Policy Y has been implemented), the analysis suggests abandonment  at time t = l of Policy Y in  favor of the old Policy X . Economic Welfare and Social Costs It is sometimes incorrectly assumed that a SCBA based on the economic efficiency objective can somehow ignore (other  than by accident) non-economic costs and benefits.  One definition of SCBA suggests it is a technique "designed to serve the single goal of economic efficiency which is defined solely in terms of economic resources" (Davis, 1984,  29 p. the  10). Analyses that fail to include non-economic effects will misstate welfare effects. If production  of  externalities  is  a  necessary  condition  for  the  production  of  some  marketed output, then . . . the likelihood that these effects will be generated, and their prospective strength and influence, have to be taken into account in any sensible calculation of the net efficiency benefits of a project (Henderson, 1970, p. 281).  If externalities exist that are difficult to quantify, it may not be possible to calculate an estimate of net benefits without some reference to qualitative factors that cannot be priced (see Section 4.1). 3.2.2 The Efficiency Objective and Income Distribution Weights Income redistribution weights are sometimes incorporated into a social cost-benefit analysis to  reflect  Henderson, consensus  more  desirable  1970).  Various weighting procedures  in  the  income  literature  as  to  distributions  which  (e.g., have  method  Krutilla, been  to  1961;  Weisbrod,  proposed,  adopt  but  Five  there  possible  1968; is  no  weighting  procedures include: 1. assigning weights based on the marginal utilities of income of all individuals; 2. assuming that the poor have higher marginal utilities of income; 3.  combining #1  or  #2  above  with  a concept  of the  deservingness  of certain  groups; 4. assessing deservingness alone (generally, see Henderson, 1970; Dasgupta and Pearce, 1972;  Pearce, 1976); or  5. deriving the weights implicit in past policy decisions (Weisbrod, 1968). Assigning  weights  based  on  an  individual's marginal  utility  of  income  is  an  extremely complex task. It requires identifying the specific individuals affected by a project and measuring each individual's income utility. This requires identifying costs and benefits  30 at a level of detail not easily obtained, if at all. Even if it were possible to identify all affected  individuals, there  is no clear  theoretical  method  for measuring  income  utility  economists  often  (Henderson, 1970).  Because  of the difficulties in measuring  actual  income  utility,  assume that the poor have higher marginal utilities of income than the wealthy, and then develop  methods  for reflecting  weighting costs and benefits  this  assumption.  Foster  (1966),  for  example,  suggests  by the ratio of mean population income to an individual's  income.  Another common method for estimating income utility is to rely on marginal tax rates which are usually lower for low-income individuals. Nwaneri (1970) derived a variety of weights to scale down costs and benefits to project beneficiaries, while leaving costs to sufferers  unchanged. His weights reflect: (i) the marginal tax rate; (ii) the marginal tax  rate and the size of the community; (iii) the marginal tax rate, size of community and house price depreciation; (iv) the marginal tax rate and degree of community disruption; and (v) differences in estimated marginal utilities of income. Deservingness  is based  on some  society believes individuals deserve,  social judgment  about  equity;  not what individuals believe they  it reflects deserve  what  or desire  themselves. Weights might also be based on an analysis of weights implicit in past policy decisions. determined and  These  implicit  or  revealed behaviour weights  (Weisbrod,  1968) would  be  by ranking previous decisions and options according to their efficiency costs  benefits,  and then  weighting various population groups  in various ways until the  solution is found that makes the actually chosen alternative superior to the others. Those revealed weights would then be used in subsequent analyses.  31 The inclusion of equity weights in SCBA based on income utility is a relatively contentious procedure. Pearce and Wise (1972, p. 324) criticized Nwaneri's methods as they doubted  "the  extent to which adjustments  value judgments the  poor have  resulting  weights  for income utilities have anything to do with  concerning equity." Calculating income utilities directly or assuming that higher  marginal utilities of income does not  reflect  society's  notion of an  ideal or  necessarily imply  more  equitable  that  the  distribution of  income. While there is no acceptable theoretical method for determining utility weights and their  usefulness  may  be  questioned,  there  may  also  be  considerable  political  government decision-makers in applying utility weights or expressing deservingness (Henderson, 1970). Ultimately, the selection and specification of utility and/or  risk  for  weights  deservingness  weights is an ethical decision.  The use of income distribution weights, however derived, is also criticized because of the resulting effects on the economic efficiency objective. As Pearce (1976, p. 11) notes, these weights "abandon Pareto optimality as an objective" and jeopardize the of  the  efficiency objective  (Winch,  1971, p. 99). Thus, the  weights might accept projects that would be rejected  use  achievement  of income distribution  on the basis of economic efficiency  alone.  3.2.3 The Efficiency Objective and the Redistribution Objective Income redistribution is pursued as a separate objective in SCBA (rather than incorporated in an analysis as weights) if the distribution existing at the time of the analysis is not the desired one and if redistribution is deemed to be an important  function of project  selection. According to Henderson (1970, p. 289), If account is to be taken of distribution effects, especially those between regions, then benefits have to be conceived in much wider terms than is the case when efficiency aspects alone are under consideration. It is not a matter of looking merely at the net efficiency benefits, and trying to determine to whom these are  32 likely to accrue. If income redistribution is a component of social welfare, an additional category of costs and benefits would  would be added to the analysis in which redistribution costs and benefits  be measured  as movements  toward or away  from an income redistribution goal  being pursued by society.  The incorporation of efficiency and redistribution (or equity) in a social function value,  is based on the assumption that consumption alone but rather  (Henderson,  1970).  that  the  utility derived  This utility  is assumed  from  does not have  consumption  to be derived  welfare  independent  has independent  from  both  value  the level and  distribution of consumption (Lichfield, 1966a, p. 342), and hence both economic efficiency and income redistribution are treated as separate objectives. Maximizing consumption alone (the  economic  efficiency  objective)  would  be equivalent  to maximizing  the utility of  consumption i f all individuals had the same marginal utilities for changes in consumption (Henderson,  1970).  Because  it is difficult  normative question whether  to determine  consumption  utilities, it is a  or not marginal utilities are likely to be the same for all  individuals.  3.2.4 Other Objectives in Evaluation Marglin into  (1967) and Dasgupta, Sen and Marglin (1972) explain how analysis might take  account  production  objectives  of merit  such  as increased  goods. Because  employment,  much attention  national  self-sufficiency  is given to job creation  and the in public  policy, this section will focus on the treatment of employment effects and the relationship of  employment  to other  objectives.  The concepts  underlying this  largely from Dasgupta, Sen and Marglin (1972, pp. 85-98).  discussion are taken  33  How  is employment  reflected  in the  traditional  economic efficiency approach  to  social cost-benefit analysis? For example, if a hydroelectric project will require 2500 direct construction jobs per  year  for  10 years,  is this  a  cost  or  a benefit  of the  project?  Employment is certainly beneficial, but in the economic analysis of a project employment is,  strictly speaking,  a  cost.  Money  spent  on  employment  (or  on  capital  equipment)  represents resources that are consumed in the hopes of creating something more valuable or beneficial.  Whether the economic efficiency approach reflects all the value society places on employment  depends  on  the  reasons  for  which  employment  is  valued.  For  example,  employment might be valued because it generates production and increases a nation's G N P , because it prevents the skills of the labour force from deteriorating, because it reduces or eliminates poverty, or because unemployment results in psychological distress to individuals. If  employment is valued because it generates production, the  economic efficiency  objective is sufficient for reflecting that value. Although wages are a cost, they are costs that are borne when the benefits of a project —  the outputs of that labour — merit it  If employment is valued because it prevents labour skills from becoming rusty, this is also reflected in the economic efficiency objective. However, i f employment is valued because it eliminates or reduces poverty, the economic efficiency objective is not sufficient. Such value would  be  correctly reflected  in a  redistribution objective.  because unemployment has negative psychological effects but  to  the  underutilization of human  potential, then  When employment  is valued  not related to inadequate income both  the  economic efficiency and  redistribution objectives are insufficient Only in this case would employment be treated as a  separate objective in SCBA.  negative  effects  specifically,  how  Using this objective requires  careful consideration of the  of open unemployment (people without any work) and much  must  be  an  individual's contribution  to  underemployment;  society  for  it  to  be  34 considered adequate,  and how should it be measured —  in hours worked or in more  personal measures of individual human potential?  3.2.5 Determining the Social Welfare Function  From  the preceding discussion, it should be apparent that selecting  cost-benefit likely  analysis rests upon value judgments  to be, or upon the aims of analysis —  concerning what  objectives  social  welfare  for social is or is  to maximize some broad conception of  social welfare or merely to guage government efficiency.  Little confuse a  (1957) recognized thirty years ago that there is a tendency in SCBA to  social welfare with economic welfare. Economic welfare is only one component of  social welfare function; if it is not the only component, there is no reason to assume  that the results of evaluations are making valid claims about improved social welfare. That the  use of welfare  economics involves making ethical assumptions is rarely recognized in  practical applications of SCBA. Little's (1957, p. 77) comments about the abuse of welfare economics are worth repeating at length here. The truth of the contention that welfare conclusions are value judgements is borne out by the ease with which welfare economists slip from talking about economic welfare into using a frankly ethical terminology . . . . First, the word "economic" usually gets left out This greatiy increases the emotive effect If I say "this change will increase economic welfare", it is open to anyone to say "perhaps, but it will not increase political welfare, or welfare in general". This reply is not open if I leave out the world "economic". Putting it in always suggests that the economist's conclusion is not the last word, and that, therefore, the conclusion is not to be taken as a definite recommendation. Secondly, the word "social", or "community", or "national" is often inserted where "economic" is left out This also increases the persuasive effect, for all these words are highly emotive to different classes of people. Thirdly, instead of "increase of economic welfare" we very often find the word "benefit". "Benefit" is obviously an ethical word. "Social benefit" and "social advantage" have also been used.  35 If welfare,  we  are  uncertain  a social welfare  that  function  economic  welfare  is  must  defined.  Kenneth Arrow  be  an  adequate  measure  of social  (1951, 1963, 1983)  addressed the challenge of constructing a social welfare function in his book, Social Choice and Individual Values (1951).  Arrow  defined  five  conditions  amalgamating individual preferences  that  would  define  an  acceptable  process  to produce a ranking of social preferences.  for  Arrow's first  condition is that of Collective Rationality: the social welfare function must "give rise to a true social ordering" (1983, p. 15). The second condition, the Pareto Principle or Positive Association of Social and Individual Values, requires that "the social welfare function does not  reflect  individuals'  desires  negatively"  (1983,  p.  24).  The  third  condition,  the  Independence of Irrelevant Alternatives, holds that "the choice between [two alternatives] and  y is determined  between  solely by the  preferences  of the  members  of the  community  as  x and y" (1983, p. 17). This implies that "all methods of social choice are of  the type of voting" (1963, pp. 27-8). The fourth condition is the Condition of Citizens' Sovereignty, which requires that "the social welfare function is not to be imposed" (1983, p. 18), whether by religious, ethical or traditional societal norms. The fifth condition, the Condition of Nondictatorship,  requires  that  "the  social welfare  function  is  not  to  dictatorial" (1983, p. 19), such that a social welfare function could not be defined by the will of only one person.  In  addition  to  these  five  conditions,  Arrow  defines  two axioms which  describe  rationality in the context of choice between alternatives. Axiom I says that "for any pair of alternatives x and y, either x is preferred to y or y to x, or the two are indifferent" (1963, p.  13). Axiom  II states that  " i f x is preferred  or indifferent  to y and  y is  preferred or indifferent to z, then x must be either preferred or indifferent to z" (1963, p. 13).  be  x  36 Based on these five conditions and two axioms, Arrow derives two theorems which many people believe have astounding implications for the possibility of constructing a social welfare function. The Possibility Theorem for Two Alternatives predicts that when there are just  two alternatives,  welfare extend  function  a decision reached  that satisfies  through  majority  voting will  produce  the given conditions (1963, p. 48). This result  to a situation in which there are more than two alternatives.  a social does not  Arrow's General  Possibility Theorem says that: If there are at least three alternatives which the members of society are free to order in any way, then every social welfare function satisfying Conditions 2 and 3 and yielding a social ordering satisfying Axioms I and II must be either imposed or dictatorial [emphasis added] (1963, p. 59).  The implications of the General Possibility Theorem are clear: majority incapable  of producing  a social welfare  function  which meets  Arrow's five  voting is conditions.  Arrow has also shown in his Impossibility Theorem that all methods of producing a social welfare  function, and not just majority voting, are incapable of "simultaneously satisfying  the conditions of Collective Rationality, the Pareto Principle, the Independence of Irrelevant Alternatives, and Nondictatorship" (1983, p. 72). In other  words, there is no theory of  social choice from which a social welfare function can be derived which does not violate one or more of Arrow's conditions.  Dasgupta  and Pearce  (1972, p. 80) summarize  the resulting  dilemma  cost-benefit analysis: In effect, Arrow's theorem states that there exists no method for determining the social ranking of alternative social states which is both based on individual preferences and satisfies some intuitively plausible criteria of "reasonableness" for social choice. The links between collective rationality and individual preferences are thus severed. Hence, Arrow's work has damaging consequences for the theory of welfare economics which has traditionally been regarded as providing precisely such a link. And if this link does not exist for welfare economics, it does not exist for cost-benefit analysis,  for social  37 which is based upon welfare economics.  Some critics have challenged Arrow's theorem by refuting his methodology or the validity  of his conditions. For  example,  Hildreth  (1953)  proposed  conditions similar  to  Arrow's but developed a social choice model in which interpersonal comparisons of utility are allowed. Specifically, he alters Condition 3 to allow individuals to express the intensity of their preferences. ordering can altered  be  His results show that there are several methods by which a social  derived. Similarly,  because it is not  preferences  Coleman (1966) argues that Condition  consistent  with  individual  3 should  be  rationality: individuals vary in their  and in their power to implement their preferences  in practice. Based on this  political model, Coleman derives a weighting scheme for various alternatives whereby  the  value of each is "equal to the sum of the interests of each individual in the decision, but  weighted  by the  power  of the  individual. In turn, the  individual's power depends  upon the value of those issues over which he has some control" (p. 120). These practice.  utilities and  According  to  preferences  Dasgupta  and  are  easier  Pearce  to  (1972),  define  in theory  than  "the  only possible  identify in  escapes  [from  Arrow's Impossibility Theorem] foundered upon serious obstacles" (p. 94). The most serious obstacle is measuring interpersonal utility. 3.2.6 Objectives and Analysis This section has argued different  analysis  demonstrated  and  that analysis depends on objectives; the  choice  of  objectives  different  involves value  objectives  judgments.  produce  Arrow  has  that there may be no way to combine individuals' goals or preferences  into  a unique social welfare function without violating reasonable rules for aggregation. If this is  the  case,  irrelevant  then  adopting  No analysis  can  any claim  objective(s) to  be  the  is  at  best  "correct"  a  compromise  SCBA  and  for society as  at  worst,  a whole.  38 Instead, different and competing analyses have some claim to validity. And, regardless of the objectives chosen, there is no guarantee that they will actually be achieved because of the weak links in the theory upon which SCBA rests: the theory of "second best," the Scitovsky reversal paradox, and the necessity for compensation to actually take place if the original income distribution was not optimal.  3.3 ALTERNATIVES The  A N D EVALUATION  way a problem is defined will affect the formulation of alternatives, and the specified  constraints will limit the number of acceptable ones (Downs and Larkey, 1986, p. 131). For of  example, alternatives designed at a project level might refer to certain design features a  hydroelectric  dam  at  one  project  site.  At  the  program  level,  a  variety  of  hydroelectric projects at different sites could be appropriate alternatives. And at the policy level, all possible energy  programs would  constitute  the  range  of alternatives,  including  hydroelectric and thermal energy, conservation, and non-conventional alternatives such as geothermal, tidal and solar power.  In designing alternatives, an analyst relies on two sources of information: first, the decision-maker or government agency might provide a list of alternatives; and second, the analyst himself  may have  to seek  out alternatives  through  independent  research  or in  consultation with experts and/or the public. Essentially, the selection of alternatives is a creative process, but two broad types of alternatives do exist: those that differ  in nature  (e.g., different types of projects with different time horizons) and those that differ in scale (McKean, 1958; Quade, 1975).  Searching for good alternatives is critical  to problem-solving because  "it is not  possible to choose a better alternative than the best in the set that is considered" (Downs and  Larkey, 1986, p. 132). The selection of biased alternatives by an agency that both  39 conducts the  SCBA and is responsible for implementing the  chosen project  is often a  more obvious sort of manipulation than "padding" benefits or understating costs. A social cost-benefit  analyis is  only  as  good  as  its  alternatives,  regardless  of  the  effort  and  and  cost  ingenuity spent in identifying impacts and deriving shadow prices.  While  it is better  to  have  many  alternatives  rather  than  few,  time  constraints usually prohibit considering all of them. Criteria for selecting alternatives must therefore be developed. Downs and Larkey fear that the criteria used to select alternatives are usually "highly arbitrary." While benefit-cost analysis has been advertised, in theory and in getting it accepted as a requirement for water resources projects, as an analytic tool for allocating scarce resources among competing projects, there is little competition in practice. There has rarely been simultaneous consideration of different public projects to accomplish the same objective or different projects to accomplish different objectives" (Downs and Larkey, 1986, p. 119). When important alternatives are ignored due to error or deliberate bias, it is impossible for a SCBA to legitimately claim that a project is the best one to undertake; it can only reveal that the project is superior to a set of inferior projects. 3.4 I D E N T I F Y I N G The  CONSEQUENCES  identification of project consequences often involves predicting future changes to social,  economic and  environmental  parameters  that  are  affected  by  the  implementation  of a  project Downs and Larkey (1986, p. 124) note that "Prediction is the critical problem for benefit-cost analysis." The modelling requirements needed to identify the economic, social and environmental impacts of projects are enormous. Consider the task of identifying just the environmental impacts resulting from  the construction of a hydroelectric dam. These  impacts might occur upstream or downstream from a dam site or in the reservoir area. The  nature of these impacts may be physical, chemical and/or biological (Langford, 1983).  Physical  aspects include changes  in river sedimentation patterns,  hydrological regimes of  40 surface and ground waters, microclimate change, and induced or increased susceptibility to seismic activity. Chemical aspects include both geochemical and biogeochemical changes in water quality, nutrient levels and trace element levels. Biological aspects include changes in aquatic and terrestrial ecosystems (adapted from El-Hinnawi, 1981, p. 261).  A possible array of impacts resulting from the construction of a hydroelectric dam could  include upstream  effects  such  as an  increased  water  table  with  either  increased  groundwater availability or waterlogged soils. Aggradation of the river channel might result in a silty water supply for upstream users or increased upstream flooding. In the Teservoir area, there may be a loss of productive lands which support critical wildlife habitat shoreline of the reservoir could lose vegetation, become a barren  shore, or suffer  The bank  erosion of up to 12 metres per year (Geen, 1974; Baxter and Glaude, 1980). Stabilization of downstream river flows and the entrapment of nutrients in the' reservoir might lead to a loss of fish habitat and lowered estuary productivity.  These examples are only a few of the potential effects  arising from hydroelectric  developments (generally, see Baxter and Glaude, 1980). Table II provides a more detailed, yet still incomplete, list of the  possible effects  on upstream,  downstream  and  reservoir  areas of the dam construction phase, pre-clearing of the reservoir, and- subsequent of the  reservoir. Table II also describes potential impacts that result after  the  filling  dam is  complete and in operation, such as the impacts of induced erosion, possible water quality changes, the effects of altered flow regimes, biological (habitat) effects in the river system, and the possible results of induced seismicity in the reservoir area. Potential socio-economic impacts are similarly numerous. These could result directly from  the  social and  activity generated use  effects,  environmental  by the project  recreation-specific  effects  of projects,  or indirectly from the  economic  These impacts can be classified in four categories: land  effects,  aesthetic  effects  and sociological  effects.  Land  use  TABLE II POTENTIAL EFFECTS OF HYDROELECTRIC DEVELOPMENTS  EFFECTS  UPSTREAM  Reservoir Site Preparation  RESERVOIR AREA  DOWNSTREAM  Leave trees: - reservoir slope stability - good physical fish habitat - poor chemical fish habitat - lost timber value - dangerous recreational area Log trees: - decreased slope stability - increased bank erosion - increased recreational value - poor fish habitat - improved navigation  Flooding  Groundwater effects: - increased water table - increased water availability - waterlogged soil - contamination of groundwater  -  Erosion  - upstream aggradation - increased flooding  - permafrost undergoes rapid erosion - increased bed and bank erosion - increased sediment budget - increased stream meander  loss of agricultural land loss of timberland loss of wildlife habitat shoreline ecotone disruption floating sphagnum bogs  TABLE II (conf) POTENTIAL EFFECTS OF  EFFECTS Water Quality  Flow Regime  Induced Seismicity and Dam Failure  Biological Effects  UPSTREAM increased sediment load  - increased flooding upstream  HYDROELECTRIC DEVELOPMENTS  RESERVOIR AREA  DOWNSTREAM  suspended materials settle out - oxygen-deficient water harms fish upstream nutrient inputs accumulate - turbines increase nitrogen content release of toxic substances from soil - waste discharges less dilute release of PCB's from power plant - changed thermal regime of flows agricultural runoff accumulates shoreline vegetation not stabilized by periodic flooding  complete dam failure flood waves  - loss of anadromous fishery habitat Temporary changes: - increased lake productivity - increased fish population - change in fish species - change infishparasites  - reduced flows in spring - more even flows throughout year - delayed spring break-up - earlier freeze-up - increased saltwater wedge (coastal) - river deltas dry up - loss of habitat downstream physical damage dispersal of chemicals trapped in reservoir side channels dry up changed thermal regime changed estuary productivity bubble gas disease in fish  Sources: Ackermann et al., 1973; Geen, 1974; Baxter and Glaude, 1980; El-Hinnawi, 1981; Stefan, 1981; Langford, 1983.  43 effects  include: the  commercial  loss of agricultural and grazing lands;  fishing, hunting,  guiding, trapping  wilderness areas. Recreation-specific effects  or  loss of lands which support  mining activity; and  loss of park  or  include changes in the availability of areas for  boating, swimming, camping and picknicking. Aesthetic impacts involve changes in scenic vistas and the loss of unique, historical or archaeological sites. Sociological effects changes  in  human  (adapted  from  health  and  safety,  employment,  Ableson, 1979, pp. 78-79). A more  lifestyles, complete  and  include  population  patterns  list of possible impacts is  given in Table III.  The  preceding  consequences  discussion  has  focussed  on  environmental,  of projects but there are other types of consequences  social  and  economic  which arise but which  might be ignored. Fischhoff et al. (1981, p. 13) identify psychological and political/ethical consequences.  Psychological  confidence  the  in  future.  consequences  include  worry  Political/ethical consequences  and  may  anxiety,  affect  the  alienation  and  centralization of  societal structure, personal freedom, international relations and societal resilience. To  measure impacts we obviously need to define what an impact is. In SCBA, an  impact is defined as the difference between the conditions that would exist if the were not implemented and the conditions that result after does  not  take  environmental  into  and  consideration  the  effects  of  a  project  implementation. This approach  project  on  any  existing  economic,  social goals and does not take into account other  projects  that may  have impacts on the same resources. The problem that may result is one of cumulative impacts, in which individual project impacts are measured against continuously deteriorating baseline effects  conditions of a project  because there  is no  coordination  on existing goals are  not  because  the  recognized. If a hydroelectric dam  will  decrease the habitat and population of an endangered  between  projects  and  species which is being managed  to  increase its population, is the true impact measure the decrease in population from today's  T A B L E III POTENTIAL SOCIO-ECONOMIC IMPACTS  L A N D USE:  CULTURAL:  Grazing Agriculture Fishing Trapping/Guiding Residential Development Commercial Development Industrial Development Mining Resort Area Special Purposes National Park Wilderness Port Development  Acquisition Effects Accessibility Effects Noise Effects Population Density Population Distribution Employment Effects Cultural Patterns Human Safety Human Health Rehousing Effects Resident Response General Public Response Special Group Response  Defence Establishment Active Recreation Passive Recreation A E S T H E T I C : Scenic Views Natural Bushland Open Space Landscape Design Unique physical features Parks & Reserves Playing Fields Monuments/Historical Sites Archaeological Sites Visual Impact Foreshore Reserves  RECREATION SPECIFIC:  Source: Adapted from Abelson, 1979, pp. 78-80.  Hunting Fishing Boating Swimming Sporting Camping Hiking Picknicking General Aviation  45 levels or the effect of this decrease on the goals we are attempting to achieve? How  predictions are made, and by whom, will have an important bearing on the  accuracy of prediction. Because of the breadth of impacts involved in large projects such as dams, an inter-disciplinary approach to social cost-benefit analysis is probably required: For a dam project you may want an electrical engineer to forecast the hydroelectric power that will be produced; a hydrologist to - project impacts on water supply; an agronomist to forecast the impact of increased water supply on crop yields; a commodities trader or an agricultural expert to forecast the value of changes in crop yields; and a recreation expert familiar with the area to forecast in consultation with an ichthyologist and a psychiatrist, the recreational usage of the reservoir; and so on (Downs and Larkey, 1986, p. 135).  Not impacts  only are the modelling requirements for impact prediction enormous, but some  may  components understood  be  extremely  (whether when  difficult  economic,  systems  are  to  predict  environmental  complex. Impact  or  Causal social  predictions  relationships systems) will  may  have  among not  large  system be  margins  well of  uncertainty, while some impacts may not be successfully identified at all. As Quade (1975, p.  166) notes, it was impossible at the beginning of the twentieth century to predict the  impact that the  motor car would have on lifestyles and economic activity. Similarly, it  would have been difficult to predict a century ago the importance of plant and animal derivates in today's pharmaceutical industry (Kellert, 1984, p. 356).  Because of the uncertainty and complexity of future impacts, many predictions are no more  than the educated  guesses of experts. Even sophisticated predictive models are  not immune to subjectivity. The point is that every so-called quantitative analysis, no matter how innocuous it appears, eventually passes into an area where pure analysis fails and subjective judgment enters. This is important; in applying this judgment the real decisions may be being made. In fact, judgment and intuition do not merely enter quantitative analyses when assumptions are made and when conclusions are drawn; they permeate every aspect of analysis in <  46 limiting its extent, in deciding what hypotheses and approaches are likely to be more fruitful, in determining what the "facts" are and what numerical values to use, and in finding the logical sequence of steps from assumption to conclusions (Quade, 1975, p. 164). Perhaps even more serious than the existence of uncertainty and analyst judgment is the failure to explicitly recognize this uncertainty and judgment in SCBA: judgment but in the  "not in the use of  failure to emphasize the difference in results and recommendations  based on judgment alone" (Quade, 1975, p. 165). If the uncertainty of predictions is not clearly stated, the evaluation of impacts may be made meaningless. As Downs and Larkey (1986, p. 124) note, It is not unusual to find an economist exercising great genius (and spending a lot of time and money) in pricing "recreation user days" or "pain and suffering" when the forecast quantities are only accurate within 200 percent.  47 CHAPTER 4 E V A L U A T I O N ISSUES I N SOCIAL COST- BENEFIT  ANALYSIS  This chapter explores the problems that arise in the fifth task of SCBA —  evaluation. In  particular, we will address the evaluation of environmental resource impacts: how physical environmental impacts are transformed into economic costs and benefits, how future impacts are discounted, and how uncertainty is reflected in the evaluation.  A social cost-benefit analysis is used in two ways: to determine if the benefits of one alternative outweigh its costs and to compare several alternatives against each other in order to determine which one alternative best meets the objectives of the analysis. The chosen alternative is selected based on its excess of benefits over costs;  the  alternative  with the highest net benefits contributes most to the achievement of objectives (see Pearce, 1983 for a discussion of the limitations of net benefits  and the  benefit/cost  ratio). In  order for the goal of evaluation to be accomplished, 1.  all impacts must be expressed in the same units —  changes in non-market  resources must somehow be expressed in dollars; 2.  impacts at different points in time must somehow be made comparable — decision must be made whether or not to discount future  costs and  a  benefits  and at what rate; 3.  uncertain impacts must be reflected in the evaluation.  This chapter will explore some of the economic issues in SCBA in each of these areas. 4.1 N O N - M A R K E T Non-market  RESOURCES  resources,  also  called  environmental  resources  or  unmarketed  goods,  are  resources "capable of producing amenity services that are generally consumed on site, with little or no transformation by ordinary productive processes" (Fisher and Krutilla, 1975a, p.  48  360). Hufschmidt and Hyman (1982) have grouped these non-market resources into three categories: 1. outdoor recreational services; 2. outstanding scenic, historic, cultural and scientific resources of a collective goods nature; and 3. services associated with the capacity of an environment to function naturally and assimilate the residuals of human activities (p. 37).  If a project changes  non-market  resources in some way, those  changes must  be  reflected in a social cost-benefit analysis. Because there are no markets for such resources, they are referred to as external effects (Dasgupta and Pearce, 1972). Non-market resources are important to project evaluation in order to compare losses and gains of different types and determine i f a project results in net benefits or net losses. It is also important in the  comparison  of  impacts of different  different types  project  (such as  alternatives. the  Evaluation, therefore,  loss of 100 acres  of wildlife  tries  to  habitat  express and  an  increase in national income) in the same units.  When markets for resources do not exist, how can they be included in a social cost-benefit  analysis?  Because  an  analyst  has  no  direct  measure  for  estimating  how  individuals value non-market resources, he must derive a shadow price. He is faced with such questions as: How much is a scenic view worth? How can that worth be expressed? Economists have developed a variety of evaluation techniques for answering such questions (described below). A l l of these methods generate some dollar value which individuals might place on a scenic view or a wilderness area, for example. Although dollars are used as the measuring unit, the  units could just  as easily be conch shells. It is important  to  understand why dollars are used. Pearce's (1983, p. 5) comments are reproduced at length here. It has nothing to do with being obsessed with money, and everything to do with the fact that markets are the only contexts in which individuals express millions of preferences daily. The political system does not begin to compare. We would have to  49 have endless referendums and elections to get remotely near the complexity of the market-place, whether it be the local fish market, the Stock Exchange or something as complex as the foreign exchange market . . Within these markets countless individuals express their preferences for or against goods and services. They vote for them by buying them and against them by not buying them. The means that they use to express their votes is, of course, money. Those votes could be expressed in terms of any measuring-rod. It so happens that money has evolved as a convenient measuring-rod. Had it been cowrie shells or camel bells they would still have been "money", which is simply a word for the medium of exchange. In this respect there can be no objection to a technique which seeks to elicit preferences expressed in terms of money.  In  social  cost-benefit  analysis,  two  general  approaches  for  valuing  changes  in  non-market resources have been developed: economic surrogates and hypothetical valuation. Economic surrogate methods include the  travel cost approach (Clawson method), property  value studies and related expenditures on complements or substitutes. Hypothetical valuation techniques involve the use of surveys of willingness-to-pay (WTP) or willingness-to-sell (WTS),  contingency  techniques, see  games  and  tradeoff  Hufschmidt and Hyman,  economic surrogate  methods  as  well  analysis  (for  a  general  description  of  these  1982). The most widely used methods are  as WTP and WTS surveys. The critical  the  questions  associated with these methods are whether or not they reflect all the changes in welfare or value associated with non-market  resources, and whether  or not all the  changes in  value can be measured in dollars.  4.1.1 Valuing non-market resources: non-users, bias and option value Economic surrogate and hypothetical valuation techniques are usually designed to measure what people would be willing to pay to use a resource: what someone would pay to use a park facility,  to have a scenic view or to reduce pollution in a lake. The derived  measures would be approximations of the consumer surplus benefit resulting from the use of  a  natural  environment  (Greenley  et  al.,  1981).  Both  the  Clawson  and  related  50 expenditure estimating costs  methods  attempt to indirectly assess the value of non-market  how much money  of travel  and costs  a person  incurred  spends to use a non-market  for any associated  market  goods.  resources by  resource, including For example, to  estimate the value of a camping ground, one could calculate the average expenses incurred travelling to the site plus assign  some  camping trip (such as tents, fishing  portion of the value of goods required on a  rods, etc.). Alternatively, an analyst  might  compare  property values of land surrounding a scenic site to similar land without a scenic view. Higher property values in a scenic area would supposedly reflect the premium people were willing to pay to have access to such a resource; it is an estimate of the value of that non-market resource.  There are many practical problems involved in applying economic surrogate In  the  property  value  approach,  it  may be  difficult  to  find  areas  with  methods. identical  characteristics. Differences in property values might easily reflect characteristics other  than  proximity to a scenic site, such as different community facilities, lower crime rates, less traffic, etc. Although the related expenditures approach has been used to value recreation benefits and pollution costs, it is weak for recreation because substitutes  and complements  may also be unpriced, and questionable for pollution as the procedure focusses on equating costs  of abatement  with  demand  or value,  an equality  which  may not hold  in an  imperfect market of unpriced collective goods (Hufschmidt and Hyman, 1982, pp. 40-1).  Maler  (1977) has criticized  the property  value approach  to valuing environmental  quality because it only measures the willingness-to-pay of those who use the resource. It thus embodies an implicit assumption that an individual is only concerned about environmental quality if he is consuming a positive amount of the private good. Applied to sport fishing the assumption would imply that an individual is concerned about water quality in a lake if he is using the lake for sport fishing. If he is not using the lake, then he would not be willing to pay anything for quality improvements in the lake (p.  51 360) [emphasis added].  McAllister (1980, p. 129) criticizes the Clawson method for also failing to reflect the  preferences  underestimates  of non-users,  while Meyer  (1974)  expresses  concern  that  this  method  use value when a high concentration of users live close to a recreation site.  In response to these criticisms, some economists have recently developed methods to reflect non-consumptive uses of natural resources  such as wildlife and wilderness (see, e.g., Hay  and McConnell, 1979; Brookshire et al., 1983; Walsh et al., 1984).  Hypothetical surrogate  willingness-to-pay  surveys  are  a  common  techniques. Through the use of surveys, an analyst  what he or she  alternative  to  economic  directly asks an individual  would be willing to pay to obtain some desired non-market  resource  such as a campground or a pollution-free lake. While seemingly more simple and direct than the economic surrogate encouraging  people  to  approach, the use of surveys suffers  reveal  their  true preferences.  Fischer  from the (1975,  difficulty of  pp.  31-2)  has  summarized this problem of strategic bias as follows: . . . if people believe their responses to willingness to pay questions will affect their actual taxes or prices they will have a monetary incentive to understate their true preferences or satisfaction levels. On the other hand, if people believe their responses to such questions will not affect their taxes or prices they will have an incentive to overstate their true value estimates. In addition, they have the additional incentive to be a "free rider" on other people's willingness to pay if they believe the government will implement the environmental program regardless of the amount they specify. Other types of bias that may exist include information bias, hypothetical bias, and sampling, interviewer and non-respondent analysis problems  of  six  with  bias (see Schulze et al., 1981). In a comparative  willingness-to-pay studies, bias  and  also found  approaches produced similar results.  Schulze  et  al.  (1981)  that economic surrogate  and  found  no  overriding  hypothetical valuation  52 All evidence obtained to date suggests that the most readily applicable methodologies for evaluating environmental quality — hedonic studies of property values or wages, travel cost, and survey techniques — all yield values well within, one order of magnitude in accuracy. Such information, in our view, is preferable to complete ignorance.  An techniques  additional problem arises  with  both  because these methods  economic surrogate  and hypothetical valuation  generally rely on estimating the preferences of  people that actually use non-market resources. There may be people who do not directly use such resources  but who nevertheless derive some benefit from them and who would  be willing to pay some amount of money for their preservation. Weisbrod (1964, p. 472) has suggested arises from  the existence of a value other than use value, called option value, which  "people who anticipate purchasing the commodity (visiting the park) at some  time in the future, but who, in fact, never will purchase (visit) it. Nevertheless . . . they will be willing to pay something for the option to consume the commodity in the future." The  two necessary conditions for the existence of option value are uncertain future  demand for a resource, and a project that has an irreversible effect on that resource. A n irreversible  effect  is one that is infinitely  costly to reverse  and whose authenticity of  reversibility is questionable (Arrow and Fisher, 1974; Fisher and Krutilla,  1975b; Pearce,  1983). Krutilla  (1967)  expanded  Weisbrod's (1964)  definition  of option value to reflect  values placed on natural environments not necessarily associated with potential future use, such as existence and bequest values. Option, existence and bequest values (Krutilla, 1967, pp. 780-4) are defined as: Option value:  a willingness to pay for retaining an option to use an area or facility that would be difficult or impossible to replace and for which no close substitute is available.  Existence value:  satisfaction from knowledge that part of wilderness  53 North America remains even though [an individual] would be appalled by the prospect of being exposed to it. Bequest value:  Practical designed  a desire to leave one's heirs an estate [of natural resources].  applications of economic surrogate  to measure consumer  surplus  have  been  and  hypothetical  criticized  for  valuation  their  approaches  neglect of option,  existence and bequest values. Arrow and Fisher (1974) have shown that option values are distinct from use value, or consumer surplus. In an experimental study, Greenley et al. (1981) found that option value was non-trivial in relation to use value. The benefits of preserving  a  particular  natural  environment  were  equal  to  $958  million  when option,  existence and bequest values were included, in contrast to the estimate of $414 million for use  value alone. Differences  in method  in this instance  clearly result in differences in  analysis. The option value concept, however intuitively appealing, has been the focus of a complex theoretical debate. For example, Schmalensee (1972) has shown that option value can be positive, negative or zero and therefore  recommends  ignoring option value. More  recently, Bishop (1982) has claimed that option value is positive when the supply of a resource is certain, but may be either positive or negative when demand is uncertain. 4.1.2 Valuing non-market resources: economic principles and legal rights There are more troublesome problems associated with marginal willingness-to-pay measures than the problems of bias, neglect of non-users,  and option value. These problems are  associated with the way in which estimates of consumer surplus (or marginal WTP) are derived.  Both  the  economic surrogate  and  hypothetical  valuation  approaches  attempt  to  calculate the amount an individual would be willing to pay to continue his present use of some environmental resource. In the jargon of welfare  economics, this is known as the  54 "compensating variation" (CV). There is another measure of consumer surplus based on the amount  of compensation an  individual  would  require  to  forego  his present  use  of a  resource, the "equivalent variation" (EV) (see Gordon and Knetsch, 1979). Many economists have assumed that these two measures of consumer surplus, C V and EV, are the same. Because it is difficult to calculate CV's and EV's, they have also assumed that a simpler method of calculating consumer surplus can be used to estimate willingness-to-pay. That simple measure, based on changes in prices and quantities irrespective of income effects, is the widely used "Marshallian estimate" (see Pearce, 1983).  There  are  several problems associated  with  measuring  the  consumer  surplus of  environmental or non-market resources which affect both the Marshallian estimate and the C V and E V estimates. Randall and Stoll (1980, p. 450) have found that the Marshallian estimate can be validly used to measure consumer surplus except when analyzing "projects or  programs  endangered beings."  which  have  the  species, threatened  potential cultures, or  to the  significantly life  and  modify health  This implies that the use of a Marshallian estimate  unique  environments,  expectancies of human  for valuing environmental  resources may not be valid; instead, C V or EV measures are required. Randall and Stoll (1980) further note that estimates of C V and E V are likely to diverge for non-market resources. In particular, the C V estimate (or WTP) of a welfare gain will be much smaller than the EV estimate (or WTS) (and vice versa for a welfare loss). The difference between these two measures is usually assumed to be the result of an income effect —  WTP does not reflect the marginal utility of income (Dasgupta and  Pearce, 1972, p. 44).  Given two divergent estimates of consumer surplus, which one should be used for environmental resources, WTP or WTS? (Note that these are more correctly call "marginal WTP" or "marginal WTS".) Krutilla and Fisher (1975, p. 36) claim that WTP should be  55 used for measuring welfare gains and WTS for measuring welfare losses (see also Meyer, 1979). In a study of fish and wildlife valuation, Meyer (1979, p. 225) states that the welfare criteria . . . requiring that for any reallocation of society's resources, gainers must be able to compensate losers, would seem to clearly require that "losses" of fish and wildlife amenities be measured by a willingness-to-sell approach. In  practice, most techniques  for measuring  Meyer (1979) suggests that this is the  consumer  surplus  rely on willingness-to-pay.  result of a belief that WTP and WTS do not  diverge; but recent evidence to the contrary has not changed the prevalance of the WTP approach. The application of WTS in social situations  in which  the  cost or benefit  cost-benefit  analysis seems to be  received by an individual affects  limited  to  something  to  which he has a right (see Banford et al., 1980, p. 34; McAllister, 1980, p. 98; Dasgupta and Pearce, 1972). If an individual does not have a right to a resource, a WTP estimate will apply and his preference will be constrained by his income. If he does have a right, such as a property right, WTS would be used and the compensation he demands might well  exceed  his WTP. Because  the  use  of  WTS involves a  very  different  notion of  individual rights than that inherent in WTP, Meyer has examined the legal positions of individuals with respect  to publicly-owned environmental resources. In his estimation, "In  Canada, the doctrine of individual rights under a concept of public trust seems not well advanced" (Meyer, 1979, p. 231). Because the legal positions of individuals are ambiguous with respect to publicly-owned resources, they are not asked what they would require in compensation (WTS) to give up those resources. Rather  the  estimate  is based  they would be willing to pay to receive or "buy" those resources from the  on what  government  Meyer seems to prefer the economic principle over the legal one: the "economic principle would seem to require that the compensatory needs of those citizens experiencing losses be properly considered" (1979, p. 233).  56 The choice between differences difficulty  between  WTP and WTS measures is not clear-cut  economic and legal principles, and it is further  of calculating either  measure.  Gordon and  because of -these  complicated by  Knetsch (1979)  attempted  to  the test  whether or not the differences between a WTP and WTS estimate could be explained by an income effect, as commonly assumed. Their analysis, while not conclusive, provided "no support  for the  Indeed,  the  demanded  as  income effect  results  seem  well  as the  being the  to offer  complete  explanation of the  contradictory evidence. The  willingness-to-pay figures are  difference.  amounts  of  positively related  . . .  compensation to household  incomes" (p. 5).  The calculation of WTP or WTS estimates is also complicated by the information plays in determining and valuing preferences. 40)  question  approaches  the  usefulness  because  they  of  require  both  economic  individuals to  role that  Hufschmidt and Hyman (1982, p.  surrogate  possess  high  and  hypothetical  levels  of  valuation  rationality  and  knowledge. According to Fischer (1975, p. 30), for an individual to be able to maximize the satisfaction he derives from his income he must have: full knowledge about the full range of available goods and services, full knowledge of the relationship between the goods or service and the satisfaction derived, full knowledge of prices of alternative goods and services, full knowledge of money incomes over his planning horizon, and full knowledge that his behaviour will not affect prices. This  knowledge  may  not  be  available  for  non-market  resources  such as  environmental  quality because "environmental quality levels are not directly exchanged and are rarely the result  of  deliberate  choices"  (Fischer,  1975, p.  32). Therefore,  while the  amount  an  individual is willing to pay will depend on his knowledge of the situation, this knowledge may not coincide with what actually occurs.  57  4.1.3 Intangible Effects  Intangible project effects are those too subtle or elusive to fully describe, measure in some meaningful fragile  way, or adequately  values,  into three  price. Tribe (1972, p. 33) classifies intangible effects,  kinds. First, there  are  those  resources  that  are  or  "intrinsically  incommensurable" which play a central but often unrecognized role in human satisfaction: ecological balance, species diversity and unspoiled wilderness, for example. Secondly, there are those resources with "inherently global, holistic, or structural features" reduced  to  a  set  of independent  attributes:  urban  aesthetics,  that cannot be  community cohesion, and  ecological balance. Thirdly, there are the more personal and emotional resources or values, such  as the  integrity of the  body (the  right to see,  hear, breathe or  live)  and  the  integrity of the community or neighbourhood. A body of techniques for valuing different types of project effects is rapidly growing (see, for example, Crutchfield, 1983; Livengood, 1983; Walsh et al., 1983; Crocker, 1985)  Some  economists,  such  as  Hill  (1973)  and  Pearce  (1976),  are  confident  that  ultimately all effects can be priced. Critics such as Fischer (1975), Tribe (1976), Kelman (1982) and Swartzman (1982) are skeptical of such claims because of what they describe as the reductionist nature of quantitative techniques. Assigning prices to the more intangible non-market  resources,  such as scenery  or  wilderness hiking, might actually reduce their  value for two reasons (Kelman, 1982): (i) due to the associated  with  non-market  exchanges  loss of positively-valued feelings  (which Swartzman summarizes  as the  problem of  assigning an instrumental value to an intrinsic value); and (ii) because some things may be "not for sale," a label used as a value-affirming or value-protecting device (Kelman, 1982, p. 147). This notion of something being "not for sale" and having intrinsic value —  such as fundamental  Chapter 5.2) which are  political rights —  emphasizes the non-utilitarian principles (see  by their very nature left out of any quantitative analysis. Tribe  58 (1976)  warns  that SCBA's emphasis  on quantification  has  moved environmentalism  from being an ethical tenet toward being merely a utilitarian index of costs and  away  benefits,  an emphasis which he feels may erode the original sense of ethical obligation expressed in non-utilitarian principles (see also Dorfman, 1976, p. 167). The  alleged  reductionist  nature  of  quantification  can  also  "foreshorten  value  discontinuities" (Tribe, 1976). A value discontinuity may arise when tradeoffs must be made between  utilitarian and non-utilitarian aspects of a decision (Kelman, 1982). For example,  assume that a decision-maker made a decision in the involved about  a risk of ten a  variety  environmental  of  human  deaths. The  objectives,  such  as  past by choosing a project  decision-maker economic  might have  efficiency,  quality, ethicality, as well as risk to human  life.  been  political  that  concerned  acceptability,  Because some  of these  concerns may be non-utilitarian, the decision-maker would engage in deliberative judgments about  these  "additional  outweigh  costs"  tradeoffs  between  elements .  .  (Kelman, 1982, p. the  . which cannot  142).  economic  That  efficiency  is  to  be  reduced  say,  calculations  his in  to  whether  decision an  benefits  would involve  SCBA  and several  non-utilitarian objectives. If we examine the decision that was made and discover that an alternative project was rejected which had additional net benefits of $100 million but also involved the risk of an additional twenty deaths, we might be tempted  to say that  the  value of one human life is equal to $5 million. We could then use this $5 million figure in  future  decisions.  foreshortens tradeoffs versus  the  But  value  Kelman  (1982)  discontinuities  argues  because  it  that  this  does not  calculation, identify  other  or  equivalency, non-utilitarian  that might have been made — such as human life versus environmental quality political  popularity  or  votes  (see  Chapter  5.2  for  further  discussion  of  ethical  frameworks). The equivalency was not used by the original decision-maker as an input to the  decision process;  it represents only an end-product  process of deliberative judgment  which does not fully reflect  the  59 4.2 T H E DISCOUNT R A T E  Once cost and  benefit  streams have  been  measured  in common units such as dollars,  SCBA attempts to make these different streams comparable by discounting future costs and benefits. Why should future costs and benefits be discounted? As Pearce (1983) notes, the reasons  for discounting arise from  preferences  the  value judgment  implicit  matter (see Chapter 5.1). Consumer preferences  in SCBA  that consumer  for discounting future impacts  are revealed through the existence of a positive rate of interest in the economy or may be assumed by the notion that people generally prefer current rather than future benefits (Pearce, 1983, p. 38).  In economic theory, there are two approaches for calculating a discount rate which reflect the two rationales given above for assigning a positive discount rate. The social opportunity cost of capital (SOCC) is the rate of interest that an alternative project would produce —  generally equivalent to some type of market rate (Pearce, 1983, p. 43). The  social rate of time preference trade present riskless  for future  government  (SRTP) represents the rate at which society is willing to  consumption —  bonds  (generally,  often assumed to equal the long-term rate on  see  Baumol,  1968;  ELUC,  1977;  Pearce,  1983;  Treasury Board Canada, 1976).  In theory, and in a perfect market, the SRTP and the SOCC should be equal. In reality, they differ. due to the  The SRTP may be lower than the SOCC for several reasons:  existence of tax which  increases the  must earn in order to achieve an after-tax  first,  rate (SOCC) which the private sector  return equal to the SRTP; second, because  government is less risky than the private sector, the government can get funds at a lower rate (see Pearce, 1983). Sen (1961) has  additionally suggested that the  SOCC  and  the  SRTP may not always be identical because of the isolation paradox, in which "individuals would  voluntarily  enter  into a  social  contract  committing them  to  increase  their total  60  savings, for the benefit of future generations, above the level they chose privately" (Warr and Wright, 1981, p. 129). This divergence between individual and social interests might suggest a SRTP lower than the SOCC. According to Baumol (1968), the SRTP should not be higher than the interest rate on riskless government bonds, but could be lower i f it was thought that society's perceptions with regard to future generations were myopic (i.e., resources were being consumed too rapidly, at a non-optimal rate). Fisher and (1975a) find that shadow pricing to reflect the scarcity of natural resources  Krutilla  is a more  direct way of dealing with myopic perceptions.  The existence of two different discount rates can be handled in several ways. For example, both the SOCC and SRTP could be estimated and both used to discount at a variety of rates, such as 5, 10 and 15 percent (Treasury Board Canada, 1976, p. 26). A n alternative would be to apply the benefits  (Pearce,  SOCC  1983). Costs would  be  and SRTP discounted  differentially by  the  borrowing (foregone private investment) and discounted by the  SOCC  to project costs and when  financed  by  SRTP when financed by  taxes (foregone consumption). Similarly, benefits accruing as cash flows would be discounted by the SOCC while all other benefits would be discounted by the SRTP (Pearce, 1983, p. 49). The use of a discount rate lower than the market rate is not accepted by all economists. Warr and Wright (1981) submit that the existence of the isolation paradox is a matter of individual judgment, and even i f such a paradox did exist, the  appropriate  discount rate to use is still the market rate of interest; discounting at a rate lower than the market rate would not create a welfare gain. Fisher and Krutilla (1975a, p. 370; see also Krutilla and Fisher, 1975, p. 64) claim that inefficiency  results if a discount rate  lower than the market rate is applied to public-sector projects. If this rate were applied to all projects in the public and private sectors, it might actually increase the rate at  61 which  exhaustible or  non-renewable  resources  were depleted  (see  also Scott, 1955  ?  pp.  120-1; for a statement to the opposite effect, see Pearce, 1976, p. 151). Because of the uncertainty surrounding the selection of an appropriate discount rate, many  analyses  discount  at  a  variety of  rates around  the  market  rate.  In  Lichfield's  Planning Balance Sheet, capital and operating costs are discounted at a market rate;  but  because Lichfield's use of PBS has involved little quantification of benefits in dollars, he has offered little guidance as to how he perceives PBS should approach the discounting dilemma. Hill should  be  (1973, p. 29) suggests  done  at  some  that discounting in the Goals Achievement Matrix  politically-determined rate  corresponding  to  social  objectives,  presumably the SRTP rather than at the market rate.  The advantage of using a market-derived discount rate is that it is more readily ascertainable judgment  than  the  SRTP.  Derivation  of the  SRTP  relies on  government  or social  Hufschmidt and Hyman (1982) note that government's time horizons may also  be myopic; it is partly for this reason Warr and Wright (1981) warn that public policy seldom  resembles  "the  form  of  all-embracing social  contract"  required to  resolve  isolation paradox and derive a SRTP. The disadvantage of using the market-based  the  SOCC  is that it changes over time in response to changes in the amount and distribution of real income, tastes and technological change. Whether the SOCC or SRTP is used, the use of a constant discount rate applied to distant future cost and benefit streams ignores the possibility of changing market rates or social time preference rates in the future. The practical result of applying any positive discount rate against future costs and benefits is to give less weight to future impacts in a cost-benefit calculation. Some critics dislike the implicit ethical assumption of discounting the preferences of future  generations  (e.g., McAllister, 1980; Pearce, 1983), while others counter that the use of a zero or low discount rate discriminates against present society by redistributing resources to a probably  62  wealthier future society (Baumol, 1968, p. 801). Several adjustments  to cost-benefit analysis  have been suggested to accommodate concern for future generations. Pearce (1983) suggests the use of an inter-generational compensation fund based on the premise of applying the Hicks-Kaldor criterion across generations as well as within current society. McAllister (1980, p. 112) would like to limit the use of discounting to "first-generation" costs and benefits, using a zero rate of interest for second and subsequent generation impacts.  4.3 RISK, U N C E R T A I N T Y A N D IRREVERSIBILITY  This section examines the  effects  of risk, uncertainty and irreversibility on project costs  and benefits. Risk is defined as a situation in which the range of possible outcomes is known, as are the probabilities associated with each outcome. Such probabilities would be objective  probabilities  based  on  past  experience  or  on  models  of  system  behavior.  Uncertainty is of two types: first, the range of possible outcomes may be known, but the probabilities associated with those outcomes are unknown (Pearce, 1983, p. 73); and second, neither the outcomes nor their probabilities are known. There are two methods for dealing with risk in evaluation. The first is to calculate the "expected values" of costs and benefits by multiplying the various outcomes by their probabilities and summing them. This approach assumes that individuals are risk-neutral; if individuals, or society, are risk-averse, the "certainty equivalent" of the uncertain costs and benefits must be derived by applying an individual or societal risk-utility function to the expected values (Pearce, 1983, p. 80). Because society's  risk-utility  function is difficult to observe, it becomes difficult to  calculate this certainty equivalent and resolve risk effects under conditions of risk aversion. Arrow and Lind (1970) have argued, however, that when there are many people across which to pool risks and projects are independent,  individual risk is reduced and society  63 may  be  perceived  Arrow-Lind  to  theorem  pollution —  be  risk-neutral.  if they  are  in the  Environmental risks form  are  an  of public goods —  exception or  bads,  to  the  such  as  in which case the risk to a particular group is not reduced by "spreading"  the risk over a larger group (Fisher and Krutilla, 1975b; Pearce, 1983; Price, 1984). Noise, for example, is a public good but its detrimental effects on a region will not be reduced as the population increases; "consumption" of noise by one individual does not reduce the amount left for others to consume. It is in this sense that certain risks cannot be pooled.  Because  prediction  of  many  uncertainty than by risk, methods for  evaluation techniques.  range  of outcomes and  certainty  equivalent,  environmental  impacts  is  characterized  for dealing with uncertainty may be more  When uncertainty exists, it becomes  the  probabilities of  those  outcomes  are  by  appropriate  impossible to reduce  probabilities to a single figure, such as the  because  more  the  expected value or not  known. For  example, an analyst might determine that individuals may be willing to pay between $16 and $24 to use a provincial park, but he would not know the probability associated with any of these values. Alternatively, the analyst might not be able to identify any possible amounts that individuals would be willing to pay. There are several ways in which uncertainty can be reflected in evaluation. The first method is to develop subjective probability estimates based on the educated guesses of  experts. Using  these subjective probabilities an analyst could treat uncertainty in the  same way as risk. Secondly, an analyst could conduct sensitivity analyses by examining the effect of different WTP measures on the cost-benefit calculations. A third method might be to add a risk premium to the discount rate. Pearce (1983) and Price (1984) note that when the  uncertainty  is related to costs, the risk premium may create more optimistic  results rather than more conservative ones and the premium may impose an inappropriate time path on risk.  64 All  of these methods  for reflecting risk and uncertainty in an evaluation accept  either WTP or WTS measures as the basis for evaluation. Recent work by Gallagher and Smith (1985) suggests that the valuation of environmental uncertainties using conventional WTP  or  changes  WTS measures differently than  may  be  inappropriate  uncertain changes  because  individuals  in resources  may  when they are  value certain also faced with  limited opportunities to insure themselves against this uncertainty. If individuals have access to fair  markets  somewhere  to allocate risk, the valuation of an  between  the  WTP and  WTS estimates.  environmental uncertainty will lie  However when  valuing  non-market  resources, fair markets for contingent claims may not exist (Gallagher and Smith, 1985, p. 141).  When  fair  markets do not exist, an individual's valuation need not fall  between  WTP and WTS estimates. Instead, the correct measure would be . . . the change in an individual's income that would be required to maintain a given level of expected utility as the probability distribution associated with the availability of the amenity services changes. The magnitude of this income change, or what we will refer to as an access value, depends on the opportunities available to the individual for allocating income among claims to the states of nature at risk (Gallagher and Smith, 1985, p. 136). The  implication of this finding  for evaluation is to force a reconsideration of the way  WTP or WTS methods are used for valuing changes in uncertain environmental resouces. Risk and uncertainty may relate to economic, technological, social or environmental parameters. for  A special type of environmental parameter  which has interesting implications  evaluation is the concept of irreversibility (an action infinitely  costly to reverse and  whose authenticity of reversal is questionable) (Fisher and Krutilla, 1975b; Pearce, 1983). For  example, once a dam has been constructed it could be torn down at great cost, but  the likelihood that the Fisher  and  Krutilla  natural environment can return  (1975b, p.  278) state  that  to its original state is doubtful.  scientific,  ethical, religious or  aesthetic  65  concerns might create a highly inelastic demand for "original" environments. Because  irreversible decisions reduce  bequest and existence Fisher,  1974;  values might be  Fisher and  Krutilla,  our  seen  future  options,  as premiums  1975b). The  use  the  concepts  for risk bearing  of option  values  of option, (Arrow  when irreversible  decisions are involved would increase preservation benefits, thus reducing the net of  a  development  project  Irreversible  decisions  would  then  affect  and  projects  benefits  by  either  decreasing the probability that the entire area in question would be developed, or reducing the amount of the area that would be developed (Arrow and Fisher, 1974). Cicchetti and Freeman  (1971)  implying  that  have option  shown value  that could  option  value  simulate  the  is  positive  effects  for  of  risk-averse individuals,  irreversibility in  evaluation  techniques under conditions of risk-aversion.  The problem with the option value approach is that it is designed to reflect the loss of individual benefits in the future that are derived from environmental systems, but it is not related directly to the effect of changing environmental parameters on costs and benefits. Reliance on the option value approach alone would be insufficient as it would not foster increased understanding of environmental systems and could seriously misstate the nature of environmental uncertainty.  Fisher  and  Krutilla  (1975b)  explore  the  effects  of  changing discount rates on projects with irreversible effects.  changing  preferences  Their arguments  and  support  the  conservative estimates derived from including option values. If discount rates change in the future,  it is possible that a decision-maker might want to revise his original "optimal"  decision. Similarly, if preferences less than  they  might wish the  were  in the  original  would be for future  change in the future such that some effects are valued  original society that made  the  decision to be altered. The result  decision, the of both  future  society  of these situations  decision-makers to wish they could go back in time and pay some  66 amount  to the  original  decision-makers  to prevent  them  from  undertaking  a particular  project. Fisher and Krutilla (1975b, p. 288) argue that the optimal (irreversibly) committments conclusion is magnitude of over time.  committment of resources to activities that are destructive of the environment is smaller than to activities whose consequences are reversible. This strengthened if there is uncertainty as to the the consequences, and inconsistency in their evaluation  Viscusi (1985) has also shown that optimal investment decisions might be uncertain if the occurrence of an irreversibility is uncertain. However, he points out that there is no simple rule-of-thumb  which  says  that  investment  decisions must  necessarily  change  when certain or uncertain irreversibility exists. The effect of an irreversible decision will depend upon the probability of the irreversibility, the likelihood that future preferences will change, and the weight that current society places on future  preferences.  67 CHAPTER 5 V A L U E JUDGMENTS  A N D ETHICAL  IN SOCIAL COST-BENEFIT  Social  cost-benefit  analysis is  economists,  government  assumptions  implicit in the  a  normative  administrators  and  cost-benefit  ANALYSIS  procedure,  the  FRAMEWORKS  a  public. This  methodology and  fact  too  chapter  easily  forgotten  explores the  illustrates how  by  ethical  different  value  judgments and ethical frameworks affect social cost-benefit analysis. 5.1 V A L U E J U D G M E N T S The  normative  IN SCBA  aspects of social cost-benefit  analysis can be analyzed by outlining the  value judgments required in the cost-benefit methodology. Nash et al. (1975) and Pearce (1976, 1983) have identified two value judgments which must be made: that count  and  that these preferences  must  be  preferences  weighted The first value judgment  requires  considering whose preferences should count and when those preferences should be included. The  types of preferences that should be included (also part of this first value judgment)  will  be discussed separately  The  second value judgment requires an analyst or decision-maker to make a statement  in the following  section on moral frameworks (Section 5.2).  about how individual preferences will be weighted and aggregated.  5.1.1 Value Judgment #1: Preferences Count Whose Preferences: A social cost-benefit analysis attempts to include the preferences of all individuals in society. Welfare economics is based on an assumption that general social welfare  is  the  proper  focus  of  public  policy  decisions  (Krutilla,  1961,  pp.  According to this conception of social welfare, "only benefits to man matter" 1979,  226-7). (Abelson,  p. 39). In SCBA, values attached to the environment are normally included in an  68 analysis only insofar as they have instrumental value: "values attached to the environment in its own right and without reference to human use . . . are normally ignored in C B A " (Abelson, 1979, p. 38). A n objective with instrumental value is desired for its contribution to some supraordinate objective or goal, such as human happiness or welfare, while an objective with independent religious principle. preferences  Social  value is legitimate in its own right, such as an ethical or cost-benefit  analysis therefore  does  not  attempt  to  determine  not associated with people, such as the preferences of plants and non-human  animal life.  It is possible that the preferences  of some individuals might be excluded from a  social cost-benefit analysis. For example, McAllister (1980) states that children, the mentally ill  and the senile might not be considered in a decision. Hurter et al. (1982, p. 91)  imply that those not directly affected  by a project, who suffer  only some psychological  disbenefit, should not be included in project  evaluation. These exceptions are not widely  accepted  with  and  preferences  may  count  in  fact  be  inconsistent  Nash et al. (1975) claim  the  value  judgment  that  individual  that accepting individual preferences  as  the  basis for evaluation implies accepting the preferences of all individuals. Krutilla (1961) also states that cost-benefit rather  than on  analysis should  focus  on the  "personal or specially interested  general welfare of all individuals  clients" (see  also Winch,  1971, p. 13).  Tribe (1972, p. 41) warns that there is a risk of excluding those preferences  "too widely  diffused over space (or too incrementally affected over time) to be strongly championed by any single client of a policy analyst"  Although some project impacts might last for 20 or 30 (or more) years — therefore affect more than one generation —  and  a SCBA measures the preferences of current  generations only (Dasgupta and Pearce, 1972; Tribe, 1972). To acknowledge the preferences of future generations, one must have access to knowledge of what future preferences might  69 be, hypothesize what they might be, or assume that future generations will have preference structures similar to the present. Even using this latter assumption, discounting future costs and  benefits  will  give  less  weight  to  those  future  preferences.  The  suggestions  for  discounting given by McAllister (1980) and Pearce (1983), discussed in Section 4.2, are modifications that try to take into account the possibility of changing preferences  in the  future.  When to  include individual preferences:  There  may  be  situations  in  which  it  is  "theoretically" appropriate to exclude individual preferences in a social cost-benefit analysis. For  example, the existence of public or collective goods in a competitive economy often  results in an undersupply of such goods by private markets (Gramlich, 1981, p. 19). Public goods are characterized by non-excludability and non-rivalry of consumption (Pearce, 1976, p.  20). Non-excludability means that the  goods, i f made  available to one person,  are  available to all persons. Non-rivalry of consumption means that consumption of a public good by one individual does not make less of that good available for other individuals. An  example of a public good is national defence, while an example of a public "bad"  would be pollution. Government intervention to increase the production of these goods (or limit them in the case of pollution) is undertaken not to override individual but to correct a market failure which  prevents  individual  preferences  from  preferences being  fully  reflected in market activity. 5.1.2 Value Judgment #2: Preferences must be weighted Preferences must be weighted in order to be aggregated in some meaningful way. Several possible methods for weighting preferences  have been put  forward: the Pareto principle,  the Hicks-Kaldor rule, utility weights, WTS and WTP, market voting, and the management science approach (see Nash et al., 1975). The approach underlying these methods  is to  gauge the intensity of individuals' preferences, unlike simple voting mechanisms which give  70 equal weight to the preferences of all individuals.  The Pareto principle was derived from Vilfredo Pareto (1848-1923) and says that for one project to be better than another, at least one person must be made better off and no one made worse off. This would mean that no project which resulted in a net cost to any one person would be undertaken.  Because almost all projects impose some  costs on some individuals, this rule is a very strict one. In the 1930s, two economists, Hicks  and  Kaldor,  developed  a  modification  of  the  Pareto  principle,  called  the  Hicks-Kaldor rule, in which the sum of benefits to beneficiaries of a project must exceed the sum of costs to losers for that project to be acceptable. This is also known as the "compensation test," whereby winners could compensate losers but need not actually do so. Welfare economics, and social cost-benefit analysis, is based on the Hicks-Kaldor rule.  The  Hicks-Kaldor rule relies  on measuring  the strength  of preference  of all  individuals affected by a project by calculating each individual's WTP (or sometimes WTS) to avoid a cost or obtain a benefit The W T P method relies on the prices of goods and services in the marketplace as estimates of WTP. Because these prices reflect the existing distribution of income (see Krutilla, 1961), use of the Hicks-Kaldor rule involves making a  value judgment  "that the distribution of income used to weight the preferences of  individuals is in some sense the best one" (Pearce, 1983, p. 6). The WTP method, based on the concept of consumer sovereignty, has been criticized for the simple but significant fact  that an individual's WTP is constrained by his income, creating  what  some  have  called a "dollar democracy" (Krutilla, 1961; Foster, 1966) in which the individual's "vote" in the social welfare function is weighted by his income.  The use of value judgment reflects  consumer  preferences  based  #2  might result in a social cost-benefit analysis that  on income levels rather  than  individual  preferences  irrespective of income. Some economists argue that this becomes a problem only i f the  71 existing distribution of income is not viewed as ideal by society. If it is optimal,- they argue, then it is legitimate to. have preferences remain  unpalatable  distribution  in  to  SCBA  some could  because be  to  the  constrained by income. This claim  practical result  continue  to  make  of  reflecting  the  poor  will  even  an  ideal  off  as  their  worse  preferences have less weight than the preferences of the wealthy (e.g., Pearce, 1983, p. 7).  An rather  than  alternative measure of, individual preferences willingness-to-pay. The  is based upon willingness-to-sell  willingness-to-sell  (WTS) approach  income effect of WTP by asking individuals what they would be willing compensation for giving up a right rather receive or maintain a right cost-benefit  be  limited  to  situations  the  to receive in  than what they would be willing-to-pay  As discussed in Section 4.1.2, the  analysis seems to  overcomes  to  use of WTS in social  in which  the  cost  or  benefit  received by an individual affects something to which he has a right. This highlights an additional normative proposition in social that valuations should reflect the  existing -distribution of property  cost-benefit  analysis  rights (Dasgupta and  Pearce, 1972). Property rights present a relatively unambiguous interpretation of rights that inhere with an individual; more controversial are individual rights to clean air or water, usually  evaluated  with  WTP measures  as  if they  were  not  rights  individuals. Tribe (1976, p. 66) argues that some rights, such as breathe,  belong  historically  "to  a part  the  individual  of the  person  because that  he  the  the  that  belonged  to  right to see  or  capacity it embodies is organically and  is and not  for  any  purely contingent  and  essentially managerial reason." Ultimately, the decision to use WTS figures requires a value judgment about the types of rights which society is willing to grant to an individual.  Utility weights may be used to weight WTP figures i f the distribution of income in society is not optimal. These weights provide a more "pure" measure of the intensity of an individual's preference which is not affected by income levels. Equity weights may  72 be  combined with  utility  weights, making a value judgment  about  a socially  desirable  distribution of utility. However, as Nash et al. (1975, p. 128) note, there is "nothing necessarily fair or democratic in such an approach."  What Nash et al. (1975) call the Market Voting principle is a weighting scheme designed to measure strength of preference, or WTP, as if every individual had the same income. In the Democratic Strength benefits, other than  financial  of Preference  rule (Foster, 1966), social costs and  flows, would be weighted by the ratio of mean population  income to the income per head. This approach would measure strength of preference and equalize  the income  constraint  by scaling down  the WTP measures  of high income  individuals while scaling up the W T P measures for low income individuals.  Finally, Nash et al. (1975) suggest a Management Science approach to weighting in which W T P weights would be derived from the weights implicit in past policy decisions. Use of this approach  is based  on an assumption that past policy decisions have  been  optimal and that they are consistent (see also Weisbrod, 1968). In  summary,  these  value  judgments  emphasize  the normative  nature  of social  cost-benefit analysis and reveal that it is not a value-free or impartial process. Different analyses will result when different value judgments are used. Copp and Levy (1982) and Self (1975) have additionally shown that cost-benefit analysis is not value-free or impartial by looking at the theory of cost-benefit analysis as part of the theories of rational and moral choice. In essence,  their  argument  states that social  cost-benefit  analysis, in its  pursuit of objectives such as economic efficiency, is part of the theory of rational choice and therefore other  part of value theory (Copp and Levy, 1982, p. 165; Self, 1975, p. 9). In  words, objectives  are defined  in order  cannot' be "rational" without some reference  to achieve certain values or goals;  they  to values (Winch, 1971, p. 25). If a social  welfare function cannot be defined, then social values are just as ambiguous. The dilemma  73 is  to decide whose  values to use. Our inability to solve this dilemma means analyses  based on different values have some claims to validity.  Copp and Levy also argue that, in cases such as the Prisoner's Dilemma where individual utility maximization does not lead to a collective utility maximum, the concept of rationality as utility-maximizing behavior is questionable (1982, p. 165). Garrett Hardin's (1968) "tragedy of the commons" is a typical example of a Prisoner's Dilemma. In the tragedy  of the commons, individuals making rational decisions in their own  self-interest  bring about a collective disaster because long-term collective costs have been ignored (see also Messick and  Brewer, 1983; Schelling, 1978). The  because social cost-benefit  following  section will  show that,  analysis relies on utilitarian principles, it is also part of the  theory of moral choice and therefore  also part of value theory (Copp and Levy, 1982, p.  165). 5.2 ETHICAL F R A M E W O R K S  IN SCBA  Can analysis simultaneously accommodate different ethical frameworks or does analysis vary with the ethical framework adopted? According to Pearce (1983), value judgment  #1  (that  preferences count) involves deciding which preferences should be included in an analysis. If all  types  of preferences  can  be  included, then  a  decision process  would  be ethically  neutral; if analysis varies with the ethical framework chosen, it is not ethically neutral. Social cost-benefit  analysis is not ethically neutral. It is based upon a particular  type of moral principle called utilitarianism. Utilitarianism moral principle which "appraise[s] expected  to  produce"  (Copp  is a  form of consequentialist  actions on the basis of the consequences  and  Levy,  1982,  p.  167).  There  are  they can be  two  types  of  consequentialist moral principles: maximizing (or utilitarian) and non-maximizing. Maximizing consequentialist  principles, or  utilitarian principles, would  accept  projects  in which  good  7  consequences  outweighed  Hicks-Kaldor  rule used  bad  ones.  This  in cost-benefit  is  clearly  the  principle  upon  which  4  the  analysis is based. Non-maximizing consequentialist  principles are based on the same concept but include the notion of a threshold of harm, "such that, if an action's consequences exceed that threshold, then it would be wrong, and no amount  of good would tip the  words, if costs magnitude  exceed  of the  some  balance"  level, a project  total benefits.  In contrast,  (Copp and Levy, 1982, p. 168). In would not be accepted  regardless  other of  the  non-consequentialist moral principles do not  judge actions based on a weighting of their good and bad consequences, but instead deem certain actions right or wrong for their intrinsic nature. For example, some people might feel it is morally wrong to kill seals (but not cattle) or to develop nuclear energy.  Because non-maximizing and  Levy,  is  based  consequentialist  on  utilitarianism,  principles or  it  is  not  well  non-consequentialist  suited  to  reflect  moral principles (Copp  1982). At best, non-utilitarian moral principles can be included in a social  cost-benefit benefits  SCBA  analysis  implies  consequences;  that  only  as  people  constraints are  willing  or to  qualitative make  factors.  trade-offs  The  calculation of  between  good  and  net bad  individuals holding non-consequentialist principles might be unwilling to make  certain trade-offs.  Clearly, social  cost-benefit  analysis is not  ethically neutral  because it favors  the  views of individuals with maximizing consequentialist principles (see Copp and Levy, 1982, p. 168). Welfare economics is "a branch of ethics" based on utilitarian principles (Little, 1957, p. 8). But welfare  economics is not the  only discipline that requires  ethical or  normative claims. As Tribe (1976, p. 65) points out, some of the ethical dilemmas that arise with intangibles do not reflect "any intrinsic weakness of the analytic methodology as applied to non-monetizable incommensurables —  values, but rather the universal difficulty  of choosing among  a difficulty that can be obscured but never wholly eliminated by any  75 method of decision making."  The effect of different moral frameworks on SCBA is illustrated in a recent study by  Schulze and Kneese  sometimes  (1981).  irreversible consequences  Many  environmental  externalities  for which compensation  is never  have  long-term and  given. Schulze and  Kneese explore the implications of different ethical frameworks on the acceptability of such uncompensated  risk by showing how results  of SCBA  differ  according to the ethical  framework chosen. A typical example would be the risk of dam failure, which is not only an uncompensated  risk but one rarely included in cost-benefit  al., 1980). By applying distributional weights to reflect different and  Kneese  (1981,  p.  86) derive  the  following  cost-benefit analysis would accept uncompensated  results:  calculations (see Baecher et ethical principles, Schulze where  a  utilitarian-based  risk regardless of individuals' incomes, a  utilitarian ethic adjusted for income and an egalitarian ethic would reject  uncompensated  risk on those with lower incomes, while an elitist ethic would reject uncompensated risk imposed  on those  uncompensated  with  higher  incomes,  and a  libertarian ethic would  risk. Furthermore, traditional social cost-benefit  reject all  analysis would not protect  individual rights against majority rule, while such rights would be protected in egalitarian, elitist, libertarian and income-adjusted  utilitarian ethical systems (Schulze and Kneese, 1981,  p. 88).  Several authors have  suggested  that too much blame  moral principles should not be attached  for the neglect of certain  to the utilitarian concept  underlying evaluation.  Tribe (1976) has noted that SCBA's reliance on maximizing utilitarian principles does not necessarily force a narrow conception of social welfare based only on evaluating impacts on humans. According to Tribe (1976, pp. 70-1), "Such utilitarian philosophers as Bentham [perceived]  human obligations as extending to all entities capable of experiencing pleasure  and pain." Dorfman (1976, p. 162) has also pointed out that the utilitarian J.S. Mill  76 recognized that "social policy must be informed by higher moral purpose."  In the -words  of Mill, himself, We may consider, then, as one criterion of goodness of a government, the degree in which it tends to increase the sum of good qualities [moral and intellectual] in the governed, collectively and individually; since, besides that their well-being is the sole object of government, their good qualities supply the moving force which works the machinery (p. 337).  Brooks (1976) suggests that by broadening our definition of utilitarianism by increasing our concern  for  the  natural  environment,  incorporated in an analysis. In effect,  a  wider  variety  of  moral  principles  this involves creating surrogate markets  might for  be  values  not normally expressed in a competitive marketplace: "We can go a long way, at least in principle i f not in practice, in treating nature like any other  economic investment  for a  future stream of economic benefits" (Brooks, 1976, p. 121) 5.3 V A L U E J U D G M E N T S  A N D ANALYSIS  This analysis of value judgments welfare social  economics assumes the welfare  the  proper  basis  for government  of all individuals in society rather than  bureaucrats or special interest on  implicit in social cost-benefit  preferences  the  analysis has shown that  decision-making to be welfare  of decision-makers,  groups. As a result, a social cost-benefit  of individuals in society, and these preferences  the  analysis is based  must  be capable of  being expressed in economic markets. Because SCBA is based on utilitarian principles, the preferences  of individuals who hold non-utilitarian principles might be excluded from the  analysis. Similarly, individual preferences in  a paternalistic  manner  might be ignored if a government  wishes to act  toward certain individuals. A social cost-benefit  analysis might  weight or measure preferences distribution  of  income  individual's  ability to  based  in society pay,  they  on income levels and may often  is optimal. While could be  weighted  preferences in some  are manner  assume that constrained to  reflect  the  by an social  77 judgments about the deservingness or social worth of the preferences of certain individuals. And finally, preferences are aggregated on the basis of total costs and benefits to society rather than on the number of individuals suffering costs or benefits — total benefits must exceed  total  costs,  but the number of people  receiving  benefits  need  not exceed the  number of people suffering costs.  The purpose of highlighting these value judgments is not to condemn analysis because  of them. As Pearce (1983) notes,  value judgments  cost-benefit  must be made about  which preferences to count and how they will be weighted. But, If we remember that value judgements are inescapable in reaching policy decisions and that such value judgements can themselves be argued about, C B A can be an extremely useful tool of decision-making. For by making such judgements explicit and, as far as possible, spelling them out in precise quantitative terms, it makes clear thinking about policy matters possible" (Dasgupta and Pearce, 1972, p. 93). This  arguing over  government projects.  value  judgments  is often  at the heart  of the conflict  over major  78 CHAPTER 6 POLITICS AND  The  preceding  chapters  have  SOCIAL COST-BENEFIT ANALYSIS  explored  the  problems  encountered  when  using  social  cost-benefit analysis to make decisions about projects. But, such decisions are not made on the basis of social cost-benefit analysis alone. Probably everyone can recall an instance in which a government made a decision that appeared inconsistent with the rational analysis of  SCBA.  Yet,  irrational; it may SCBA and  this  does  simply  not  necessarily  indicate that there  other types of costs and  convenience, we explores how  can  imply  that  government  decision-making  is  is another type of rationality than that of  benefits that are important to decision-makers. For  call this other type of rationality political rationality. This  chapter  political factors affect project evaluation.  Hilsman (1967) has identified three characteristics which describe decision-making in a political environment: 1. 2. 3.  The definition,  a diversity of goals and values that must be reconciled before a decision can be reached; the presence of competing clusters of people within the main group who are identified with each of the alternative goals and policies; and the relative power of these different groups of people involved is as relevant to the final decision as the appeal of the goals they seek or the cogency and wisdom of their arguments (pp. 553-555).  previous chapters have suggested how in  their objectives  and  in  the  individuals might differ in their problem  alternatives  they  prefer.  But  groups  and  individuals in a political world also differ in their power to promote and implement their preferred review  of  solved by  decisions. This a  characteristic has  important implications for the preparation  social cost-benefit analysis. In  essence, it suggests that problems are  and not  rational analysis alone, or at least not by the types of rationality embedded in  79 social cost-benefit analysis; problems are solved to some extent by analysis and to some extent by the power and influence of groups to implement their chosen solutions based on their  individual  or  group  desires.  In  this  political  environment  "the  roles  of  such  'u«rational' procedures as bargaining also become more clear" (Hilsman, 1967, p. 55).  Bargaining  is  as  much  a  part  of  decision-making as  government decision-making. Dorcey (1986, pp. 1-2)  of  any  other  arena  of  suggests several events that might be  taking place on any given day that affect environmental resources. - The Prime Minister is meeting in Ottawa with representatives of the native Indians to agree on an agenda for negotiation of their marine resource claims. - The federal Minister of Fisheries and Oceans is finalizing an agreement with the provincial Minister of the Environment on the cost-sharing arrangements for salmonid enhancement projects. - The federal Minister of the Environment is having lunch with the Chairman of the Board of an oil company to discuss their application for permission to begin offshore exploration. - Members of the provincial government caucus are meeting with a group of people who plan to develop a coastal island as an international resort - A group of forestry company executives are reviewing their strategy for obtaining increased stumpage allowances from the provincial government and faster approvals from the federal Department of Fisheries and Oceans. - A municipal council is arguing over the industrial rezoning of waterfront lands for a marina and fish-processing plant - A n environmental interest group is holding a press conference to release a report and a slide show on the pollution of an estuary and identifying the discharges that are violating permit conditions. - Two scientists are discussing how the results of their laboratory studies can best be used in an upcoming court case. - Beside a stream a federal fisheries biologist is talking to a forest manager, who is asking to be allowed to build his road where it is planned if he agrees to put a road further up the hillside in the next drainage he logs.  80 The rationality  outcome but  also  of bargaining by  political  is  not  rationality.  decided  solely  by technical  Political rationality is  or  economic  concerned  with  "maintaining or enhancing the powers of the group or individual making the decisions" (Hollick,  1981a, p. 69). In contrast,  the rationality  of social  cost-benefit  analysis and  environmental impact assessment is based on technical and economic rationality. Assuming a set of objectives exists, technical rationality involves "the selection of means to achieve a given end" (Hollick, 1981a, p. 66), or generating alternatives. Economic rationality involves "allocating scarce resources between alternative ends in order to achieve the greatest total benefit"  (p. 67), or evaluating alternatives.  Bargaining, which is really another  word for  political rationality, is not "unrational" as Hilsman put it, but rational in a very different way. This chapter will explore the effects of political rationality on the operation of social cost-benefit analysis. Organizing Concepts Allison  (1971)  has advanced  some  organizing concepts  which  can be used  to  analyze a political decision-making situation. These concepts can be reduced to two major issues (pp. 164-173): 1.  What is the game? a. what are the action-channels, or points of access, for various groups and individuals, and b. what are the rules of the game?  2.  Who plays the game and how can they be differentiated? a. what is their perception of the problem, b. what are their goals, c. what are their positions or roles, and d. what power do they have?  81 According to this framework, the actors in a political decision-making process will differ  in four fundamental  ways: (i) goals; (ii) roles in the policy process; (iii) power;  and (iv) opportunities for access to the policy process. Actors will also differ according to their perceptions, but  those perceptions  can only  be defined in the context of specific  situations. The following sections will characterize the actors in a decision-making process according  to  the  four  achieved.  Section 6.1  parameters will  identified. To  describe  the  "game"  do of  this, several  tasks  must  decision-making in the  first  be  context of  public-sector project evaluation, and Section 6.2 will develop a framework of the types of groups involved in the  assessment of public-sector projects. The goals, roles, power and  access points for these groups will then be addressed in Section 6.3. Finally, the impact that political environments have on social cost-benefit analysis will be explored in Section 6.4.  6.1 T H E D E C I S I O N - M A K I N G PROCESS In  government,  decision-making takes place in a  variety of different  environments  and  under a variety of different rules. Allison (1967) characterizes these environments according to  (i)  "action-channels,"  the  nature  of the  formal or  informal  environment  in  which  decisions are made, and (ii) "rules of the game," or behaviour that constitutes appropriate action. The decision-making environment for approving large public-sector projects is often a  formal,  highly  structured  environment,  but  it  also contains  many  informal  and  less  structured elements. For example, rules concerning the conduct and review of SCBAs may be  embedded  directives Within  such these  procedures  in legislation such as  the  formal  operate.  federal  the  B.C. Utilities Commission  government's  legislative  Ministerial  as  or  policy  discretion  may  environmental contexts, exist  assessment  many over  informal  whether  a  Act, or  in policy  review guidelines. and  discretionary  social  cost-benefit  analysis should be done, or an analyst might have discretion over how it should be done.  82 Generally, the preparation of a SCBA is subject to less formality than its review. Procedures for conducting SCBAs and assessing them vary according to province, jurisdiction, and type of project or policy. The process applying to energy developments in British Columbia, the Utilities Commission Act (SBC 1980, C h . 60), has been selected for a more detailed examination.  The  use of social  cost-benefit  analysis in British  Columbia  is a  fairly  recent  addition to government decision-making, at least in the area of energy developments. Prior to  1980, decisions to build  hydroelectric projects  were  proposed  by B.C. Hydro and  evaluated through an internal government review process as part of the B.C. Water Act (RSBC  1979, c.429). This  licence  required  evaluation consisted of determining whether  for the hydroelectric development  or not a water  should be granted.  While  informal  evaluation procedures may have considered questions of supply and demand as well as environmental and social impacts, such questions were not central or even necessarily part of the decision to grant a water licence. Under the Water Act, water licences and permits were granted primarily on the basis of available water supply, and written objections to the project could be filed with the provincial Comptroller of Water Rights.  The Utilities Commission Act was enacted in the provincial legislature in 1980. The Act  established  the  B.C. Utilities  responsibilities the review of major  Commission  (BCUC)  energy projects,  which  including  has  as  one  of its  hydroelectric developments  proposed by a public utility. The review process (see Figure 1) begins with the application for  an Energy Project Certificate by the project  proponent  for a specific hydroelectric  development A government committee, the Energy Project Coordinating Committee (EPCC), directs the preparation of appropriate impact studies and a social cost-benefit analysis by attempting  to ensure  that  adequate  information is generated  by the proponent  involvement may occur at this stage at the discretion of the proponent  Public  FIGURE 1 THE PROJECT REVIEW PROCESS OF THE B.C. UTILITIES COMMISSION ACT  Proponent applies for Energy Project Certificate  *  Energy Project Coordinating Committee directs Proponent to prepare Impact Statements and Social Cost-Benefit Analysis  EPCC makes recommendation on hearing  £  no public hearing recommended  public hearing is recommended  I  Ministers of Energy and Environment make joint recommendation on hearing  £  hearing is waived  hearing is required  B.C. Utilities Commission conducts hearing  B.C.U.C. makes recommendation on project  £  Final decision on Energy Project Certificate application made by Provincial Cabinet  Source: derived from Thompson et al., 1981  84 Once completed  the  by  appropriate  the  impact  proponent,  the  statements  EPCC  makes  and  cost-benefit  document  a  recommendation  to  the  have  been  Minister of  Environment and the Minister of Energy, Mines and Petroleum Resources concerning the disposition  of  the  Energy  Project  Certificate  application.  The  EPCC  will  recommend  whether a public hearing should be held and would draft the terms of reference  for the  hearing. The two Ministers then jointly make a recommendation on the disposition of the application by recommending or waiving ,the public hearing requirement and approving the terms of reference for a public hearing, if applicable.  If the public hearing is waived, the application is then referred  to the provincial  Cabinet for a final decision. If a hearing is required, the reports and terms of reference are forwarded to the B.C. Utilities Commission which  is responsible  for conducting  the  public hearing and producing a final report in line with the guidelines in the terms of reference. The Commission's report, when completed, is then given to the Cabinet for a final  decision;  decides  if and  Cabinet when  either to  accepts  make  the  or  rejects  the  Commission's recommendations  Commission's report  public (for  a  more  and  detailed  description, see Thompson et al., 1981; Utilities Commission Act, SBC 1980, c.60). 6.2 T H E ACTORS IN T H E D E C I S I O N - M A K I N G  PROCESS  How can we characterize the types of individuals and groups that become involved in the review of large public-sector  projects?  Allison  (1967),  based  on  the  work  of  Almond  (1950), suggests four groups that are commonly involved in government decision-making, each group a subset of the  one preceding it: (i) the  general public, (ii) the  public, (iii) the policy and opinion elites, and (iv) the official 2).  attentive  policy leadership (see Figure  FIGURE 2 THE ACTORS IN DECISION-MAKING  OFFICIAL POLICY LEADERSHIP - Cabinet Opposition  POLICY AND OPINION ELITES government review agency other government agencies public sector proponent ^ private sector proponent  ATTENTIVE PUBLIC LOCAL - business interests (Chambers of Commerce, local governments, local businessmen) - labour interests (union locals, unemployment action centres) - environmental groups - native Indian bands  i  REGIONAL - business interests (business councils, manufacturers associations, consumer groups) - labour interests (union headquarters) - environmental groups - native Indian Tribal Councils - research organizations  GENERAL PUBLIC - voters - newspaper readers - general public  j  86  The  official policy leadership consists  of  politicians,  including  the  elected  representatives that form the Cabinet and those that make up the Opposition. Under the Utilities Commission Act, the chairman recommendations provincial  only;  of the Commission  has the power  the final decision concerning an energy  project  Cabinet, However, the Commission, as well as other  to make  is made  government  by the  departments,  agencies and crown corporations, are part of the policy and opinion elites. These groups provide advice and information to the policy leadership. The project proponent, who is a private-sector firm or public-sector agency responsible for constructing the project, is also one of the policy elites because of its specialized knowledge. The policy and opinion elites include  review agencies, other  government  agencies  that support  or oppose  a particular  project, and project proponents.  The attentive public consists of interest groups. The types of interest groups that become involved will depend largely on the nature of the project in question and on the significant issues that might result from  it. If the project  is a hydroelectric dam, these  groups might be differentiated by their base of support, whether local or regional (Figure 2). Local interest groups which might become involved in the assessment of a hydroelectric project  are business  interests,  labour  interests,  environmental  groups,  and native  Indian  bands. Regional interest groups might also include business groups, labour unions, national or  international  environmental groups,  native  Indian  tribal  councils, as well  as research  groups. The fourth type of group involved is the general public. These are the citizenry at large, voters, casual newspaper readers, etc. The interest groups and general public can also be differentiated according to the positions they take: they might be in favour of a project, against it, or undecided. For a hydroelectric dam proposal, the groups might be divided along the following lines. Those  87 tending  to be  labour  in favour of the  groups  as  well  as  project could include local and regional business and  certain  business  research  groups.  Those  more  likely  to  be  opposed to the project might be members of local and regional environmental and native groups as well as regional research organizations. Members of the general public would likely have a range of positions.  Willard and Swenson (1984) suggest categorizing these interest groups not by the positions they take but by the magnitude of gains and losses each will experience as a result of the project.  Hydroelectric dams constructed  in remote  regions frequently incur  significant local costs in terms of environmental disruption. Comparable regional costs often do not occur. The benefits of the project often flow out of the local area to large urban or  industrial centres where hydroelectric power is required. Local areas may benefit from  construction jobs (although many workers may be brought in from from  businesses  regions will  that  these construction jobs  generate.  regional centres)  However, it is likely  that  experience larger costs of a long-term nature, while their benefits  will  or  local be  short-term. Regional areas will suffer fewer costs but receive significant long-term benefits.  Table IV identifies the magnitude of costs and benefits associated with local and regional interest groups. Of all interest groups involved in the assessment and review of a hydroelectric dam project, it is probably local groups that experience relatively large losses, as  they  make  groups which increased  greater  of the  receive large benefits  business  depending on the groups  use  and  employment  environmental resources affected from  the construction of the  opportunities  might  be  in  by the  dam. Local  dam in the favour  of  the  form of project,  exact magnitude of gains and losses they receive. Local and regional  that receive less benefit, or place less value on such benefit, relative to their  losses will more likely be opposed to the project  T A B L E IV CHARACTERIZING INTEREST GROUPS B Y GAINS A N D LOSSES  SIZE OF GAIN  Large SIZE  Large  Small  PRO LOCAL  CON LOCAL  - local businesses  - environmental groups  - labour groups  - native Indian groups  PRO REGIONAL  CON REGIONAL  - business groups  - environmental groups  - labour groups  - native Indian councils  - research groups  - research groups  OF LOSS Small  89 Regional groups will probably experience fewer losses than local groups because the environmental resources affected by the project will be more distant and they will have a wider range of alternative environmental resources closer at hand. They may also benefit from the project because of employment opportunities or the hydroelectricity provided. The regional proponents are therefore placed in quadrant 4 of the matrix.  This definition of groups will vary by the type of project under the  specific costs  and  benefits  that arise. In another  context, a  evaluation and  different  definition of  groups might be more appropriate. However, for the purposes of this paper it is sufficient to  begin with  this fairly  major actors — according  to  simple approach. The following  politicians, bureaucrats/proponent,  their  goals,  roles, power  and  interest  points  section will  characterize these  groups and general public —  of access  into  the decision-making  process. 6.3 G O A L S , ROLES, POWER A N D ACCESS 6.3.1 Politicians: The Official Policy Leadership The  characteristics of the Cabinet differ considerably from those of the Opposition in the  context  of  public-sector  project  evaluation  (and  in  other  areas  of  government  decision-making). Each of these groups will be addressed in turn. The foremost,  goals to  stay  of the  elected  in power  and  representatives maintain their  that base  form  the  Cabinet are,  of support  first  and  (Downs, 1957). This  requires staying in the public's favour by doing the "right thing" at the right time. What constitutes the right thing in the public's eye is often vague and ephemeral, but it is safe to say that it is seldom concerned with economic efficiency; distribution or redistribution is usually more important (Stanbury, 1986). For this reason, it has been said that the goal and function of politicians, especially the Cabinet, is to decide "who gets what, when and  90 how" (Lasswell, 1958). We would therefore the  efficiency  expect politicians to be concerned with both  and distributional aspects of a project  (to whom do they accrue and in  what magnitude). The Cabinet will also be concerned with the means by which projects generate and redistribute income, and with the timing of project decisions.  The role of Cabinet or of selected Ministers, in project evaluation is twofold: to determine  first  whether or not a project should be required to undergo a comprehensive  evaluation and review, and second, to determine whether or not a project should proceed. In general, the Cabinet has access to all of the legitimate coercive power of the state. More specifically, Cabinet has the power to define and alter the review process, to define the  terms of reference  for  analysis, to allocate budgets,  and to  make ultimate  project  decisions. The constraints on this power include the countervailing powers of other actors, constitutional and legal constraints, economic and budgetary considerations, foreign relations (when projects have international implications), public opinion polls, and elections.  The announcement  Cabinet's access of  a  project,  to  the  review process  especially  if  the  begins  project  prior to  proponent  the is  formal public a  public-sector  department or agency. While project analysis is being done and during the formal review process,  Cabinet  might  willingly  restrict  its  access  in  order  to  avoid  accusations  of  manipulation and bias. The  goals of the  elected  representatives  that  form  the  Opposition are  to gain  power, form a government, or at least retain their seats. This involves trying to erode government support by criticizing and opposing the Cabinet's policies and actions. The role of the Opposition in the review process is much more limited than that of the Cabinet's. The Opposition is relegated to the role of watchdog by commenting, criticizing, pressuring, opposing and stalling.  91 The government  Opposition has  less  power  than  the  Cabinet,  unless  there  is  a minority  The Opposition may provide funds for other actors, try to influence Cabinet  and the public, and attempt to delay decisions. Their access is also limited, but unlike the Cabinet, they  might become  more actively involved in the  review process  by acting as  intervenors.  6.3.2 Bureaucrats: The Policy and Opinion Elites (I)  The  goals,  review  roles,  power  of public-sector  and  access of civil-service bureaucrats in  projects  depends on  whether  they  are  the  proponent  evaluation  and  agencies  that  prepare SCBAs for projects within their mandates, opponent agencies who do not want the project  to  proceed,  or  review agencies  the  review  SCBAs  and  conduct  Review agencies might be part of a government treasury department, be  public review.  inter-departmental  committees, or be part of specific environmental resource departments.  The  goals  process-oriented.  of  the  review  agency  responsible  The rules governing review procedures  mandates, policy  guidelines, or  precedent  These  rules  for  reviewing  SCBAs  are  are often set down in legislative vary  in specificity but  generally  include guidelines for preparing a SCBA. The role of the review agency is to supervise analysis by directing, assessing and conducting a public inquiry and to generate analysis by requesting  information  from other  government  departments or by commissioning its own  analysis. As part of the civil service, the review agency's role also includes being sensitive to  political  and  inter-departmental  administrative  and  in  decision-making  (Stanbury,  1986),  such  as  rivalries or contentious public issues.  The powers of the legislation  elements  specified  review agency are those which have been  in the  terms of reference  from  Cabinet  assigned  Some  to it in  of its  formal  powers include the ability to perform and supervise analysis, the requesting of information  92  from  other  funding.  departments,  Informal  access  powers  to  might  confidential include  the  data,  and  ability  the  to  recommendations, and the power of "relative" independence  allocation of  influence  intervenor  Cabinet  via  its  from direct political influence.  Because the review agency supervises and reviews analysis, its access is considerable. But this access is dependent upon Cabinet discretion and formally ends once it has submitted its recommendations.  The goals of support agencies that provide information to project proponents both  political  and  administrative  elements.  Politically,  civil  service  have  departments must  be  responsible to and supportive of their Minister. Administratively, their goals may be  to  maintain their traditional domains of action and influence, and expand these domains. They may seek  to maximize the  relative to other  size of their  departments,  and will  budgets and  seek  the  number  of their  employees  to influence the policy decisions of other  departments that affect their own domains. Their role is therefore to provide comment and information.  They  may  also  have  a  role  to  play  in project  implementation  once  the  assessment is completed and approved.  The power of support agencies comes from four sources: information and expertise, legislation,  influence over  project  implementation, and  the  interests  they  represent (e.g.,  mining, industry or commercial fishing interests). Their access to the review process might involve consultation with the project proponent prior to the formal review, comment during the review, and management after the review. The goals of opponent agencies might be to prevent projects from proceeding or to obtain project modifications to meet the agency's management  policies or legislation. The  power of opponent agencies stems from their legislative mandates or from their influence over  key  statutory  decision-makers. power  to  For  example,  withhold approvals  for  a  fisheries  department  hydroelectric projects  may  have  that damage  considerable significant  93 fishery resources. 6.3.3 Proponents: The Policy and Opinion Elites (II)  A  proponent,  in this context, is a private-sector  firm  or public-sector agency  that is  proposing to build a project. The goal of a private-sector proponent is to have its project approved as it will contribute to its more general goals of profit, survival and growth (Stanbury,  1986). The  goal  of  a  public-sector proponent  is  also  to  have  its  project  approved; but unlike its private-sector counterpart which seeks to maximize earnings, the public-sector  proponent  seeks  to  maximize "gettings"  (allocations from  general  revenue)  unless its mandate specifies funding its activities through its own operations.  The  role of a project proponent, whether in the public or private sector, is to act  as the official advocate of a project (although they may be responding to Cabinet pressure to advocate a certain project, for example). Through the activities of problem search and definition, the proponent identifies possible solutions and eventually proposes a project. This proposal initiates the evaluation and review process (if, of course, that project falls within the purview of some project review guidelines — The  role  of  the  proponent  often  includes  many projects require no such review). analysis,  and  almost  always  includes  implementation.  The  power of proponents stems from problem definition, information, expertise, and  analysis. Their proponent  may  access is continuous throughout have  more  limited  access  to  the the  review process, but a Cabinet  and  private-sector  bureaucracy  than  a  public-sector proponent 6.3.4 Interest Groups: The Attentive Public Many types of interest - groups become involved in a review process. Their goals will vary  94 widely, but Therefore,  their before  roles, power  and  defining the  access  will  be similar in nature if not in  extent  goals of particular interest groups, we will look at their  common characteristics.  The role of an interest do so  (Hartle,  coalitions with  group is to influence government decisions or attempt to  1979), by acting other  interest  as  groups  an  intervenor  to increase  in the  their  review process,  base of support,  or  by  building  by lobbying  politicians or the public. Their power may take the form of money to support analysis or of actions to support, denounce, or obstruct decisions. Their access is formally limited to their role as intervenors and is subject  to the  rules governing procedure.  But they  do  have access to the informal elements, namely the media and public opinion.  Interest groups differ with respect to their goals. When large hydroelectric projects are proposed, it is not uncommon for environmental interest groups to become involved (see, for example, Martin, 1985; Popper, 1985). Different environmental groups have a wide variety  of mandates  different  and  goals  to  lobbying tactics to achieve  which their  they  aspire  and  goals. Some groups  are  willing  to  adopt  very  may actively pursue  civil  disobedience while others might never use or advocate it One group's mandate may deal entirely with a particular region or a particular type of environmental issue while other groups might have national concerns and a wider variety of issues to which they address themselves.  While these two parameters,  breadth of issues and range of lobbying tactics, may  not provide a complete categorization of environmental groups, they do provide a useful starting point. Popper (1985) has identified two types of environmental groups which fall at  opposite  ends of these spectra:  the  "NIMBY"  "NIMBY"  (acronym for Not-In-My-Back-Yard)  oppose  project:  a  "although  the  opposition  and  the  "ideal" environmentalist  is a local organization which  does  not  necessarily  form  a  A  forms  to  majority,  it  95 constitutes a substantial body of local opinion and cares enough to form an organization" (Popper, 1985, p. 8). This group may be willing to use civil disobedience as a means of achieving their goal. The stereotypical N I M B Y  seeks direct influence over outcomes, and  they desire their outcome by any process. Their goals appear to be the prevention of any project with negative environmental impacts rather than the encouragement acceptable with  or wisely-managed environmental impacts. NIMBY's  LULU's,  "locally  unwanted  land  uses,"  such  as  are  of projects with  most closely associated  hydroelectric  projects,  mine  developments or anything else with a significant and noticeable local environmental impact.  In  contrast  environmentalists,  to  NIMBY's  although  many  are people  what  Popper  might  disagree  (1985) with  has  defined  Popper's  as  notion  "ideal" of ideal.  These are often regional or national groups with fairly broad mandates who are willing to "play by the rules" of a review process and who do not advocate civil disobedience. The ideal environmentalist does not take a hard-line position against L U L U ' s but encourages a "practical working relationship between ones"  (Popper,  valid  national and regional goals and valid local  1985, p. 39). They also encourage  environmental and  economic concerns, and advocate  planning, seek  ways to  accommodate  streamlining of regulatory  procedures  where possible. Overall, the ideal environmentalist tries to find ways to speed the siting of these projects [LULU's], while at the same time allowing for the public's long-standing environmental concerns and the pro-development side's new economic ones (Ibid., p. 40). In  contrast  to the N I M B Y  which seeks direct influence over outcomes, the ideal  environmentalist seeks influence over processes.  A simple but  useful  rule to  differentiate  between the two is to consider whether a group is willing to live with what it perceives to be an unfavourable outcome as long as it was the result of a fair process (the ideal environmentalist), or whether a group will seek to alter an unfavourable outcome regardless of the process that generated it (the NIMBY).  96  6.4 ANALYSIS A N D POLITICS  What effect do the different goals, roles, power and access of the various interest groups have  on  the  environment?  conduct  and  outcome  of  social  cost-benefit  analysis  in  a  political  This section addresses this question by summarizing some of the  outcomes  that have been observed or predicted in the literature.  6.4.1 Analysis and Politicians  Downs and politics  Larkey (1986)  note that the  politicians  weak  and  have  language  incentives  of analysis is not to  do  analysis  or  the  language  of  to  follow  the  recommendations of analysis. The language of politics differs from that of analysis because of  the  constraints  explained,  social,  at  odds  legal  and  with  the  political  economic rationality that dominates consequences  or  rationality  rationality  of  may  social cost-benefit  possible solutions of concern to  analysis. differ  As Hollick  from  the  (1981a)  has  technological and  analysis. Therefore, not all of the  a politician  will  be  reflected  in  the  analysis. For example, Table IV suggests that groups in favor of or against projects arise partly because of the distribution of costs and benefits. Politicians might want to weight the various costs and benefits received by various groups according to the political threat posed by each group or by the number of votes they represent The range of alternatives suggested  in most  project  of concern to politicians might also differ  evaluations.  Compromise, logrolling  and  delay have  from those important  roles to play in government decision-making (Allison, 1971, p. 157). Some problems may be  solved effectively  options  and  concerned diffuse  give  with  with  the  staying  symbolic gestures, as  appearance in power  issues and consequences  of than  concern. solving  such  gestures do  Furthermore,  not  foreclose  politicians may  be  future more  technical problems. They may prefer  rather than highlight and sharpen  to  them through analysis  97 (Quade, 1975). Politicians might also have weak incentives to perform analyses or act upon them. A social cost-benefit analysis is designed to promote efficient decisions. Downs and Larkey (1986, p. 137) note that politicians do not have incentives to be efficient; they are faced with disincentives to corrupt and immoral behaviour: The congressman who is sniffing cocaine at a private party, even at home, is in much more political jeopardy than one who has a hand in wasting billions of dollars in a sincere, stupid way.  The  preparation and public review of a SCBA might take several years, but the timing of  a decision for maximum political advantage — or to counter falling  opinion  polls —  (Quade, 1975). Analysis is not only  such as decisions used as election promises  might not coincide with time-consuming  the timing of analysis  but costly, and politicians may be  wary of spending large sums of money on SCBAs for projects that might never be built Fischhoff  et  al. (1981)  also  note  the  unwillingness  of  politicians,  and  decision-makers in general, to abandon bad ideas once they have become committed to them. The result of this "overcapitalization-rip-off is that sunk costs are relevant The fact that no major dam in the United States has been left unfinished once begun shows how far a little concrete can go in defining a problem (Ibid., p. 13). 6.4.2 Analysis and Bureaucrats Bias, if left unchecked, seems to be the greatest danger in analysis by bureaucrats (Quade, 1975;  Downs  challenge  and Larkey, 1986). Biased  viewpoints  can be useful  i f different groups  each others' perceptions. The danger with some project review processes is that  they do not allow detrimental.  Bias  for an adequate counter-balancing  can be  the result of several  inadequate staff and funding.  of viewpoints;  bias then becomes  factors: parochialism,  protectivism, or  98 Parochial analysis may  arise because bureaucratic organizations simply  have always done; problems and problems and  alternative solutions are seen in the same context as past  actions (Allison, 1971;  result from a bureaucratic influence. Problems are  Downs and  Larkey, 1986). Biased analysis might also  desire to protect traditional areas of operation  therefore  solution (Quade, 1975). An  defined  unbiased and  too much ammunition and  do what they  to ensure the  and  agency's staff are  thorough analysis might provide  spheres of part of  the  opponents with  thus endanger the agency's existence. More simply, bias might  be the result of insufficient resources (Downs and  Larkey, 1986). Streamlined  organizations  might handle day-to-day problems efficiently but find themselves strained when large-scale projects and  analysis are  undertaken. Bias then creeps in inadvertently  from quick  and  superficial analysis.  These influences have several effects on  a social cost-benefit analysis. A  project  proponent might define problems so that only those projects within its particular mandate are possible solutions. Only those alternatives that contribute most to the employment of personnel and may  also  an  be  controversial  a  increase in agency influence and tendency  impacts, which  agencies would be  6.4.3  overstate  benefits, understate  results overall in  inadequate  expected to exhibit less bias and  analyses, depending on them, and  to  importance might be considered. costs  and  analysis. In  ignore  certain  contrast,  review  produce more objective and  their autonomy from Cabinet, on  There  the terms of reference  complete given to  on their level of funding and staffing.  Analysis and  Interest Groups  Special interest groups, by social welfare; analysis that  they are  definition, are not concerned with the effects projects have on concerned with  supports their position and  effects on  their group welfare.  They  denounce analysis that supports an  position because it is politically motivated (Quade, 1975, p. 271).  will  like  opponent's  99 Interest groups might also favor direct influence over outcomes rather than indirect influence desires  over may  social  differ  goals and  from  more  processes general  (Hollick,  social  goals,  1981a, p.  72). Because their  "unconstructive  criticism  may  group seem  eminently fair and rational" (Fischhoff et al., 1981, p. 118). As long as there are multiple interest groups pursuing a variety of goals, problems will groups  will  not abide  by the  not stay solved because these  rules of a review process. The  "ideal" type of interest  group posited by Popper is not what is usually expected.  The "unconstructive" actions of interest groups are usually blamed for lengthy and costly public hearings, but there are positive aspects of interest comments  act  as  checks  on  political  or  parochialism, logrolling or symbolic gestures.  bureaucratic  decisions  group  behaviour. Their  resulting  from  bias,  100 CHAPTER 7 A C A S E STUDY: T H E SITE C H Y D R O E L E C T R I C PROJECT  This chapter  illustrates, with the use of a case study: (i) how individuals might vary in  their definition of a problem, in the objectives they choose for evaluation, in the selection of alternatives and identification of consequences, and in their use of evaluation methods; (ii) how these differences could result in more than one version of a social analysis;  and  (iii) how  political  factors  affect  the  use  of  SCBA  as  a  cost-benefit  guideline  for  government decision-making.  The case study  chosen  for analysis is the  Site C  hydroelectric development  in  northern British Columbia (see Figure 3). The Site C dam and generating station was first proposed in 1975 by B.C. Hydro, a provincial Crown corporation responsible for supplying the energy requirements of the province of British Columbia. The dam was to be located on the Peace River, downstream from two existing hydroelectric developments (the Bennett and Peace Canyon dams). Largely due to the potential environmental effects of the Site C dam  and  doubts  about  the  necessity  of  additional  generating  capacity,  considerable  opposition to the proposed project arose. A series of public hearings were held under the auspices of the B.C. Utilities Commission (BCUC)  between 1981 and 1983 to review B.C.  Hydro's social cost-benefit analysis of the project A decision that the Site C dam should not be built at that time was made by the provincial Cabinet in November, 1983.  The information on which this section is based is taken from three major sources: (i)  the  newspaper  written reports  B C U C (1983).  submissions during the  of  various  groups  period under  to  the  analysis; and  B.C. Utilities (iii) the  Commission; (ii)  final  report  of  the  101  FIGURE 3 MAP OF B.C. AND THE PROPOSED SITE C DAM  Source: B.C.U.C. (1983), p. 2.  102 The key actors in the Site C controversy were B.C. Hydro (the project proponent), the  B.C. Utilities Commission (the review agency), and the Peace  Association  (PVEA)  Valley Environmental  and the Society for the Promotion of Environmental Conservation  (SPEC), both of whom were interest groups opposed to the Site C project SPEC was the most active provincially-based interest group. The most vocal association of local residents was  the Peace  Valley  Environmental Association. Although there  were  other  groups in  favor of the project (such as Chambers of Commerce, labour unions and various industry associations) indian  as well  bands  as others opposed  and private  citizens),  to it (including Regional District  these  groups  played  much  boards,  smaller  roles  native in the  evaluation process than did SPEC or PVEA.  The nine year period chosen for analysis (1975-1983) can be divided into three phases.  The first phase,  announced response second  Project Initiation  intention to build of project  phase,  opponents  (1975 to  1976),  began  with  B.C. Hydro's  the Site C dam and includes the subsequent, calling  for a comprehensive  Project Analysis (1977 to 1980),  project  is characterized  immediate  review process. The by the emergence of  arguments for and against construction of the Site C dam, and the introduction of impact assessment  legislation, the  Utilities Commission Act. The third  phase,  Evaluation  and  Resolution, spanned the years 1981 to 1983 during which the Utilities Commission hearings took place, culminating in the provincial Cabinet's decision in November 1983 to delay the project  Project Initiation: 1975-1976 In 1975, B.C. Hydro announced that planning for the construction of the Site C dam would begin. Environmental, social and economic impact studies of the Site C project were  to be commissioned. Preliminary impact reports  1976,  indicating that  the earliest  completion date  were  released  for the project  by B.C. Hydro in would  be 1984. In  103 response to these announcements, residents of the Peace River Valley opposing the project joined together to form the Peace Valley Environmental Association (PVEA). At the same time, existing provincial environmental groups such as the B.C. Sierra Club and  Wildlife Federation, the  SPEC, voiced their concerns about the adequacy of the process by which  hydroelectric developments were evaluated (Vancouver Sun, Jan. 17, 1977, p. 29).  During supply  this period, no formal  evaluation  of energy policy  and  i n provincial legislation. Prior to 1975,  hydroelectric energy  projects were reviewed by the government under the guidelines and  requirements of the  B.C.  alternatives existed  process for the  Water Act (RSBC  1979,  c.429). The Water Act.  did not require a SCBA  performed; the decision to approve or reject projects under the Act was the availability of water supply  to be  based largely on  for the proposed project Provincial environmental groups,  concerned about the environmental effects of the Site C project and  dissatisfied with  the  planning process for the previous hydroelectric development (Revelstoke), wanted not only a complete evaluation of Site C that would include some mechanism for public participation, but also an evaluation process that would apply to all energy projects.  Project Analysis: 1977-1980 The  years  between  1977 and 1980 were  development of arguments for and and  against the  SPEC, were active in disseminating  raising funds, producing pamphlets and  period, Hydro  performed  Site C project Opponents, led by PVEA the project,  remaining vocal in the media. They challenged B.C.  province, and (ii) if so, i f Site C was the this  by the emergence and  information about their positions and  Hydro's decision to build Site C by asking  During  characterized  (i) i f additional power was needed in the best energy project to meet those needs.  a variety of impact studies, including a social  cost-benefit analysis (B.C. Hydro, 1980a) which justified the need for Site C by 1986 showed  that  its social  benefits were greater  than  and  its costs. Hydro's chairman, Robert  104 Bonner, was critical of "self-styled environmentalists". who pursued  "selfish interests" and  opposed any hydroelectric project with  (Vancouver Sun, June  16,  "well-organized propaganda"  1978). Late in 1979, B.C. Hydro continued to claim that Site C was the  feasible, lowest cost supply relative to all other alternatives"  "most  (Province, Oct 3, 1979, p.  A l ) , and in October of that year, formally applied for the necessary licences and permits under the B.C. Water Act.  The Utilities Commission Act (SBC 1980, c.60) came into force just several months after the  B.C. Hydro's applied to build Site C. The Act set forward detailed guidelines for review  hearings,  of energy  i f requested  projects  and provided  by Cabinet.  for public participation  B.C. Hydro re-applied  under  this  in the form of new process in  November 1980.  Project Evaluation and Decision: 1981-1983 Formal public review of the Site C project began in 1981 under the provisions of the  Utilities Commission Act. A  panel,  headed  by  Keith  Henry  of  the  Utilities  Commission, was formed to conduct the review. The hearings were conducted by the B.C. Utilities Commission and proceeded in five stages: (i) project justification based on energy supply and demand analysis; (ii) Site C project design; (iii) environmental, land use, social and economic impacts of Site C; (iv) financing; and (v) other issuance of specific permits. During the hearings the arguments were presented,  matters relating to the  of various interest  and additional evidence was provided by numerous provincial  groups  government  ministries.  The role of the Utilities Commission was to judge  the competing evidence and  analyses, and then present its own recommendations to the provincial Cabinet on whether or not to proceed with Site C. In its final report (BCUC, 1983), the Commission found  105 that Hydro had overestimated energy new  demand to such an extent that construction of a  project need not begin at that time. It also determined that Hydro had not proven  Site C to be the best project to meet future been  considered in its SCBA.  The  Commission  demand because too few alternatives had recommended  that Cabinet hold  future  public hearings related to energy demand and project alternatives when it became time to consider a new energy project (BCUC, 1983, pp. 126-7).  The  provincial Cabinet released the Commission's recommendations to the public in  November 1983 (six months after it received them) and simultaneously announced its own decision. The Energy Minister revealed that construction of Site C would not begin at that time and 1983,  that future public review would not be necessary (Vancouver Sun, November 9,  p. C3).  7.1 D E F I N I N G T H E P R O B L E M A N D ALTERNATIVES This section explores the problems and alternative solutions seen by the key actors in the evaluation of Site C: the Utilities Commission, B.C. Hydro, SPEC and PVEA. Much of the information needed must be inferred by the actions and statements of these groups; evidence is presented in this section to support these inferences. 7.1.1 The Utilities Commission The  Utilities Commission's problem definition is outlined in a general policy statement of  the Ministry of Energy, Mines and Petroleum Resources (1980) and in the specific terms of reference drafted for the Site C hearings by the Ministers of Environment and Energy, Mines & Petroleum Resources (BCUC,  1983, Appendix 4). The policy statement  that energy project reviews would examine the broad justification for the project, including energy demand projections, alternative energy sources (including conservation) and general environmental and social factors.  outlines  106 . . . [and] examine specific environmental concerns, mitigation measures and other detailed factors . . . [undertaken] within the guidelines defined by the provincial Environment and Land Use Act (Ministry of Energy, Mines and Petroleum Resource, 1980, p. 13). In the terms of reference for the Site C review, these "guidelines" were defined as those for  social cost-benefit  analysis published by the  provincial  Environment and  Land Use  Committee (ELUC, 1977). The Utilities Commission was therefore required to determine if energy demand justified the construction of a new hydroelectric project and ascertain the social costs and benefits of Site C, based on a comparison with other project alternatives including conservation measures (BCUC, 1983, p. 38). 7.1.2 B.C. Hydro  There were  three key elements  in B.C. Hydro's problem definition  which  this section  demonstrates: first, Hydro saw itself facing a need to generate additional electricity; second, this  electricity was  developments  needed  by  1986;  and  third,  only  large  hydroelectric and  were suitable alternatives. Hydro's problem definition  did not  thermal  include the  possibility that actions could be taken to reduce future energy demand; it did not consider in its SCBA that demand might be needed sooner or later than 1986; it did not evaluate the development of small hydroelectric projects; and it did not consider projects other than hydroelectric  or  coal-fired  thermal  developments.  The  reasons  why  Hydro  might  have  defined the problem as it did will also be explored here.  Generating additional documented  in  its  Site  electricity: Hydro's problem definition C  Cost-Benefit Analysis (1980a).  organizational activity involves predicting future  Part  and of  project justification Hydro's ongoing  energy demand. Its forecasting procedures  generated three energy demand scenarios: low, medium, and high. For each scenario, the year of an expected supply deficit was calculated and a list of possible project alternatives derived (see Table V). The absence of energy conservation options in Table V makes it  are  TABLE V B.C. H Y D R O PROJECT JUSTIFICATION  Low Demand  Medium Demand  High Demand  1988  1986  1984  Site C I Hat Creek2  none identified  Projected Deficit Supply Alternatives  Site C Hat Creek2 Murphy Creekl 1  East Kootenayl  Notes: 1. hydroelectric project 2. coal-fired thermal project  Source: B.C. Hydro, 1980a, p. 2.11-2.12.  108 clear that Hydro preferred to increase supply to meet future demand rather than  decrease  demand to meet existing supply, or both increase supply and decrease demand. Hydro's viewpoint could  have  been  the  organizational bias (e.g., conservation measures than  do  new  supply  measures  were  not  projects);  feasible  perception  due  to  (Hydro perhaps  conservation measures  of several  forces:  some  inherent  involve fewer jobs for existing Hydro staff  accurate  alternatives  legislative or policy constraints recommend severe  an  result  of  the  technological  did not have  or the  problem cost  (conservation  constraints);  political  authority  or to  through dramatically increased energy prices, for  example). It is possible that each of these factors contributed to Hydro's approach. The agency  is  a  hydroelectric authority  and  not  problems had been met largely through the  a  conservation  authority;  previous supply  construction of new hydroelectric generating  facilities. The 1986 supply deficit: B.C. Hydro remained convinced throughout most of the Utilities Commission demand  hearings  scenarios  of an  for  energy  low, medium  supply and  deficit in high  1987. Although  demand  forecasts,  the  Hydro  generated  published  SCBA  considered the medium demand (1986 deficit) scenario only. The reasons why Hydro was convinced that this was the "most likely" scenario are not clear. The Utilities Commission, however, became convinced that this medium scenario was the  maximum possible rather  than the most likely one (BCUC, 1983, p. 5).  During the Utilities Commission hearings, several problems with Hydro's forecasting methods  became apparent  relatively  unsophisticated  The Commission found that Hydro's methods non-econometric  models, did not  past behavior, and did not incorporate price effects commissioned  by  SPEC  consider statistically significant  (BCUC,  (Overstall, 1982) illustrated the  were based on  1983, p. 4). A small study  inaccuracy of Hydro's  forecasts.  SPEC was able to confirm only 49% of the future demand requirements claimed by B.C.  109 Hydro for a number of large industrial consumers.  Large-scale hydroelectric  and coal-fired thermal alternatives: B.C. Hydro  only identified  hydroelectric and thermal projects as suitable alternatives for the generation of electricity under  all three  demand  scenarios  (see  Table  V). B.C. Hydro's published SCBA  only  considered two projects: Site C and the Hat Creek coal-fired plant Because the planning and development of energy sources often requires extensive lead-times to bring projects on stream, it is possible that Hydro's selection of alternatives reflects a realistic interpretation of the supply opportunities available. Alternatively, their project selection might have been the  result  of the  perceptual  lens  of a hydroelectric utility  that  focussed  its planning  activities on hydroelectric and, more recently, coal-fired thermal energy projects.  The results of the Utilities Commission hearings would seem to preclude Hydro's project  selection  as  an  entirely  realistic  interpretation  of  supply  alternatives.  Several  intervenors in the Utilities Commission hearings presented evidence on the development of non-conventional energy alternatives, as well as on the use of pricing schemes (Cooper, 1982; Friends of the Peace, 1982). Non-conventional alternatives such as geothermal power or demand management  (using prices to reduce energy demand and postpone the supply  shortfall) were not addressed by B.C. Hydro in its social cost-benefit analysis, even though the Commission felt these options warranted more attention (BCUC, 1983, p. 8). Hydro's list  of  conventional  alternatives  also  seemed  less  than  complete.  The  possibility  of  constructing other hydroelectric and thermal projects or entering into contingency purchases from  industry or other  utilities was treated only superficially.  As well, Hydro's project  justification outlined in Table V leaves the impression that nothing could have been done in 1980 to meet a potential supply deficit in 1984.  Because Hydro considered such a limited number of project alternatives, its framing of the problem cast doubt upon the objectivity of its analysis. As Fox (1981) noted,  110 . . . the mere fact that Site C may be a better project than Hat Creek does not demonstrate that construction of Site C best serves the public interest A conclusion based on such a demonstration is comparable in logic to proving that since severing my hand will be less debilitating to me than severing my arm, then amputating my hand is in my best interest even though there may be no need to do so (p. 4).  7.1.3  SPEC and  While B.C. that  PVEA  Hydro's main concern was  all energy  developments,  to supply  including  comprehensive review process. SPEC and  electricity, SPEC'S concern was  Site  other  C,  were  assessed  in  environmental groups had  to insure  some been  sort  of  advocating  the development of energy, project review procedures since the mid-1970's (Vancouver  Sun,  Jan. 17, 1977,  1980,  p.29;  Daily Colonist Feb.  p.A16). SPEC also advocated the (Vancouver Sun, Aug.  8, 1980;  use  SPEC'S  framing  needed in the province  addressing  the  first  of renewable energy  problem  consisted  and, if so, i f Site C  question  was  16, 1981, p. A12). since  they  and  Aug.  8,  conservation alternatives  i f additional power  the best energy project to meet those  that additional power was  was  not necessarily the best project; they as demand  geothermal energy).  In contrast, the problem that faced the Peace Valley Environmental Association little to do C  or any  with energy supply other  not  Hydro. If Hydro could show that additional  been excluded from Hydro's analysis (such  management through pricing, conservation, and  was  SPEC believed its efforts were best spent  needed, SPEC believed that Site C  felt that several alternatives had  of the Utilities Commission  of asking  were confident  required within the time frame proposed by power was  Vancouver Sun,  announcement to the end  of the  needs (Vancouver Sun, Oct  p.22;  Cooper, 1982).  From the time of Site C's hearings,  23, 1978,  for the province  of B.C.  hydroelectric development from being  Their goal was built on  the  had  to prevent Site  lower Peace River  Ill  (Province, Oct. 4, 1979, p. A4). This implies that they would not accept the construction of Site C  even i f it were shown to be the best project from a social cost-benefit point  of view.  7.1.4 Problem Definition, Alternatives and Analysis If each of the above groups had conducted its own social cost-benefit analysis, at least three different analyses might have resulted. Hydro, however, was the only one to conduct a  complete analysis; the other  groups revealed  the type of analysis they would have  performed by their criticisms of Hydro's SCBA. The outlining  Utilities  Commission  and SPEC  adopted  similar approaches to analysis by  the requirements that a social cost-benefit analysis should  fulfill:  the energy  supply deficit should be carefully predicted and a wide range of project alternatives should be  considered.  Restrictions on these alternatives should  not be made per  se,  but each  should be judged on the basis of its feasibility. Hydro and P V E A both restricted the alternatives under consideration. PVEA did not want any projects in the Peace River Valley to be considered, while Hydro avoided types of  projects  with  which  it had less  experience  —  small-scale  hydroelectric projects,  non-conventional energy sources, conservation measures and pricing mechanisms. Hydro also appeared to believe more firmly than was justified in the accuracy of its own predictions. By conducting analysis on the medium demand scenario only, Hydro was left with no analysis to support the construction of any project once the Commission determined  its forecasts  were too high. Had  analysis been done for the low-demand  secnario, those results might have been more applicable. This highlights the importance of making careful judgments about the accuracy of forecasts and their underlying assumptions.  112  7.2 OBJECTIVES AND The  objectives  SCBA  EVALUATION  for the  guidelines  Site C  mentioned  cost-benefit analysis were defined  in  the  Utilities  Commission's  guidelines recommend that a cost-benefit analysis be that the regional distribution of costs and The  in the  terms  based on  of  E L U C (1977)  reference.  These  economic efficiency and  benefits be identified, but not weighted (p. 11).  cost-benefit calculations are to be based on  efficiency costs and  benefits: distributional  Discussion of the validity of these objectives for the Site C  project did not seem  effects are identified for illustrative purposes only.  to arise in the Utilities Commission hearings. The accepted  by  all participants in  concerned about, using social cost-benefit efforts resource  on  hearings  not  seem  project justification  impacts, and  or  participants were  a different objective function. Discussion  analysis did  debating  the  economic efficiency objective was  producing  hearing, the validity and  not  aware  about the  either of, or  limitations of  to arise. Participants appeared to focus their (energy  different cost  demand and  projections), disputing  benefit  estimates.  physical  Throughout  the  robustness of social cost-benefit theory appeared to be taken for  granted or of little concern. 7.3 IDENTIFYING PROJECT IMPACTS This section addresses two of the  aspects of the identification of project impacts: (i) the definition  spatial boundaries of the  impacts. The  analysis; and  (ii) the  purpose of this section is to highlight how  to these tasks and  measurement and  prediction of  groups differed in their approach  the results these differences would have on analysis.  113  7.3.1  Spatial Boundaries  A l l impacts identified in B.C. proceedings of the  review  Hydro's SCBA of Site C, in the B C U C report, and hearings  appear to fall  within the  in the  provincial boundaries  of  British Columbia. Nowhere is mention made of downstream effects beyond the provincial border (see BCUC, 1983; although  B.C.  Hydro, 1980a and  1980b; Lord  and  Sydneysmith,  1982)  theory states that SCBA should at least take a national perspective (Pearce,  1983,  p. 13). It is not clear whether this neglect arises because there are no potential impacts in other provinces (primarily Alberta) or because the evaluation of the Site C seen from  a provincial perspective only. The  project  was  implications of both of these issues  are  worth considering in some detail.  The Site C Dam  dam on  effects of the Bennett Dam  on  could result in similar downstream effects. The  the Peace River in 1967  Alberta's Peace-Athabaska Delta. By  —  assessed  1970  it was  becoming apparent that the delta, where  drying up. The  comprised of the federal, Alberta and these impacts and  construction of the Bennett  (located upstream from the proposed Site C) affected  the Peace River joins Lake Athabaska, was Group —  the Peace-Athabaska Delta suggest that the  Peace-Athabaska Delta Project  Saskatchewan Ministries of Environment  reported the following changes (among others) in its 1973  report: (i) a 36 percent loss of shoreline habitat essential to muskrats and nesting waterfowl; (ii) a decline in muskrat populations from 250,000 to 17,000 in less than a decade; (iii) a loss of habitat for bison; (iv) a decrease in duck production;  and  (v) an increased need for dredging and navigation aids (P.A.D.P.G., 1973, pp. 10-11). The  Group also recognized that "the economy of Fort Chipewyan and  native people have been and  the lifestyle of its  continue to be closely linked with the trapping and  fishing  -< in the Peace-Athabaska  114  Delta" (p. 11). Although the Bennett Dam is considerably larger  than the proposed Site C project, its impacts suggest that Site C s potential impacts on the Peace-Athabaska Delta should be addressed. It could should  only  be argued that the scope of a social cost-benefit analysis in Canada  include  provincial  impacts  because  the Canadian  Constitution  Act vests  ownership of water resources in the provinces rather than in the federal government, and gives  provinces management  powers  over  hydroelectric  developments  (Sections  109  and  92A(l)(c)). Percy (1984, p. 87) suggests that "provinces have felt that they could authorize the diversion or pollution of inter-provincial waters with impunity. It seems that such an attitude prevailed at the time of the construction of the Bennett Dam on the Peace River." This attitude developed from provincial sovereignty over the water resource and from  the lack  of a binding  mechanism  i n the Canadian  constitution  to resolve  inter-provincial conflicts (in general, see Barton, 1984; Gibson, 1973; Percy, 1984). Downstream provinces which suffer adverse consequences from the use of water by upstream provinces may still rely on private litigation in the courts. Two cases in the 1970's indicated a changing interpretation of provincial powers with respect to downstream users. In the Town of Peace River v. B.C. Hydro (1973 D.L.R. 29(3d)), the town of Peace  River, Alberta, brought an action against B.C. Hydro for damages caused to the ,  town's water utilities plant that resulted from the reduced flow of the Peace River after construction of the Bennett Dam. The case was decided in favor of Alberta, making B.C. Hydro  liable  for damages.  The second  case  affecting  inter-provincial  waters was  Interprovincial Cooperatives Ltd. et al. v. The Queen (1975 D.L.R. 53(3d)). In this case, mercury  discharges licenced  in Ontario and Saskatchewan  entered waters  flowing  into  Manitoba, requiring the temporary closure of a commercial fishery in Manitoba. Although the fishermen that brought the case to trial were unsuccessful in their court action, several  115 dissenting judges felt that Ontario and  Saskatchewan could not validly licence activities in  their provinces that had adverse consequences outside the province. Because  there  have  been  so  few  cases involving disputes  over inter-provincial  waters it is difficult to assess what trend the courts will follow in the  future. As  one  legal analyst notes, "At the very least, the possible trend in law evidenced by these cases must be  taken into account by  planners of projects which have a significant impact  on  inter-jurisdictional waters" (Percy, 1983, p. 118). 7.3.2  Identifying Consequences: Measurement and Prediction  The  measurement and  prediction of project impacts are  cost-benefit analysis. The were B.C.  Hydro and  Forests. The  key  important components of social  groups involved in generating  estimates  of Site C's  impacts  three provincial government ministries: Agriculture, Environment, and  purpose of this section is to highlight some of the different estimates  that  arose. Table various  VI  identifies selected impact estimates  government departments. These estimates  report (1983). Although Table VI  produced by  were identified  in the  Hydro  and  BCUC  does not include all the differences that arose  the hearings, it does provide an example of the nature and that can  B.C.  Site  the C  during  magnitude of the differences  arise in environmental impact assessment or social cost-benefit analysis. Section  7.6 will show how  these different impact measures led to considerably  different social cost  estimates. B.C.  Hydro and  the various government ministries differed in their estimates  of:  the amount of flooded land that would have been suitable for vegetable production;  the  area of flooded demand with  and  forest land and  the volume of lost timber;  future growth in recreation  without the project; the number of lost hunting  days resulting from  T A B L E VI S E L E C T E D PHYSICAL RESOURCE IMPACTS  RESOURCE CATEGORY  B . C . HYDRO  MINISTRY OF:  B.C.UTILITIES COMMISSION  AGRICULTURE - flooded land for high value  Agriculture 80 ha.  400 ha.  400 ha.  vegetable production  FORESTRY - flooded forest land  Forests 1724 ha.  1724 ha.  - decrease in allowable annual cut 8400 per cm.  4736 per cm.  1724 per cm.  GENERAL RECREATION  Lands, Parks & Housing  - future growth (in user days)  3824 ha.  4% per annum  1% per annum  WILDLIFE & RECREATIONAL HUNTING  Environment  - moose population decrease  125-250 moose  125-250 moose  50-250 deer  25-250 deer  - deer population decrease - lost hunting days per year  600 (928-2473 est. by consultant)  50-3175  1% per annum  Hydro reasonable, need better data 50-3175  T A B L E V I (cc-nt ) 1  SELECTED PHYSICAL RESOURCE  RESOURCE CATEGORY  B.C. HYDRO  IMPACTS  MINISTRY OF:  B.C.UTILITTES COMMISSION  Environment  FISHERIES  maximum sustainable yield (# angling days)  4100-5600 (14000 est. by consultant)  11400-18000  neither estimate can be supported  reservoir yield (# angling days)  4100-9900 (12000 est. by consultant)  4300-13500  neither estimate can be supported  Source: B . C . U . C . , 1983, pp. 164-7, 175-8, 183-8, 190-6, 199-206.  118 flooding; and in  the  the maximum sustainable yield of fish populations in the Peace River  reservoir that would be  where Hydro and  created  (see Table VI). In virtually all of these cases  a government ministry had  determined that the ministries' estimates  and  different estimates, the Utilities Commission  were more accurate. The  only exception  was  for  fisheries impacts, where the Commission decided that neither Hydro nor the Ministry of Environment had sufficient data to accurately predict impacts.  Table hunting  VI  also reveals that Hydro's consultants  days and  did not  use  derived  impact measures for lost  sustainable fishery yields similar to the ministries' estimates; yet, Hydro  these figures as  the  basis for evaluation, but  instead adopted significantly  lower estimates. 7.4 C A L C U L A T I O N OF This section presents SPEC. A  PROJECT BENEFITS  the  estimates  of Site C s  benefits determined by  B.C.  Hydro  and  common method of calculating benefits from hydroelectric developments is to  "estimate the savings realized by not having to buy Turvey, 1967,  p. 180). This source should  from an alternative source" (Prest and  be the next-least-cost alternative for generating  power. Hydro interpreted this by estimating the savings achieved from not having to build the Hat  Creek thermal project Hat  because it was  the  only  scenario. Capital, operating adjusted  Creek was  alternative to Site C and  chosen as the next-least-cost alternative identified  for Hydro's medium  environmental costs were calculated for Hat  to reflect a power generation  capacity similar to that of Site C.  demand  Creek The  sum  and of  these costs is an estimate of the social benefits of Site C; they are benefits in the sense of being costs that can be avoided by constructing a different project. Hydro estimated benefits of Site C 6 to 10%).  to range between $714  million and  the  $1,133 million (at discount rates of  119 The E L U C cost-benefit guidelines recommend the use of willingness-to-pay  rather  than the alternative-cost method for calculating project benefits (1977, pp. 20, 24). A study commissioned value  by SPEC (Lord  of Site C  and  Sydneysmith, 1982) derived  power based on the value  a WTP  estimate  for the  of additional power to the citizens of the  province. Lord and Sydneysmith's benefit estimates range from $288 million to $855 million (with discount rates of 6, 8 and 10%) compared to B.C. Hydro's estimates of $714 million to $1133 million for the same range of discount rates (B.C. Hydro, 1980a, p. 7.2).  Both  the alternative cost and  different estimates  generated by Hydro  WTP  approaches should  yield  similar results. The  and SPEC can be partly attributed to errors in  Hydro's approach to benefit estimation. Firstly, Hydro had not proven conclusively that Hat Creek was the next-least-cost alternative to Site C. This makes overstatement of Site C's benefits possible by  comparing  it to a much  more costly alternative. The  worse  that  alternative is, the higher are the project's supposed benefits. Second, the capital, operating shown in any  detail in the Site C  and  environmental costs of Hat  SCBA  and  were not subjected  Creek  were not  to any  sensitivity  analysis other than a variation in the discount rate used (B.C. Hydro, 1980a). Because the estimated resource costs of Site C were contested at length during the Utilities Commission hearings (see Section 7.6), there is considerable  justification for not accepting  benefits of Site C  costs of Hat Creek) as given  (which include the resource  the social by  B.C.  Hydro. Third, Hydro's own  recognition that it would be difficult to build Hat Creek by  1987 (B.C. Hydro, 1980a) casts doubt upon the usefulness of a comparison between Site C and a project with a later in-service date. If Hydro recognized  that Hat Creek could not  be built within the time frame required, then the analysis should  have compared Site C  to Hat Creek plus additional energy supplied from some other source between  1987  and  120 the year that Hat Creek would be have increased.  No  estimate  completed. Had  of Hat  this been done, Site C s  Creek's "actual" completion date was  benefits might given in the  cost-benefit document.  Fourth, the energy demand forecasts upon which the analysis rests were prepared in 1979. When load forecasts were revised downwards by Hydro only one Creek, with  almost twice  the  generating  alternative. Because other alternatives had  capacity  not  was  no  longer  a viable  not been considered, Hydro's social cost-benefit  analysis became meaningless (BCUC, 1983, Creek was  of Site C,  year later, Hat  p. 9) because it was  very  the next-least-cost alternative. If this were true, Site C s  likely  that  Hat  benefits would be  overstated. Hydro's overestimation and C  its overestimation project. The  of energy demand, its limited consideration  of alternatives  of project benefits were major problems with the SCBA of the Site  result was  a  biased  or  an  incomplete analysis, or  accuracy of Hydro's cost-benefit analysis highly suspect before  the  both, making  the  estimation of project  costs is considered. 7.5 C A L C U L A T I O N OF  F I N A N C I A L COSTS  Three types of costs were identified in B.C. 3. 4.  financial  Hydro's cost-benefit analysis:  costs, which are the capital and operating costs of the project;  resource costs, or changes in environmental resources (B.C. Hydro calculated  net  costs because some changes were identified as benefits); and 5.  regional  social  impacts, such  as  changes  in lifestyles  or  other  community  attributes. The  capital and  discount  operating  rates. The  costs of Site C  were estimated  Utilities Commission concurred with  and  discounted  using several  Hydro's financial cost  estimates,  121 agreeing  that the  project could  be  built  for $1.5  billion  ($1980) within a  reasonable  margin of error (BCUC, 1983, p. 114). Other groups did not dispute this estimate (see, e.g., Lord and Sydneysmith, 1982). 7.6 C A L C U L A T I O N OF The  potential  agricultural  various  environmental  land, forestry  resources. The by  E N V I R O N M E N T A L COSTS impacts  identified  resources,  general  by  B.C.  Hydro  included  recreation, hunting,  fisheries  changes in and  heritage  following sections identify Hydro's estimates, the competing estimates given government  departments,  and  the  final  values  selected  by  the  Utilities  Commission as the most reasonable and accurate (see Table VII). 7.6.1 Agriculture B.C. Hydro valued the loss of agricultural land by estimating various scenarios of potential production agricultural  which might be production  that  foregone, would  agricultural land. This approach was  be  rather than lost  based on  due  by  calculating  to  the  the  amount of actual  flooding and  disruption  of  "a presumption, supported by legislation that  social value exceeds market value" for agricultural land (B.C. Hydro, 1980a, p 3.2). This assumes there is some value attached to productive potential even i f that potential is not currently being used or demanded. In the context of a hydroelectric development where agricultural land will be lost, this method would produce a higher estimate of project costs than  a  method  based  on  actual production  foregone.  Conversely,  when  applied to a  hydroelectric project which provides irrigation, the result might overstate project benefits if agricultural production levels were constrained by  factors other  than  the  availability  of  irrigation.  The  Ministry of Agriculture, the Utilities Commission, and B.C.  "potential production foregone"  Hydro adopted the  approach, but their estimates vary considerably (see Table  T A B L E VII S E L E C T E D E V A L U A T I O N ISSUES  RESOURCE CATEGORY  MINISTRY OF:  B.C. HYDRO  B.C.UTILITIES COMMISSION  AGRICULTURE  Agriculture  - net annual return on production of: vegetables $1089 per ha. other crops $ 154 per ha.  $3337.5 per ha. $ 262.0 per ha.  $3337.5 per ha. $ 262.0 per ha.  - rate of increase in crop prices  1% per annum  1% per annum  0% per annum  - increase in economic return  2.5% per annum  2.5% per annum  1% per annum  Total Resource Loss  $8-52 m i l l . $2-48 m i l l .  $18-95 mill.  $59.8 m i l l . $24.0 m i l l .  1  2  3  4  FORESTRY  Forests  - stumpage value  $4 / cubic metre  $6 / cubic metre  $6 / cubic metre  - value of lost cutting rights  not estimated  $25 / cubic metre  $25 / cubic metre  Total Resource Loss  $0.36-1.0 m i l l . $0.33-0.9 m i l l .  $0.40-1.1 mill.  $1.0 m i l l . $0.5 m i l l .  1  2  GENERAL RECREATION  3  4  Lands, Parks & Housing  - recreational value  $29 per day  $16.60-$17.95  $29 per day  - value of river-based vs. reservoir-based recreation  1.2:1  1.5:1  1.5:1  Total Resource Loss  $4.0-51.6 m i l l  $1.8-3.7 mill  $6.0 mill $3.0 m i l l .  $3.4-103 m i l l .  2  1  3  4  123 T A B L E VII (cont') S E L E C T E D E V A L U A T I O N ISSUES  RESOURCE CATEGORY  B . C . HYDRO  MINISTRY OF:  WILDLIFE AND RECREATIONAL HUNTING recreating hunting value non-consumptive value of wildlife  B.C.UTILITIES COMMISSION  Environment  $32 per day-WTP $64 per day-WTS $32 per day-WTP included in  1/3 value of  included in general recreation  general recreation  recreational hunting  - indirect loss of wildlife  not estimated  $500,000  to be monitored  Total Resource Loss  $0.18-1.6 m i l l . $0.19-1.9 m i l l .  $2.0-3.7 mill.  $2.8 m i l l . $1.1 m i l l .  1  2  3  4  FISHERIES  • Environment  - W T P or WTS-based estimates  WTP  WTS  WTP  Total Resource Loss  $0.3-10.0 mill. 1 $8.0 mill, loss to $4.8 mill gain  $2.0-4.2 mill.  insufficient data.  2  Table Notes: 1. 2. 3. 4.  1983 estimate ( B C U C , 1983). 1980 estimate (B.C. Hydro, 1980a) estimate discounted with hybrid approach. estimate discounted at 8%.  Source: B C U C , 1983, pp. 164-7, 175-8, 183-8, 190-6, 199-206; B.C. Hydro, 1980a, pp. 5.9, 5.12, 5.16, 5.27, 5.29.  124 VII).  Hydro's original estimates ranged from $2-48 million, depending on the scenario and  discount rate used (B.C. Hydro, 1980a, p. 5.27). Hydro later revised  these upward to  $8-52 million. In comparison, the Ministry's estimates ranged from $17.5-94.5 million. The final estimate adopted by the Utilities Commission was $59.8 million. The Utilities  evaluation  Commission  methods  by Hydro,  the Ministry  of Agriculture  fail to take into account several concerns raised  during the Utilities Commission 168).  used  and the  by other groups  hearings (see, for example, Fox, 1981; BCUC, 1983, p.  One concern was that valuing  agricultural resource losses by potential production  foregone fails to reflect adequately the land price effect of the Agricultural Land Reserve system i n B.C., of which the Site C lands are a part Fox (1981, pp. 14-5) argues that commercial land in the Lower Mainland of B.C. sells for five to ten times the price of agricultural  land  which  is protected  under  the Agricultural  Land  Reserve  system. This  implies that shadow pricing could be applied to the lands affected by Site C using this approach and the results compared with the "production foregone" valuation approach. In Fox's  estimation, "The Agricultural  Land  Reserves Act has clearly  established  a policy  which recognizes values in agricultural land that are many times the values based on the value of agricultural products" (Fox, 1981, p. 17).  Other interveners wished to see an option value attached to agricultural land to reflect future increases in agricultural land values in the event of significant world food shortages. The Commission  felt that such values could not be "meaningfully quantified"  and opted instead to stress the importance of compensation programs "designed to improve and intensify agricultural production" (BCUC, 1983, p. 169). 7.6.2 Forestry The  flooding of Crown forest land in B.C. cannot be valued by traditional market pricing  125 because there are no  established market prices for stumpage. Valuing impacts  lands must instead be done by production, called  the  to forest  calculating the loss of sustained yield (long-term) timber  "allowable cut effect"  Because of this effect the value of lost  timber is not equal to the stumpage value of the standing timber but is instead measured by its contribution to. the long-term sustained timber yield of an area.  B.C.  Hydro and  the Ministry of Forests differed in their approach to evaluation.  Hydro used lower stumpage values but applied them to a land base twice the size used by the Ministry. The  net loss Figures calculated by both were therefore similar (see Table  VII) but based on very different assumptions.  The  Utilities Commission adopted both the  stumpage values and the land base figures provided by the Ministry of Forests. An  argument presented  by  Hydro, but  discredited  by  the  Utilities  Commission,  claimed that because the forested land in the Site C  area was  recoverable, the actual forest resource loss "would be  near zero" (B.C. Hydro, 1980a, p.  5.28). This  argument is inconsistent with  production,  where  argument was  Hydro  was  willing  Hydro's approach  to  recognize  lost  not presently economically  to valuing lost agricultural productive  potential.  Hydro's  rejected because it failed to consider that the future value of the forest  lands might increase as more economical sources become scarce. The  approaches used by B.C. Hydro and the Ministry of Forests were criticized by  some participants in the Utilities Commission hearings because they do not recognize the value  of forested land  for anything  other than  timber  production. This issue will  be  discussed together with the evaluation issues of hunting and trapping in Section 7.6.4. 7.6.3 General Recreation In  the  general recreation category, B.C.  recreation based on a WTP  Hydro  included both  the  value  of lost river  approach and the value of "non-consumptive" uses of wildlife  126 and  wilderness  and  decreases river recreation, the net impact on recreation opportunities depends upon the  relative  resources.  Because the construction of a dam increases reservoir recreation  demands for these  types  of recreation  and the difference  in value  between  reservoir and river recreation. While Hydro stated that it assumed river recreation to be 1.0 to 1.5 times as valuable as reservoir recreation, the data presented in its SCBA only reflect the assumption that river recreation  was 1.2 times as valuable.  In contrast to  Hydro's approach, the Ministry of Lands, Parks and Housing assumed that river recreation was 1.5 times as valuable  as reservoir recreation. The Ministry  assumed  that  general  recreation was valued by individuals at $16-18 per day, compared to Hydro's estimate of $29 per day. The Utilities Commission adopted both the higher river recreation value and the higher WTP  value (see Table VII for results).  In general, B.C. Hydro's treatment of recreation benefits is not well documented in its cost-benefit analysis. Recreation  benefits are aggregated and no indication of the value  of non-consumptive types of recreation is given, although Hydro later clarified this during the course of the Utilities Commission hearings. During those hearings, both B.C. Hydro and  the Ministry of Environment agreed that the non-consumptive value of wildlife was  equal to one-third  of the hunting value of wildlife. While this valuation overcomes to  some extent the limitation of a Clawson approach —  which values wildlife "as i f their  main value is to be stalked and killed by sportsmen" (McAllister, 1980, p. 131) —  it is  not clear whether this arbitrary figure reflects the true value of wildlife for recreational enjoyment, scientific research or ecological stability, for example.  7.6.4 Hunting and Trapping In valuing hunting and trapping impacts, B.C. Hydro made several assumptions which were contested  during  approach  used  the Utilities Commission hearings. in Hydro's  evaluation  The first was the willingness-to-pay  and accepted  by the Utilities  Commission. The  127 Ministry of Environment used a willingness-to-be-compensated a resource value twice as high as the WTP The and  second assumption used by  (WTS)  approach which gave  approach (see Table VII).  Hydro was  a presumption that losses in hunting  trapping potential are directly proportional to the loss in land area. In general, there  seems to be no basis of support for such an assumption (Nemetz et al., 1980). For Site C, this assumption was  somewhat borne out by trappers' claims that the 6 percent loss in  area would create no more than a 10 percent reduction in trapping capacity (BCUC, 1983, p. 191).  Hydro's third assumption was on  the  assured  grounds that there  were  to neglect of the value of lost enhancement potential "no  specific plans  for wildlife  enhancement and  future demand for the increased stock" (BCUC, 1983, p. 190). The  Environment did have enhancement plans, and enhancement potential should argument again  points out  be  included  some  general. While Hydro accepted the  no  Ministry of  the Utilities Commission agreed that lost  in the  valuation of resource  inconsistencies in its resource  losses. Hydro's  evaluation  approach in  evaluation of agricultural losses based on  potential without considering actual levels of future demand, it was  production  unwilling to recognize  lost potential of wildlife resources.  The  fourth  Commission, was  assumption  made  by  Hydro, and  not  challenged  by  the  Utilities  its neglect of uses of forest and wilderness areas for activities other than  timber production, hunting  and  of forest land mentioned by  trapping, and  non-consumptive use of wildlife. Other uses  intervenors included its use for fuel, as a climate modifier,  for scientific study or for ecological stability (BCUC, 1983, p. 178). 7.6.5 Fisheries B.C.  Hydro estimated  the net impact on fishing opportunities in the Site C  area to range  128 from  a loss of $300,000 to $2.0 million (see Table VII). In contrast, the Ministry of  Environment  estimated resource losses of $2-4  million. The evaluation of fishery impacts  remained unresolved at the end of the Utilities Commission hearings. Disputes centered on estimates of maximum sustainable yield in the reservoir and estimates of demand. Hydro's calculations showed the Site C dam would  enhance angling  days by almost 50 percent  while the Ministry's calculations determined that angling days would decline by 25 percent The  differences in this assumption  largely accounted  for the different estimates produced  by Hydro and the Ministry. The Utilities Commission concluded that neither Hydro nor the Ministry of Environment  had sufficient data upon which  fishery impacts and charged them both with  to base an evaluation of  the responsibility of further study (BCUC,  1983, pp. 203-4). In general, the Commission agreed with the evaluation parameters by  the Ministry of Environment,  used  except for its use of WTS rather than WTP as the  basis for evaluation. 7.7 C A L C U L A T I O N OF SOCIAL COSTS Regional impacts were presented in B.C. Hydro's cost-benefit statement (1980a, p. but  are not well  community  stability  documented. and social  magnitude (insignificant given  (see Table  minor  Impacts  on physical  infrastructure were or major) with  VIII). Although  more  infrastructure, family  rated  according  relocation,  to their  no additional information  7.10)  expected  or description  data were available in Hydro's  Environmental  Impact Statement (1980b), no mention was made of these in its SCBA (1980a). During the Utilities Commission hearings, more detailed evidence of regional social impacts was presented. The four issues which non-resident employment (ii) community  were addressed  impacts, (iii) health  were: (i) resident versus service impacts, and (iv)  impacts, on native communities. None of these considerations was explicitly incorporated into the  Site C  cost-benefit  calculations, but the Commission  did make  recommendations  129 T A B L E VIII SOCIAL IMPACTS OF SITE C (identified by B.C. Hydro)  Impact  Significance 1  Direction  2  Potential for Potential for Mitigation Compensation 3  3  Physical infrastructure  1  -  -  P  Relocation  2  -  -  P  Community stability  1  -  -  P  Social Infrastructure  1  -  -  F  Income  1  +  N  N  Employment  1  +  N  N  Aesthetic/Visual  2  -  0  0  Notes: 1. 0 1 2  Insignificant Minor Major  2.  Source: B.C. Hydro, 1980a, p. 7.10.  + -  Positive Negative  3.  F Full P Partial 0 None N Not Applicable  130 concerning their treatment. Because the distribution of project benefits depends locus of hiring, the Utilities Commission  to a large extent upon the  recommended the development  of local hiring  programs to be administered by Hydro (BCUC, 1983, pp. 224-225). The  Commission also  dealt  communities  with  requests  recommending Peace-Liard  a  for compensation  compensation  Regional  package  District based  on  by  four  for Fort  local  Peace  St. John,  a monitoring  River Hudson  program. The  Hope  and  Commission  by the  turned  down the town of Taylor's request for compensation and a request from the Peace-Liard Regional District for intangible costs (BCUC, 1983, pp. 229-237). The Utilities Commission also recommended a monitoring program for impacts on native communities (pp. 240-246) with  three restrictions: (i) compensation should  be  in kind rather than as direct cash  payments to natives, wherever possible; (ii) any monetary compensation should be used to develop compensation schemes in conjunction should not be based on the cumulative  with  native input; and  (iii) compensation  impacts of various developments on  the native  subsistence economy but on specific Site C impacts only. 7.8 E V A L U A T I O N ISSUES 7.8.1 The Evaluation of Intangible Project Impacts B.C. Hydro recognized several intangible resource impacts in its SCBA. The discussed  was  on  heritage resources, for which Hydro  suggesting even an approximation and the Utilities Commission  had  "no  major impact  satisfactory method for  to value" (B.C. Hydro, 1980a, p. 3.5). Both B.C.  agreed to participate in a cost-sharing program  Hydro  to salvage  heritage resources. Under this program, Hydro would be responsible for up to $1.1 million and the province responsible for up to $500,000. Implicitly, one could assume the value of intangible  heritage  resources  to be  at least  $1.6  million.  This  issue  was  not highly  131 contested during the Utilities Commission hearings. The  other  intangible  analysis were effects on one  sentence  Hydro  resource  air and  mentioned  impacts  mentioned  water quality, and  in Hydro's social cost-benefit  climatic effects. In little more than  "unquantifiable visual, aesthetic  (1980a, p. 7.9) but failed to elaborate upon these in any way,  and  relocation  impacts"  other than to provide a  table listing the relative magnitude of these impacts (B.C. Hydro, 1980a). Although some additional information can be found in Hydro's Environmental Impact Statement for Site (1980b), there is no reference to this document in the discussion of intangible impacts.  Hydro's  treatment  of  these  intangible  resources  leads  to  the  conclusion that  "unquantifiable" resources are synonymous with "undescribeable" resources. Although felt that "benefits and  costs which  can  be  Hydro  quantified are often the least controversial  aspect of project analysis" (1980a, p. 7.9), it gave very little information on the supposedly more controversial intangible resource impacts. From the evidence presented at the Utilities Commission  hearings, it seems  that the  quantifiable  impacts  proved  to be  the  most  controversial. 7.8.2 The B.C.  Debate Over WTP  Hydro  During  the  Environment recreational  adopted Utilities used resouces  a  vs.  WTS  willingness-to-pay approach  Commission  hearings  it became  willingness-to-be-compensated on  Crown  for all of its resource valuations. evident  (WTS)  figures  that for  the  Ministry  of  access  to  lost  land. Hydro itself recognized that recreation on  lands is an "inalienable public right" (1980a, p. 7.8), yet did not use WTS  Crown  measures for  these resources (see previous discussion in Section 4.1.1).  In contrast, the Utilities Commission denied this notion of any inalienable right of private citizens with respect to Crown resource losses. The  Commission argued  that cost  C  132 and benefit estimates should measure worth to the province as a whole and not to any special  group  of users  (1983,  p. 148). In the Commission's  calculations are correct. The only use of WTS  estimation, only  WTP  recognized by the Utilities Commission was  for impacts "on native Indian rights under treaty" (BCUC, 1983, p. 148). This decision by the Commission may portend future debate over the blanket adoption of WTP measures in light of the ELUC's recommendation to use WTS  to evaluate natural resource losses on  publicly-owned land (1977, p. 37).  7.8.3 The Discount Rate In  its choice of a discount rate, B.C. Hydro calculated  capital as 6 percent, which it determined  its  social opportunity cost of  by weighting its various sources of funds. For  purposes of sensitivity testing, B.C. Hydro adopted discount rates of 3, 6 and 10 percent There was a fair amount of debate during the Utilities Commission hearings over the selection of an appropriate discount rate. Fox (1981) argued that Hydro's estimate of the social opportunity cost of capital (SOCC) was inaccurate because it was based on a subsidized rate on trusteed funds  given to Crown agencies such  as B.C. Hydro at the  expense of pensioners (such funds provided 4 3 % of B.C. Hydro's capital requirements). The true SOCC  would  therefore be greater than  6 percent  Lord  and Sydneysmith (1982)  claimed that 6 percent was the lowest plausible discount rate and recognized that there were arguments to support an even higher rate. The E L U C cost-benefit guidelines (1977, p. 71) suggest using discount rates of 8, 10 and 12 percent i f a true SOCC cannot be determined. Treasury Board Canada (1976) guidelines recommend 5, 10 and 15 percent  Ultimately, the Utilities Commission decided to use a hybrid discounting approach in which (i) a 3 percent discount rate would apply to resource costs and benefits (based on  the long-term  risk-free government bond rate equalling the SRTP), and (ii) an 8  133 percent discount rate would apply to investment cash flows (based on the Commission's estimate of the SOCC). The Commission's approach advocated  appears consistent with the method  by Pearce (1983), but should not neglect the benefits of sensitivity testing on  the SRTP and/or the SOCC. 7.9 A Summary of Benefit and Cost Estimates Table  IX summarizes the benefit and cost estimates that emerged  during the Utilities  Commission hearings for a range of discount rates. The discounted value of net benefits for Site C ranged  from a high of $766.6 million (estimated by B.C. Hydro) to a low of  -$409.2 (estimated by SPEC). The Utilities Commission did not produce final estimates of net benefits or cost/benefit ratios for Site C because Hydro had not correctly estimated project benefits, and fishery impacts had not been accurately determined. It is possible to derive approximate  net benefit measures for Site C based on the  best information available at the end of the B C U C hearings. These are presented in Table X. Discount rates of 6, 8 and 10% were chosen because there seemed to be a consensus among  participants that 6%  was the lowest possible rate. These  discount factors were  applied to project benefits and capital costs. Because B.C. Hydro's benefit estimates were determined by  to be incorrect, the only, other benefit estimates available were those calculated  Lord and Sydneysmith  (1980a) and Lord  (1982). These are also shown in Table X. Both B.C. Hydro  and Sydneysmith  (1982) agreed  on the present value of capital and  operating costs; the Utilities Commission did not appear to contest these.  The  resource  costs used  in Table  X  are those  recommended  by the BCUC.  Discounted present values using the hybrid discounting approach and an 8 percent rate are shown. However, these resource costs exclude the value of fishery impacts as the Utilities Commission determined  there were insufficient data on which to base an evaluation. Using  TABLE IX A COMPARISON OF BENEFIT A N D COST ESTIMATES FOR SITE C ($ millions 1981)  Discount Rate  Analysis by:  3%  B . C . Hydrol  $2078.7  6%  B.C. H y d r o  1233.7  SPEC  8%  1  2  SPEC  2  BCUC  10%  B.C. Hydro SPEC  Hybrid  3  2  BCUC  1  Present Value Benefits  Present Value Present Value Present Value Capital Costs Resource Costs Net Benefits  $1137.0  $175.1  $766.6  939.9  53.6  240.2  791.7  805.6  46.3  - 60.2  445.5  712.9  23.1  - 290.6  n.e.  n.e.  28.6  n.e.  771.8  769.8  18.5  - 16.5  266.7  660.2  15.7  - 409.2  n.e.  n.e.  70.5  n.e.  4  4  Table Notes: n.e. 1. 2. 3. 4.  Not estimated B . C . Hydro, 1980a (converted from $1980 to $1981 at 8%). Lord and Sydneysmifh, 1982 (converted from $1982 to $1981 at 8%). Hybrid discounting approach recommended by the B . C . U . C . for resource costs. Excludes fishery resource impacts.  Source: B . C . Hydro, 1980a; Lord and Sydneysmith, 1982; B C U C , 1983.  TABLE X E S T I M A T E D N E T B E N E F I T S O F SITE C ($ millions 1981)  (1) (2) Discount Rate Present Value Present Value for Benefits of Benefits of Capital & Capital Costs Costs  (3) Present Value of Resource Costs  (4) Present Value of Net Benefits  (3a) (3b) [l-(2+3a)] Hybrid 8% Discount Hybrid Discount Rate Discount 6%  $791.7  $805.6 $70.5  8%  445.4  712.9  10%  266.7  660.2  [l-(2+3b)] 8% Discount Rate  $28.6  -$84.4  -$42.5  70.5  28.6  -338.0  -296.1  70.5  28.6  -464.0  -393.5  Source: B . C . Hydro, 1980a; Lord and Sydneysmith, 1982; B.C.U.C., 1983.  136  these data, the discounted  value  of Site C s net benefits range from -$393.5 million to  -$42.5 million; there are no net benefits to be gained from constructing Site C, only net losses. 7.10 POLITICS A N D  THE SITE C  PROJECT  In retrospect, B.C. Hydro's social cost-benefit analysis of Site C seems inadequate. A look at the political events surrounding of  SCBA  problem  in actually guiding definition  the Site C project casts further doubt on the usefulness government  and the related issue  decisions. The of energy  story  exports.  to be told  deals  with  Specifically, was the real  problem being addressed by B.C. Hydro and the provincial government one of determining how  to avoid an energy shortfall, or of how  to justify building Site C? The following  analysis makes the latter problem definition appear more likely. The  provincial government's policy toward energy exports in the late 1970s was to  allow exports  of surplus electricity only, and on an interruptible basis; building projects  specifically for export markets was not pursued (Vancouver Sun, Aug. 30, 1985, p. A16). At  about the same time that B.C. Hydro announced its intention to build Site C for  domestic demand, Hydro chairman Robert Bonner was saying he was in favor of energy exports and was actively looking into the possibility of developing claimed  that  the province  would  have  to start  considering  export markets. He also nuclear  energy  by the  mid-1980s (Province, Feb. 14, 1978, p. 20; Vancouver Sun, Mar. 4, 1978, p. A3). Some time after Site C  was announced, the provincial Social Credit government  tried to show its concern to avoid  building projects unnecessarily  in several ways: the  Utilities Commission review process was established; Energy Minister McClelland reiterated the  government's  policy  that  overbuilding  for energy  (Province, Feb. 7, 1982, p. CI); and Premier  Bill  export  would  Bennett assured  not be voters  allowed  that large  137 development projects were not the answer to economic and Colonist, Feb.  23, 1978, p. 22). Members of the NDP  suspicious that Site C  was  unemployment problems (Daily  Opposition  party were  nevertheless  linked to energy export rather than provincial energy demand  (Province, Oct. 4, 1979, p. A4). Because provincial policy did not encourage building energy projects for export, the Utilities  Commission's  review  of  Site  C,  and  B.C.  Hydro's  proceeded on the basis of provincial energy demand only. The exports  were not  were that Site C  considered. had  The  BCUC  argument  potential benefits of energy  recommendations to the  not been shown conclusively to be  supporting it,  provincial government  the best project to build, and  that future energy demand levels did not require construction to start at that time (BCUC, 1983). After  receiving  the  Utilities  Commission's  government announced a ten year moratorium on  recommendations, the  Site C  the  project and  Social  Credit  simultaneously  announced that further public review of demand and  project alternatives would not  necessary  Only  (Vancouver  Sun,  government decision, B.C. export licences for surplus  Nov.  9,  Hydro  1983,  applied  power  from  p.  to  C3).  the  National  its recently  several Energy  completed  months Board  after  be this  for expanded  Revelstoke hydroelectric  project Environmental groups feared that this application would re-open the possibility of constructing Site C  The  for export (Province, March 15, 1984, p. 26).  fears of Opposition  members and  environmentalists  later with Premier Bill Bennett's announcement on August 29, 1985 built  for export i f markets could  be  found. He  that Site C  also restated the  decision to avoid further public review (Vancouver Sun, Aug. words, Site C  were justified  one would  year be  government's earlier  30, 1985, p. A16). In other  would be built for energy exports if markets could be found, regardless of  the social costs and benefits of such a proposal.  138 Within a few months, not only did it seem likely that Site C would be built for export without conducting a SCBA, it also seemed that B.C. Hydro was again determined to build Site C  to supply domestic energy. Despite the BCUC's admonitions that Hydro  had  Site C  not proven  from  to be the best energy  a social cost-benefit point  claimed that Site C would  project to meet provincial requirements  of view, the new  Hydro  chairman  definitely be the next project undertaken: "We  Chester  Johnson  will build Site  C, either for the export market or our own domestic needs. . . . Our aim is to be a provider of low cost electricity and that necessitates bringing on Site C" (Vancouver Sun, 1986).  139 CHAPTER 8 IMPROVING SOCIAL COST-BENEFIT ANALYSIS  The  preceding  political  chapters have made it clear that there  problems with  social  cost-benefit analysis. The  suggest some ways to improve adopted  in practice. Section  followed  by  an  are many economic, ethical  SCBA  8.1  will  and  illustrate  purpose  how  such  develop some general  application of these principles in Section  process described in the Site C  case study in the previous  However, before considering how should first consider why  we  of  and  this chapter is to  improvements could  be  principles for improvement,  8.2  to the  project  evaluation  chapter.  social cost-benefit analysis could be improved, we  want to improve it. Perhaps there are alternative methods of  project evaluation that are better than social cost-benefit analysis. Whether or not what one  there  are  alternatives to social cost-benefit analysis depends  believes the purpose of project evaluation is or should  on  be. There are at least  four possible purposes which project evaluation can serve. The first is to ensure that wise social decisions are being made by government for the benefit of all society regardless of the  power and  resembles  that  influence of various of  the  social  sub-groups within society. This  economist  who  attempts  to  make  view most closely decisions  maximizing economic efficiency; if efficiency is maximized, governments can programs to redistribute wealth purpose  of  project  evaluation  or pursue other might  be  to  social  goals  as  they  guarantee  some  minimum  based  on  then establish  see fit. Another level  of  fiscal  responsibility to ensure that government projects stay within budgeted resources. This view might resemble the position taken by individuals who  treasury departments or by  desire strict control over government spending. A  project evaluation is to coordinate the project decisions of one  politically  conservative  third possible purpose of  government agency with the  140 policy goals of other government departments. This view might reflect the approach taken by  government planners responsible  development and  and  approach, in which bargaining their way  to have their  well as  regional economic  purpose of project evaluation might also be to provide a backdrop for the lobbying power that often  goals, as  implementing  the  of political  quality  and  social programs. Finally,  use  environmental  for developing  affects project decisions. This  and  view takes a  political tactics are used to allow those who  political can  get  way.  In reality, project evaluation must accommodate all four possible views because of the  diversity  of  individuals and  organizations  involved  in a  project evaluation  process.  Governments face pressure to justify their decisions. People want to know that government funds are  not  being  misallocated  people might also wish decision  according  to  being  used in a grossly inefficient manner. Some  governments to show that they are  various  government departments, and other  or  criteria.  Policies  and  goals  making the  exist in a  best possible  wide  variety  of  there will be pressures from these departments to ensure that  departments' actions will not  be  counterproductive  to their own.  Because projects  must be implemented as well as evaluated, governments will face pressure from those  who  have some power to oppose or obstruct implementation. Social cost-benefit analysis is designed to fulfill only one of the four purposes that project evaluation might serve: the generation  of wise social decisions from the perspective  of economic efficiency or some modification thereof. It does not necessarily guarantee fiscal responsibility  in  government, nor  does  it necessarily  provide  for  the  coordination  government policies, or take into consideration the political forces that may implementation. And,  of  thwart project  as the previous chapters in this paper have shown, social cost-benefit  analysis cannot guarantee that wise social decisions will be  produced  by  following  the  cost-benefit methodology. What social cost-benefit analysis can do reasonably well is reveal  141 certain  information  possible estimates information  about problems, alternatives, goals  and  objectives, consequences,-  of the costs and benefits to society of making  can be  used to help  various decisions. This  individuals make decisions according  perspectives, be it wise social decisions, fiscal responsibility, planning  and  to a variety of  and coordination, or  political bargaining.  Is there an alternative to social cost-benefit analysis that meets all four purposes of project evaluation but that avoids  the problems associated  with  SCBA? The  Planning  Balance Sheet and the Goals Achievement Matrix are touted, at least by their authors, as being  alternatives to SCBA. However, SCBA, PBS  but variations on a theme. They differ only usually relies on economic efficiency, while PBS redistribution, and G A M defined, however,  uses any  the three  and G A M  in the way  are not different techniques they define  objectives. SCBA  uses both economic efficiency and  income  of several objectives. Once the objectives have been  methods follow exactly the same procedure. A l l three are  examples of a goal-dependent or substantively rational decision model which follows five steps: (i) the recognition of a problem; (ii) the definition of goals and objectives; (iii) the identification of alternatives; (iv) the identification of consequences; and (v) the evaluation of consequences. The previous chapters have shown that this goal-dependent model fails in many ways when applied to the complex  projects that fall under the purview of social  cost-benefit analysis. If we  accept this goal-dependent process for project evaluation, there really is no  alternative to social cost-benefit analysis. But there However, before  We  improvement  economic  are  could, for example, ignore the variety of perspectives on project  evaluation and try to improve the way an  for  trying to improve SCBA it is essential to decide to what end we  seeking improvement  from  certainly is room  efficiency perspective.  SCBA makes claims about wise social decisions Or, we  could  take a  broader approach  and  142 attempt to modify  social  cost-benefit  analysis to allow  it to generate information  that  would be useful from a variety of perspectives. The latter is the approach taken in the remainder of this paper.  8.1 A D D R E S S I N G T H E  PROBLEMS  The various problems with social cost-benefit analysis are of five different types: empirical, methodological, theoretical, ethical and political. The problems discussed  in preceding chapters according  matrix  in Table X I classifies the  to the stage of analysis and type of  problem.  Empirical  problems arise in the observation  and measurement of states of the  world, or variables within a system, such as economic, social and environmental systems. The  problems that  arise include  aesthetic value of a wilderness  difficulty  in obtaining  site) or the existence  certain measurements (e.g., the of different measurements of a  variable produced by the same basic measurement technique (e.g., conflicting estimates of the amount of land  flooded  by a dam). Different measurements might arise because of  some natural variability i n the environmental, economic or social system being measured, or because of an inherent lack of precision in the measurement technique itself (there  may  be a margin of error or the method may be applied inconsistently).  The  kinds  of empirical  problems that arise most often  in cost-benefit  analysis  affect the identification and evaluation of project impacts. For example, the measurement technique for identifying the amount of flooded defining  agricultural land  and measuring  agricultural land may  be as simple as  the acreage that would be lost, yet different  estimates could result from different definitions of agricultural land or from the use of different maps as the basis for the calculations. Another empirical problem encountered in SCBA  is the inability to measure or assign  an economic value to changes in certain  TABLE XI A CLASSIFICATION OF PROBLEMS IN SOCIAL COST-BENEFIT ANALYSIS  EMPIRICAL  ECONOMICS METHODOLOGICAL  PROBLEM DEFINITION  inaccurate prediction wicked problems  OBJECTIVES  interpersonal utility  • interpersonal utility  na  na  ALTERNATIVES  CONSEQUENCES  EVALUATION  definition measurement inadequate data  - intangibles  wicked problems  THEORETICAL - narrow definitions  second best Scitovsky reversal actual vs. potential compensation  incomplete alternatives  ETHICAL multiple definitions  - Arrow's Impossibility Theorem  multiple sets of alternatives  - prediction  - inaccurate prediction - implicit judgment - poor understanding  - biased techniques option value - non-users irreversible impacts  - WTP vs. WTS - discount rate • uncertainty risk  - non-utilitarianism - value judgments - reductionism - rights - discount rate  POLITICAL biased definitions  hidden agendas political goals  biased alternatives  manipulation of boundaries  biased costs and benefits neglected qualitative impacts  144 environmental  resources. Intangible impacts are an empirical problem; there is no reliable  instrument to measure their value. Empirical which  problems might be  analysis is based  by  resolved in several ways: improving  improving  data  understanding of systems to help determine the  reliability of the  techniques  used  generation  and  the  data  on  reporting; increasing our  which data should be collected; and  for measurement either  through  improving  more consistent  application or through the creation of more accurate methods.  Methodological problems arise in the methods or rules followed in a discipline in its principles or procedures measurement technique  of inquiry. A  methodological  problem can  —  exist when a  does not fully capture the values being sought because of some  misspecification of the measurement technique itself (that is not accounted  for by empirical  problems of system variability or equipment variability). In by WTS)  SCBA, methodological problems of economic evaluation techniques are revealed  the difficulty  in deriving compensating  measures of consumer surplus, by  variation and  equivalent variation (WTP  the different estimates produced by  and  economic  surrogate and hypothetical valuation approaches, by the omission of certain values (such as non-users and option values), and by the existence of biased estimates. Methodological  problems can  be  addressed  by  understanding  the  advantages  and  limitations of available techniques, identifying the sources of measurement problems, and developing and testing more theoretically consistent techniques. Theoretical problems arise when the models, principles or theories used to explain events in the world explanatory  principles  do  not correspond  cannot  be  to events that actually occur or when general  determined  at  all. Such  misspecification of the general principles used to build a  problems  result  theory; in other  from  a  words, the  145 simplification necessary to construct a model cannot capture the complexity of some real world systems. The kinds of theoretical problems in the discipline of economics that affect social cost-benefit used  analysis  to predict  Scitovsky  affect all stages of the analysis, ranging from the economic theory  future  reversal  energy  demand  levels, to the theory  of second  paradox, to the use of willingness-to-pay  versus  best and the  willingness-to-sell  estimates, to the selection of a discount rate.  Theoretical  problems  are resolved  by refining  existing  theoretical  models  or by  developing new ones. However, there are constraints on our ability to solve these types of problems, stemming and  technical  not only from our limited ability to generate the required scientific  knowledge  but also  from  the need  for timely analysis  and the finite  resources available to conduct it Ethical problems arise from the conflicting interests and beliefs held by individuals in  society, particularly in individuals' different assessments of the desirability of certain  goals or actions. In  SCBA, ethical  different objectives the  problems  for evaluation,  result  in multiple  problem  definitions, the use of  and the specification of different sets of alternatives. In  evaluation phase of SCBA, ethical problems complicate the aggregation and weighting  of costs and benefits, the assignment of rights and the use of WTP and the selection of a discount rate (in particular, its implications Ethical  problems  interests. Possible  require  approaches  might  different interests, accommodating or ignoring them.  some  method  include  of identifying  providing  them as far as possible  an outlet  and WTS  measures,  for future generations). and  reconciling  diverse  for the expression of  in the analysis, reconciling them,  146 Political  problems  are  loosely  defined  as  pressures  that  encourage  groups  to  manipulate analysis to support a desired outcome. This might take the form of intentional pressure to force a specific solution favored by some person or group, or unintentional or indirect pressure due because of  the  to constraints on  time and  resources.  different degrees of power held  by  Such political problems arise  individuals, or  because of limited  resources available for analysis.  The  political  definitions,  missing  benefits and  problems objectives  that or  most  hidden  underestimation of costs, and  Political problems might be  frequently  affect SCBA  agendas, biased  are  biased  problem  alternatives, overestimation  of  the manipulation of project impact boundaries.  reduced by  clarifying and  strengthening  the  rules of  analysis, or might be accommodated by creating more flexible project evaluation guidelines. With these general arise  in  each  evaluation — 8.1.1  stage of  concepts in mind we a  social  cost-benefit  can  now  turn to specific problems that  analysis —  in the context of energy project planning and  from  problem  definition to  evaluation (see Table XII).  Problem Definition and Alternatives  Three specific problems can be identified in the problem definition phase of a SCBA (see Table XII): empirical difficulties in defining a problem; the ethical problem of conflicting problem definitions; and political incentives to bias the problem definition in the analysis. To and  improve energy demand prediction, we  prediction  of  energy  comparisons of predicted  and  demand  and  supply  could (i) implement ongoing monitoring conditions;  and  (ii) perform  routine  actual outcomes to increase the accuracy of prediction  ensure that potential energy shortfalls are discovered as soon as possible.  and  T A B L E XII ADDRESSING PROBLEMS IN SOCIAL COST-BENEFIT A N A L Y S I S  ECONOMICS EMPIRICAL  PROBLEM DEFINITION &  ALTERNATIVES  - post-project audit  METHODOLOGICAL  THEORETICAL  ETHICAL  POLITICAL  - monitoring  - review committee  - policy guidelines  - policy guidelines  - feedback  - public input  - review committee - public input  OBJECTIVES  - research  - research  - explore objectives - sensitivity  - "no net benefits"  analysis  CONSEQUENCES  EVALUATION  - scoping  - scoping  - referral process  - referral process  - research  - research  - research  - guidelines  - guidelines  - guidelines  - experimentation  - experimentation  - referral process  - review committee  - guidelines for qualitative  - qualitative assessment - experimentation  - probability assessments - guidelines  148 Multiple and  conflicting problem  specification of alternatives —  to ask  how  a  government  "appropriate"  be  policy  guidelines  may  exist  which  will  within a SCBA.  dictate  the  range  temporarily  that  need  not  be  included  in  an  banned, or governments might  analysis  is to  specifically  (i) begin  precluded  guidelines); and  by  because  with  the  formal  broadest definition;  government  (iii) exclude any  the best way  formal cost-benefit document Any government  appropriate, where new  be  not  be  might  statements  to approach problem  (ii) exclude (such  alternatives that would  be  technological reasons. This process of problem definition should  help  they  might  the time required or because they are too small or too large  relative to the magnitude of the problem. Therefore, definition  of  alternatives regardless of the outcome of a social cost-benefit analysis: the  technologically feasible by  will  explored  explicitly or implicitly averse to demand-limiting measures. Similarly, there  alternatives  the  avoided. Various alternatives  or decrease demand could then be  construction of nuclear power plants might be be  closely linked to  broadest problem definition for energy project planning  future energy shortfall could  designed to increase supply However,  which are  are more likely to arise when problems have been defined  narrowly rather than broadly. The would be  definitions —  as  those alternatives  legislation  inappropriate be  or  policy  for size or  clearly outlined in a  conflict that then ensues concerning problem definition  decisionmakers  identify  guidelines might be  which  policy  guidelines  are  no  longer  needed, or where more emphasis should  be  placed on technological research and development.  Biased problem definitions could be political  problem  facing  social  avoided by using the above approach, but  cost-benefit  analysis  definition is done appropriately by an agency that may  is how  to  ensure  that  the  problem  have internal incentives to bias the  definition process. Agencies that possess the information and  expertise needed to accurately  define problems might try to hide a biased problem definition in highly technical concepts or limit verification of their definition by refusing access to important data. Achieving  an  149 integrated approach to problem definition is not simple. It requires a policy and framework  within government  capable of addressing  (Cornford  et al., undated; Marshall  et a l , 1985;  might be to use an independent agency  regional and resource Sadler, undated). A  or task force which would  planning  sector policies  possible solution closely oversee or  itself conduct the problem definition phase by providing it with the power to obtain the necessary information and the resources or personnel to analyze it.  This personnel  task  from  force a  could  be  a  permanent  variety of departments, that  committee, would  be  composed responsible  of  government  for coordinating  demand prediction, problem definition and alternative selection among the various agencies with  jurisdiction  or  expertise  relating  to  energy  project  planning.  Alternatively, the  committee could involve participation by industry and interest group representatives, as well as by  government,  to reflect the diversity  of interests that are affected by  a project  proposal.  8.1.2  Objectives  There are three problems that affect the specification of objectives for a social cost-benefit analysis: (i) theoretical problems associated with the theory  of second best, the Scitovsky  reversal paradox, and the need for actual compensation with non-marginal projects; (ii) the ethical  problem  of incorporating  multiple  objectives  in light  of  Arrow's Impossibility  Theorem; and (iii) the political problem of hidden agendas. The  problems  posed  by  the theory  of second  best and  the Scitovsky reversal  paradox have no practical solution. For example, it would be impractical and impossible to ensure that all decisions in the economy, in both the public and the private sectors, were made on the basis of social costs and  benefits. Similarly, it would  difficult to identify the individual people who  be administratively  receive benefits and have them  compensate  150 all those people suffering losses from a project Our  inability to resolve these theoretical  problems implies that the results of a social cost-benefit analysis must be taken with a grain (perhaps a block) of salt However, the more marginal a project is relative to the economy, the less serious are these problems. It might also be possible to clarify the conditions under which actual compensation would be important. whose  land  compensated political  is expropriated for the value  or ethical  to  make  way  for a  of their lost property,  reasons to compensate  For example, individuals  hydroelectric  dam  are  but it might also be  losses such  as pain  and  commonly  desirable for  suffering, lifestyle  changes, the imposition of certain involuntary risks, etc.  The serious  impossibility of defining  problem  for social  a  cost-benefit  guarantee the wisest social decision —  true, unique analysis  social  i f we  it cannot, as we  welfare  function  assume that  using  have seen. The  is also SCBA  should  will  existence  positive net benefits cannot be an objective measure of a project's desirability and  a  of  hence  not be used as the sole justification for deciding whether or not to approve a  project What is needed instead is a clear statement of the purposes of project evaluation; if it cannot be to maximize social welfare, it must have a more specific purpose. Deciding that SCBA should evaluate only economic welfare is not a solution because we have seen that SCBA cannot guarantee this. There are two possible ways out of this dilemma. way  is to  ignore  the  uncertainties posed  by  the  various  theoretical,  One  methodological,  empirical, ethical and political problems and develop strict rules for conducting SCBAs and specifying the benchmark level of net benefits that a project must exceed. The other to approach the dilemma  way  is to decrease SCBAs emphasis on net benefits by using the  SCBA framework as an exploratory device that is as much qualitative as it is quantitative. This  idea  will  be  developed  further  in the  following  sections  on  consequences  and  evaluation, but in the context of objectives we can use the basic SCBA framework to: 1.  explore  the economic  welfare costs and benefits of projects, both quantifiable  151 and 2.  non-quantifiable;  explore the non-economic welfare costs and benefits by considering: i) what other important objectives might there be? ii) which objectives are irreconcilable with the project and which are not? iii) what are the quantitative and non-quantative effects of the project on these other objectives?  3.  derive a range of net benefit estimates: i) from an economic efficiency perspective; ii) incorporating income distributional weights; or iii) incorporating other objectives, with as much emphasis on non-quantifiable impacts as on quantifiable ones.  8.1.3 Consequences Two major problems affect the identification of consequences in a cost-benefit analysis: (i) the empirical, methodological  and theoretical problems in the definition, measurement and  prediction of economic, environmental and social impacts; and (ii) the politically motivated manipulation To  of project impact boundaries. avoid  the problem of cumulative impacts that may  which impacts are defined, a SCBA should  arise from the way in  measure impacts in the traditional method of  "before" and "after" scenarios but also identify any economic, environmental or social goals that might be affected by the project in question. The identification of these goals would require  some  form  of notification  to and  feedback  from  a  variety  of government  departments concerning a project's expected impacts before a written cost-benefit document is produced. This feedback could then serve as a qualitative assessment of conflicting goals and  indicate where mitigating measures, either in the project under review or in other  departments' projects, would be required to ensure important goals would still be met.  152 Achieving this goal requires an integrated policy and planning framework similar to that required  for coordinated  suggests that a two-tiered  problem  definition  and alternative selection. Moreover, it  approach to project evaluation could  be beneficial: the first  stage would address general policy issues on, for example, energy development strategies and deal  economic, environmental and social policy objectives, while with  the identification  and evaluation  of selected  the second stage would  project  alternatives (see,  e.g.,  O'Riordan and Sewell, 1981; Marshall et al., 1985).  Although  the complexities of impact measurement and prediction were addressed  only briefly in this paper, some general problems seen in the case study include  inadequate  historical  data  on  which  to base  of Chapter 7  predictions, adequate  data  but  inadequate coordination among various government departments to secure that information, or  inaccurate  problems  prediction. Overcoming  early  enough  to  allow  these problems would the planning  and  be facilitated  research  by identifying  required  for impact  measurement For example, soon after a problem has been identified, objectives set and alternatives selected, a scoping session could be held by the agency conducting  the SCBA  along with other government departments to identify impact categories, identify what data are readily available, routinely collected and reliable, determine what data will need to be generated, and how  that  data  can be generated  with  the time  and funds available  Marshall et al., 1985; Sadler, undated; Whitney and Maclaren, 1985). The  use of post-implementation  project audits, which  impacts and comparing them to predicted impacts, could help  involve  monitoring  improve the accuracy of  predictive models as well as identify any compensation measures that should mitigate  serious impacts.  monitoring  Post-implementation  and management or adaptive  audits, also referred to as impact  actual  assessment (Cornford  be taken to follow-through  et al., undated;  Whitney and Maclaren, 1985), can be applied to the prediction of environmental,  social  153 and  economic impacts. The questions that might be asked in a post-implementation audit  could include: Were important impacts identified? Did the process generate timely results? Was  the information  technically  sound  and sufficiendy  focussed  to be  of use to  decision-makers? (see also Sadler, undated). The  manipulation of project boundaries can only be resolved with a clear political  statement of the purposes of the project evaluation and approval process. A tendency for provincial governments to consider only those impacts within provincial boundaries may be politically justified, even i f not sanctioned by welfare economists, but impacts to individuals outside the province may nevertheless occur and compensation for costs could be required. Such potential impacts and costs should be considered if a full accounting of a project is desired. 8.1.4 Evaluation There are empirical, methodological, theoretical, ethical and political problems that affect the evaluation phase of a SCBA. These include: (i) the empirical problem of intangibles; (ii)  the methodological  problems  posed  by  bias, option  value, non-users'  preferences,  irreversible impacts, and diverging equivalent variation (EV), compensating variation (CV) and  Marshallian estimates; (iii) the theoretical problems in selecting WTP  versus  WTS  measures and the choice of a discount rate; (iv) the ethical problems of aggregating and weighting costs and benefits, using a non-zero discount rate, and determining rights; and (v) the political incentives to overstate benefits, understate costs, stress quantitative costs and benefits, and ignore qualitative ones.  Intangibles can be dealt with in several ways in a SCBA. Firstly, those in charge of  establishing  techniques  cost-benefit guidelines could  for as yet intangible  keep  resources, or even  abreast sponsor  of research such  in evaluation  research  themselves.  154  Secondly, guidelines for reporting intangibles could  be developed  that would  ensure a  minimum level of specificity; for example, variables such as the nature of the impact, the potential population affected, a subjective assessment of impact magnitude, the location of the  impact, and the worst possible outcome could  be reported, along  with  a detailed  statement of why an impact could not be measured or assigned an economic value.  There are three approaches for dealing with the various methodological problems in evaluation: research, guidelines and experimentation. government responsible  for cost-benefit guidelines could  recent developments in the treatment stating how  such  cases will  intangibles, the branch of  sponsor  or keep  informed  of  of option value, non-users, etc. Specific guidelines  be handled  could  values, non-users, and the effect or irreversible methodology concerning  As with  be developed, such  as ignoring option  impacts because both  the theory and  their use is indeterminate. However, the case study in Chapter 7  suggests that such an approach might still generate conflict; people will not unanimously agree on the guidelines to be adopted. Alternatively, more flexible guidelines could be developed  that would  allow  experimentation:  in effect, a type  of sensitivity analysis.  Different cost and benefit estimates could be generated, some with option values and some without,  some  incorporating  non-users  and  some  using  more  traditional  evaluation  techniques, and some incorporating some additional measure for irreversible impacts.  This  would at least identify i f such non-users, option values and irreversible impacts had any significant affect on the evaluation, or if they could easily be ignored. The or WTS  theoretical problems associated with selecting a discount rate and using  WTP  estimates for uncertain impacts can be dealt with by waiting for some definitive  theoretical breakthroughs,  establishing guidelines that state which  discount  rate or rates  should be used and which value estimates should be used (as is currently done), or using such  guidelines  in combination  with  an  experimental  approach  as  suggested for  155 methodological  problems. Awaiting the discovery of theoretical breakthroughs is probably not  a practical alternative: developments could take decades. The combined  with  experimentation  projects, yet allow discounting  flexibility  financial  costs  non-financial costs and and  is to  ensure consistency  in individual analyses. For  and  benefits by  a  in the  theoretically appealing  guideline for discounting. A  valuing uncertain resource agency  of  of different  recent practice of  interest and  discounting  benefits at a lower social rate of interest seems to be  responsible  for  a useful  range of discount rates could then non-financial impacts. Because of the  relatively recent theoretical developments concerning the use  the  evaluation  example, the  market rate  be used for sensitivity analysis of both financial and  for  advantage of using guidelines  of WTP  and  WTS  estimates  impacts, current valuation practices might continue as is, but cost-benefit  guidelines  could  continue  to  monitor  future  theoretical developments in this area. The resolved  ethical problems that arise in evaluation must be identified before they can  or analyzed  within the  context  of a specific SCBA. The  ethical problems is to create some method or process by  first  be  step in tackling  which these concerns can  be  discovered before a cost-benefit document is produced so that they can be incorporated in the final analysis, but identified after people have become aware of the possible impacts of a project. The  ethical dilemmas that have the most effect on SCBA are the  existence  of non-utilitarian frameworks, the assignment of rights to common-property resources, the  implications of the  discount  fate for future generations.  and  If people express concerns  about these issues, they might be addressed within a SCBA by (i) identifying the types of non-utilitarian principles held by groups or individuals and qualitatively assessing the effect of the project on of weighting  those principles or quantitatively exploring, for example, the implication  irreversible impacts or involuntary risks; (ii) exploring the magnitude of the  difference between WTP  and  WTS  estimates  for common property  resources;  and (iii)  comparing the use of a zero discount rate with some positive rate for non-financial costs  156 and benefits. The  political  incentives  to  overstate  benefits  benefits are assumed to be more certain and  and  understate  costs  result when  costs less certain than they actually are. In  a cost-benefit analysis, it is common to identify a range of impact measures for each variable affected by likely and defining  a project that spans from the worst possible outcome to the most  the best possible outcomes. Benefits can be overstated and the  most likely  outcome to be  outcome for the analysis. To impact  scenario,  derived  that which  would  countered by  by  tendency to ignore  either  expert  judgment  or  qualitative impacts and  a  more  favorable  evaluated  and  described  more  objective  probabilistic  refined in post-implementation  stress quantitative ones could  specifying a list of qualitative impacts and  such effects would be  provide  by  avoid this possibility, explicit probability assessments of each  assessments, could be used. These could then be tested and audits. The  costs understated  according  be  minimum levels beyond which to some criteria, such as those  described for intangibles in this section. 8.2 REDESIGNING PROJECT E V A L U A T I O N PROCESSES In  this  section, the  previous  suggestions  evaluation process existing within the B.C.  are Utilities  used  to  complement  Commission  Act.  The  the  basic  project  basic elements of  this process, described in detail in Chapter 6 (see also Figure 4), include: (i) the use a joint government, industry, and  interest group coordinating  committee to oversee the  preparation of analyses; (ii) a clear separation of the impact identification and phases; and By  of  evaluation  (iii) the use of flexible guidelines for preparing a social cost-benefit analysis.  incorporating modifications to these three basic elements, many of the problems with  social cost-benefit analysis can be addressed.  FIGURE 4 THE PROJECT REVIEW PROCESS OF THE B.C. UTILITIES COMMISSION ACT  Proponent applies for Energy Project Certificate  *  Energy Project Coordinating Committee directs Proponent to prepare Impact Statements and Social Cost-Benefit Analysis  EPCC makes recommendation on hearing  £  no public hearing recommended  public hearing is recommended  I  Ministers of Energy and Environment make joint recommendation on hearing  I  £  hearing is waived  1  hearing is required  B.C. Utilities Commission conducts hearing  B.C.U.C. makes recommendation on project  £  Final decision on Energy Project Certificate application made by Provincial Cabinet  Source: derived from Thompson et al., 1981  158 This new project evaluation process (see Figure 5) would begin by the preliminary identification of a problem, such as a pending energy deficit, by the project proponent, The  proponent would set out the problem it perceives and submit it to a coordinating  committee consisting of the Energy Project Coordinating Committee, plus one industry and one  interest group  representative (selected joindy by the Ministers of Environment and  Energy). This committee would be responsible for (i) recommending that the problem be exempted from a detailed project evaluation according Commission  Act,  or (ii) developing  a detailed Problem Statement in conjunction with the  proponent and any other government on, for example, economic developments. This  departments that could provide  forecasts for energy  analysis would  to existing criteria in the Utilities  demand  be conducted  by  needed  information  projections or potential energy  the Coordinating  Committee  itself  rather than by the proponent, and would result in a detailed problem statement and list of project alternatives derived by considering government  policy  guidelines and technical  feasibility. By vesting authority and responsibility for this phase  of the analysis in the  Coordinating  Committee,  the possibility  of biased  problem  definitions  and incomplete  Problem Statement prepared by the Coordinating  Committee  would  specification of alternatives should be reduced.  The  then be  released publicly and be followed by a 30 or 60 day period in which written submissions could be given provide  to the committee  by any concerned individuals or groups. This  the public with an opportunity  Coordinating Committee in government  to verify  identify any overlooked  the Problem  would  Statement and help the  items in the analysis or any weak areas  policy. The purpose of this submission period is not to stage a formal  debate on government  policy; it is intended  policies have been considered  only  as a check that existing  government  and been appropriately applied. For this purpose, written  submissions, rather than public hearings, should be appropriate.  FIGURE 5 A NEW PROJECT REVIEW PROCESS  Proponent applies for Energy Project Certificate  Energy Project Coordinating Committee prepares Problem Statement  *  EPCC directs Proponent to prepare Impact Statement and coordinates joint agency input  EPCC makes recommendation on hearing  no public hearing recommended  public hearing is recommended  I  Ministers of Energy and Environment make joint recommendation on hearing  hearing is waived  Proponent prepares SCBA  hearing is required  B.C. Utilities Commission: conducts Impact Review hearing; drafts SCBA Guidelines; conducts Guideline Review hearing;  I  Proponent prepares SCBA  B.C.U.C. makes recommendation on project  Final decision on Energy Project Certificate application made by Provincial Cabinet  160 After the period for written submission has ended, the Impact Analysis stage would begin. The Coordinating Committee  would  have  two tasks in this phase: (i) it would  organize multi-agency scoping sessions; and (ii) it would generate guidelines on the types of  impact analyses to be commissioned  sessions, which would  by the proponent The purpose of the scoping  include members of the proponent agency and various ministries  (such as Forestry, Environment, etc.) would be to identify broad impact categories for the project alternatives under consideration and assess the availability and reliability of existing information, as well as determine what analysis would need to be generated. Based on the results of these scoping sessions, guidelines would be developed for the types of analysis the  proponent should undertake. After the proponent has completed the Impact Statement,  the  results  would  be reviewed by the Coordinating  Committee  and members of the  scoping sessions. This type of process would help avoid unnecessary duplication of analysis by utilizing data available from various government help forge a consensus about the reliability  departments, where possible, and also  of the impact measurements.  Part of the  review of the Impact Statement could include the development of probability estimates for uncertain resource impacts.  Once the preparation and review of the Impact Statements have been completed, the  Coordinating Committee  would develop and present its recommendations  concerning a  public hearing to the Cabinet. The Ministers of the Environment and of Energy, Mines and Petroleum Resources would then jointly make a final decision about the necessity of a public hearing. The decision they make, however, differs considerably from the decision made under the existing review process. Under  the existing process, the Ministers make a  recommendation on a public hearing after a cost-benefit document has been prepared by the  project  proponent  (albeit,  not necessarily  an accurate  one). In the new process  suggested here, only the Impact Statement would be available at the time they made their decision. Thus, they would decide whether the impacts identified were of a serious and  161 controversial  nature  economic-efficiency If  and  whether  the problem  warranted  more  than  the traditional  oriented social cost-benefit analysis.  the Ministers  make  a  decision . against  a public  hearing,  the Coordinating  Committee would direct the proponent to commission a social cost-benefit analysis of the various project alternatives according  to the government's existing, formal  SCBA guidelines  (ELUC, 1977) (and subject to many of the problems identified in this paper). However, this  option  would  provide  government  decision-makers  with  some  additional, valuable  information to help them make decisions about non-controversial problems without as much additional cost and delay associated with a public hearing  process.  If the Ministers decide that a public hearing should be  be held, their decision would  accompanied by the release of the Impact Statement The Impact Statement would be  released  to the public  and be  distributed by  the Coordinating  Committee  to each  government ministry and to any provinces that might be affected by any of the projects under consideration. This procedure would ensure that government departments could be made aware of any project implications on their own departments' policies. Notification of potentially affected provinces would allow these provinces  to notify the proponent of any  costs for which they would seek redress or compensation.  A  public hearing  process would  begin approximately  60 to 90 days after the  release of the Impact Statement and would be conducted by the B.C. Utilities Commission. This shift in control from the Coordinating  Committee to the Commission is followed in  the existing project review process and provides a more neutral check on the analysis. The purpose of the public hearing would be twofold: (i) to check the accuracy of the Impact Statement; and (ii) to develop specific guidelines for the evaluation of project impacts in a social cost-benefit analysis.  162 The  first  phase of the hearing  would deal exclusively with the Impact Statement  (its accuracy, the nature of the impacts, and those impacts) and  would be  concerned  or  groups  cross-examination.  individuals' ethical or other concerns about  structured formally, like the Site C  individuals  would  give  a  hearings, in which  presentation  and  be  any  subject  to  Because the function of this stage is not only to assess public response  to the various project alternatives and  their impacts, but also to judge the accuracy of the  analysis in the Impact Statement, the  formal, court-like proceedings seem suitable. Based  on the evidence presented at the hearings, the Commission would require the proponent to remedy any  deficient analysis.  The  Commission, once satisfied with the accuracy of the Impact Statement, would  recess the hearings to draft guidelines for the preparation  of the cost-benefit document.  The  Draft SCBA Guidelines would include the existing cost-benefit guidelines adopted  the  government (ELUC, 1977); these cost-benefit guidelines should  first  be  by  amended to  clarify the treatment of intangibles. Modifications to these guidelines would be suggested by the Commission based on  the concerns raised by participants in the hearing process.  example, the  might  Commission  decide  that  objectives  should  be  should  be given extra weight, that option values or WTS  or  explored, that distributional weights should  that certain ethical  issues should  which impacts should  not  these  project  guidelines,  the  be  evaluated proponent  cost-benefit analysis in line with cost-benefit  analysis as  Commission's  role  in  government's  guidelines  determined developing are  be  specifically but  should  would  be  these  inappropriate  the  economic efficiency  applied, that irreversible impacts values should  be  incorporated,  also determine  treated as intangibles. Based  required  government guidelines and by  than  addressed. It could be  be  other  For  to  produce  a  traditional  a more experimental  social  Commission. It is important to clarify  guidelines; but  to  it is not determine  uncertainty or public concern about the appropriateness  to  where  determine there  on  that  the the  is substantial  of traditional guidelines to warrant  163 a more experimental and exploratory use of SCBA. After  the Draft  SCBA  Guidelines  have  been prepared,  the Commission  would  release the document to the public for comment and reconvene the hearing. At this stage, two  approaches  are possible. The  Commission  could  listen  to feedback  about  these  guidelines and then produce a final version using its discretion. Alternatively, if it seemed feasible,  representatives  from  key interest  groups  and  formally negotiate appropriate evaluation guidelines. Such form  a precedent for future project evaluation processes  issues and concerned parties will  vary.  Nor should  organizations  could  attempt to  negotiated  guidelines should not  because  the problems, project,  the negotiated  guidelines, or any  guidelines produced by the Commission, be seen as replacing the government's  formal  SCBA guidelines in any particular situation. Instead, these experimental guidelines should be seen as. an additional and alternate way of analyzing the problem at hand. Following the preparation of the SCBA Guidelines, the proponent would commission a social cost-benefit analysis. To avoid any intimations of bias, the Commission  or the  parties involved in negotiated guidelines could jointly select a contractor to conduct the analysis;  the proponent  would  be  responsible  for the cost  of preparing  the SCBA  Document When the SCBA  Document has been completed, it would  Commission. The Commission  be submitted  to the  would then, within perhaps 30 days, make a determination  from the results of the analysis. This would include: (i) a synthesis of the desirability of the various projects, commenting on, for example, the significance of option values or of various discount rates on the analysis, and on the significance of the ethical issues raised; and  (ii) a specific project recommendation,  i f possible. The SCBA  Document and the  Commission's general synthesis would be released publicly within 30 days, and its specific recommendations, if any, would be released confidentially to the Cabinet (following current  164 practice) at the same time. A final decision on project selection by the Cabinet would not follow for at least 30 days to allow for any final concerns to be raised directiy in the political arena. These recommendations by the Commission or by Cabinet should not be framed in terms of net benefits. Rather, they should be framed by weighting the effects of tangible and  intangible effects and by  weighting  the relative  importance  of various  economic,  environmental, social, political and ethical implications. From  start to finish, this new  project evaluation process  should  take no longer  than the current process, and might well involve less time. The increased involvement of the Coordinating  Committee should  help  create more relevant analysis by ensuring  that  problem definition and alternative selection are properly executed. This new process also adopts a more focussed  use of public participation. The provision for public response to  the Impact Statement in written form only allows considerable streamlining of the formal public  hearing  that  development of SCBA  need  center  only  on  discussion  of the Impact  Guidelines; the development of these  SCBA  Statement and.  Guidelines with the  input of interested parties relieves the need for additional, formal public review  of the  SCBA Document once it is produced. The more active roles played by the Coordinating Committee  and the Commission  ensures  less biased, more comprehensive  analysis but  maintains the burden of the cost of analysis on the project proponent. The Coordinating Committee,, by  holding  scoping  sessions  with  diverse  government  agencies,  reduces  duplication of analytical effort and therefore cost for the project proponent (who, in the case of B.C. Hydro, is itself a government agency). The suggested process, requiring more careful and comprehensive analysis, nevertheless does not reduce the discretionary powers of the responsible Ministers. And importantly, by allowing a more experimental cost-benefit  analysis, this  process  helps  overcome  at least  some  use of social  of the troublesome  165 problems associated with the  technique.  166 BIBLIOGRAPHY  Abelson,  P.  (1979).  Cost  Benefit  Analysis  and  Environmental  Problems.  Hants.,  England: Saxon House. Ackermann, W.C.  Effects, Union.  et al. (1973). Man-Made  Geophysical Monograph  Allison, Graham T. (1971). Essence  Lakes:  Their  Problems  and  Environmental  #17. Washington, D.C.: American Geophysical  of Decision.  Explaining  the  Cuban  Missile  Crisis.  Boston, Mass.: Little, Brown and Company. Almond, Gabriel A. (1950). The Praeger.  American  Arrow, Kenneth J. (1951). Social Wiley & Sons, Inc.  Choice  People  and Foreign  and Individual  Policy.  Values.  New York:  New York: John  Arrow, Kenneth J. (1963). Social Choice and Individual Values (2nd edition), Cowles Foundation for Research in Economics at Yale University, Monograph 12. New York: John Wiley & Sons, Inc. Arrow, Kenneth J. (1983). Social Choice and Justice, Collected Papers of Kenneth J. Arrow. Cambridge, Mass.: Harvard University Press. Arrow,  Kenneth  J. and Anthony  C. Fisher  Uncertainty, and Irreversibility." Quarterly  (1974). "Environmental Preservation, Journal of Economics,  Vol. 88, No. 2  (May), pp. 312-319. Arrow, Kenneth J. and R.C. Lind (1970). "Uncertainty and the Evaluation of Public Investment Decisions." American Economic Review, Vol. 60, pp. 364-378. Baecher, Gregory B., M. Elisabeth Pate and Richard de Neufville (1980). "Risk of Dam Failure in Benefit-Cost Analysis." Water Resources Research, Vol. 16, No. 3 (June), pp. 449-456. Banford, Nancy D., Jack L. Knetsch and Gary A. Mauser (1980). "Feasibility Judgements and Alternative Measures of Benefits and Costs," in Peter N. Nemetz  (ed.) Resource  Policy  -  International  Perspectives.  Montreal:  The  Institute for Research on Public Policy, pp. 25-35. Barton, B.J. (1984). "The Prairie Provinces Water Board as a Model for the Mackenzie Basin," in B. Sadler (ed.) Institutional Arrangements for Water Management  in  the  Mackenzie  River  Basin.  Calgary,  Alberta: University of  Calgary Press, pp. 37-67. Baumol, W.J. (1968). "On the Social Rate of Discount." The Review, September, pp. 788-802. Baxter,  R.M.  and  Impoundments  P.  Glaude  in  Canada:  (1980).  Environmental  Experience  and  Department of Fisheries and Oceans Canada.  American  Effects  Prospects.  of  Economic Dams  Ottawa,  and  Ontario:  167 B.C. Hydro &  Power  (1980a). Peace  Authority  Site  C  Project:  Benefit/Cost  Analysis.  Site  C  Project:  Environmental  Vancouver, B.C.: B.C. Hydro (October). B.C. Hydro &  (1980b). Peace  Power Authority  Impact  Statement. Vancouver, B.C.: B.C. Hydro (October).  B.C. Hydro (1982). Benefit/Cost Analysis Update, submitted to the B.C.U.C. Site C Panel, Exhibit #107 (mimeo), January 26, 1984. B.C. Ministry of Energy, Mines and Petroleum Resources British  Columbia:  The  Challenge  and  the  (1980). An Energy  Opportunity.  An  Energy  Secure Policy  Statement. Victoria, B.C.: Parliament Buildings. B.C. Utilities Commission (BCUC) (1983). Site C Report. to the Lieutenant Governor-in-Council, B.C.  Report & Recommendations  Bishop, R.C. (1982). "Option Value: An Exposition and Extension." Land Vol. 58, No. 1 (February), pp. 1-15. Bradley,  Michael  D.  (1973).  Management," Journal  "Decision-making  of Environmental  for  Management,  Economics,  Environmental  Resources  Vol. 1, No. 3 (July), pp.  289-302. Brent,  R.J. (1984). "A three-objective social welfare analysis." Applied Economics, Vol. 16, pp. 369-378.  function  for cost-benefit  Brooks, Harvey (1976). "Environmental Decision Making: Analysis and Values," in Laurence H. Tribe, Corrinne S. Schelling and John Voss (eds.) When Values Conflict. Cambridge, Mass.: Ballinger Publishing Co., pp. 115-136. Brookshire, David S., Larry S. Eubanks, and Alan Randall (1983). "Estimating Option Prices and Existence Values for Wildlife Resources." Land Economics, Vol. 59, No. 1 (February), pp. 1-15. Canada (1982). Constitution  Act.  Cicchetti, C.J. and A.M. Freeman III (1971). "Option Demand and Consumer Surplus: Further Comment" Quarterly Journal of Economics, Vol. 85 (August), pp. 528-539. Coleman, D.J. (1977). "Environmental Impact Assessment Methodologies: A Review," in M. Plewes and J.B.R. Whitney (eds.) Environmental Assessment  in  Canada:  Processes  and  Approaches,  Proceedings of a  Critical Impact  Symposium  held at the Institute for Environmental Studies, University of Toronto, February, Pub. No. 33-5 (September), pp. 35-55. Coleman, James C. (1966). "The Possibility of a Social Econometrica, Vol. 66, No. 5 (December), pp. 1105-1122.  Welfare  Function."  Cooper, Ken (1982). "Statement of Evidence," witness for S.P.E.C., presented to the B.C. Utilities Commission Panel on Site C, Exhibit #124 (mimeo). Copp, David and Edwin Levy (1982). "Value Neutrality in the Techniques of Policy  168 Analysis: Risk and Uncertainty." Journal of Business No. 1 and 2, 1982, pp. 161-190. Cornford, Alan et al. (undated). "Planning, Assessment Strategy for Integration," (mimeo).  Administration, and  Vol. 13,  Implementation:  A  Crocker, Thomas D. (1985). "On the Value of the Condition of a Forest Stock." Land Economics, Vol. 61, No. 3 (August), pp. 244-254. Crutchfield, Stephen R. (1983). "Estimation of Foreign Willingness to Pay for United States Fishery Resources: Japanese Demand for Alaskan Pollock." Land Economics, Vol. 59, No. 1 (February), pp. 16-23. Cyert, Richard M., H.A. Simon and Donald B. Trow (1956). "Observation of a Business Decision." Journal of Business, Vol. 29, pp. 237-248. Daily  Colonist (1978). "B.C. Hydro view praised," February 23, 1978, p. 22.  Dasgupta, Ajit K . and D.W. Pearce (1972). Cost-Benefit Practice. London: MacMillan Press Ltd.  Analysis,  Theory  and  Dasgupta, Partha, Amartya Sen and Stephen Marglin (1972). Guidelines for Project Evaluation. UNIDO, Project Formulation and Evaluation Series, No. 2, New York: United Nations. Davis,  H.  Craig  Dorcey,  Toward  (1984).  Assessment. April.  the  Integration  of  Economic  U.B.C. Planning Papers, Discussion Paper  Anthony  H.J. (1986).  Bargaining  Resources: Research and Reform. University of British Columbia.  in  the  and  Social  Impact  #8, Vancouver, B.C.,  Governance  of  Pacific  Coastal  Vancouver, B.C.: Westwater Research Centre,  Dorfman, Robert (1976). "An Afterword: Humane Values and Environmental Decision," in Laurence H. Tribe, Corrinne S. Schelling and John Voss (eds.) When Values Conflict. Cambridge, Mass.: Ballinger Publishing Co., pp. 153-173. Downs, Anthony (1957). "An Economic Theory of Political Action in a Democracy." Journal  of Political  Downs, George Efficiency. Eckstein,  O.  Evaluation.  W.  Economy, Vol. 65, pp. 135-150.  and Patrick  From  Hubris  (1958).  Water  D.  Larkey  to Helplessness. Resource  (1986). The New  Search  for  Government  York: Random House.  Development:  The  Economics  of  Project  Cambridge, Mass.: Harvard University Press.  Ehrhardt, R.F. and C. Ehrhardt (1980). "Cost-Benefit Analysis: Has Its Time Come and  Gone?"  in H.G.  Water Impoundments, pp. 92-102.  El-Hinnawi,  Energy.  E.E.  (1981).  United  Stefan (ed.) Proceedings  Vol. I. New The  Nations  of  the  York: American  Environmental  Environment  Impacts  Symposium  on  Surface  Society of Civil Engineers, of  Programme,  Production  Natural  and  Use  Resources  of  and  169 Environment  Series, Vol. 1.  E.L.U.C. (1977). Guidelines for Benefit-Cost Land Use Committee Secretariat Fischer, David  W.  (1975).  Analysis.  Victoria, B.C.: Environment and  "Willingness to Pay as a Behavioural Criterion for  Environmental Decision-making,"  Journal  of Environmental  Management,  Vol. 3,  No. 1 (January), pp. 29-41. et al. (1981). Acceptable  Fischhoff, Baruch Press.  Risk.  Cambridge: Cambridge University  Fisher, Anthony C. and John V. Krutilla (1975a). "Resource Conservation, Environmental Preservation, and the Rate of Discount" Quarterly Journal of Economics, Vol. 89, No. 2 (May), pp. 358-370. Fisher, Anthony C. and John V. Krutilla (1975b). "Valuing Long-Run Ecological Consequences and Irreversibilities," in H.M. Peskin and E.P. Seskin (eds.) Cost Benefit  Analysis  and  Water  Pollution  Policy.  Washington, D.C:  The  Urban  Institute, pp. 271-290. Foster, C D . (1966). "Social Welfare Lawrence  (ed.) Operational  Functions in Cost-Benefit Analysis,"  Research  and  the  Social  Sciences.  in  J.R.  London:  Tavistock Publications, pp. 305-318. Fox, Irving K. (1981). "An Assessment of the Site C Proposal of B.C. Hydro and Power Authority," A presentation to the Review Panel for the proposed Site C Hydroelectric Power Project, December 31, B.C., 26pp. (mimeo). Friends of the Peace (1982). Brief presented to the B.C.U.C. Site C Panel, Exhibit presented to the B.C.U.C.(mimeo). Gallagher, David R. and V. Kerry Smith (1985). "Measuring Values for Environmental Resources under Uncertainty," Journal of Environmental Economics and Management, Vol. 12, No. 2 (June), pp. 132-143. Geen, G.H. (1974). "Effects of Hydroelectric Development in Western Canada on Aquatic Ecosystems." /. Fish. Res. Board. Can., Vol. 31, pp. 913-927. Gibson, D. (1973). "The Constitutional Context of Canadian Water Planning." Alberta Law Review, Vol. 7, pp. 71-81. Gordon, Irene M. and Jack L. Knetsch (1979). "Consumer's Surplus and the Evaluation of Resources," Land Economics, Vol. 55, No. 1 (February), pp. 1-10. Gramlich, Edward  M.  (1981). Benefit-Cost  Analysis  of  Government  Programs.  New  Jersey: Prentice-Hall Inc. Greenley, Douglas A., Richard G. Walsh and Robert Value: Empirical Evidence from a Case Study Quality."  657-673.  Quarterly  Journal  of  Economics,  A. Young (1981). "Option of Recreation and Water  Vol. 96, No.  4  (November), pp.  170 Hardin, Garrett (1968). "The Tragedy of the Commons." Science, 1243-1248. Hartle,  D.G.  Public  (1979).  Policy  Decision  Making  and  Vol. 162,  Regulation.  pp.  Montreal,  Quebec: Institute for Research on Public Policy. Hay, Michael J. and Kenneth E. McConnell (1979). "An Analysis of Participation in Nonconsumptive Wildlife Recreation," Land Economics, Vol. 55, No. 4 (November), pp. 460-471. Heaver, T.D. (1973). "National Objectives and Transportation Planning." Research  Transportation  Forum, 1973.  Henderson, P.D. (1970). "Some Unsettled Issues i n Cost-Benefit Analysis," Streeten  (ed.) Unfashionable  Economics.  Essays  in  Honour  of  Lord  in P. Balogh.  London: Weidenfeld and Nicolson, pp. 275-301. Hildreth, Clifford (1953). "Alternative Conditions for Social Orderings." Vol. 21, No. 1 (January), pp. 81-94.  Econometrica,  Hill, Morris (1967). "A Method for the Evaluation of Transportation Plans." Research Hill, Morris  Record,  Highway  No. 180, pp. 21-34.  (1973). Planning  for  Multiple  Objectives:  An  Approach  to the  Evaluation  of Transportation Plans, Regional Science Research Institute, Monograph Series No. 5. Philadelphia, Penn.: Regional Science Research Institute.  Hilsman, Roger (1967). To Move A Nation. The Politics of Foreign Policy in Administration of John F. Kennedy. New York: Doubleday & Co. Inc.  the  Hollick, M. (1981a). "The Role of Quantitative Decision-making Methods in Environmental Impact Assessment," Journal of Environmental Management, Vol. 12, pp. 65-78. Hollick, M. (1981b). "Environmental Impact Assessment as a Planning Tool." Journal of Environmental  Management,  Vol. 12, pp. 79-90.  Hufschmidt, Maynard M. and E.L. Hyman (1982). "A Survey of Economic and Related Approaches to Analysis of Natural Resource and Environmental Aspects of Development," in M.M. Hufschmidt and E.L. Hyman (eds.) Economic Approaches  to  Natural  Resource  and  Environmental  Quality  Analysis.  Dublin:  Tycooly, pp. 32-63. Hurter, Arthur P., Jr., George S. Tolley and Robert G. Fabian (1982). "Benefit-Cost Analysis and the Common Sense of Environmental Policy," in D. Swartzman, R.A. Liroff and K.G. Croke (eds.) Cost-Benefit Analysis and Environmental Regulations:  Politics,  Ethics  and  Methods.  Washington, D.C:  The Conservation  Foundation, pp. 87-105. Hyman, Eric L., David H. Moreau and Bruce Stiftel (1980). "Toward A Participant Value Method for the Presentation of Environmental Impact Data," i n Stuart L. Hart, Gordon A. Enk and William F. Hornick (eds.) Improving Impact Assessment. Boulder, Colorado: Westview Press, pp. 209-226.  171 Interprovincial Cooperatives Ltd. v. The Queen (1975). Dominion 53 (3d), p. 321. Kellert,  Stephen  R.  Cost-benefit  (1984).  "Assessing  Journal  Analysis,"  of  Wildlife  and  Environmental  Law  Review,- Vol.  Environmental  Management,  Values in  Vol. 18, No. 4,  pp. 355-363. Kelman, Steven (1982). "Cost Benefit Analysis and Environmental, Safety, and Health Regulation: Ethical and Philosophical Considerations," in D. Swartzman, R.A. Liroff and K.G. Croke (eds.) Cost-Benefit Analysis and Environmental Regulations:  Politics,  Ethics  and  Methods.  Washington, D.C:  The  Conservation  Foundation, pp. 137-151. Journal  Krutilla, John V. (1961). "Welfare Aspects of Benefit-Cost Analysis." Political Economy, Vol. 69, No. 3 (June), pp. 226-235. American  Krutilla, John V. (1967). "Conservation Reconsidered." Vol. 57, No. 4 (September), pp. 777-786.  Economic  of  Review,  Krutilla, John V. and O. Eckstein (1958). Multiple Purpose River Development. Baltimore, Maryland: Resources for the Future/Johns Hopkins University Press. Krutilla, John V. and Anthony C. Fisher (1975). The Economics Environments. Maryland: Johns Hopkins University Press. Langford  T.E.  (1983). Electricity  Generation  and  the  Ecology  of  of  Natural  Natural  Waters.  Liverpool: Liverpool University Press.  Lasswell, Harold (1958). Politics: Smith. Lichfield,  Nathaniel (1966a).  Lawrence  (ed.)  Who  Gets  What,  When,  How.  "Cost-Benefit Analysis in Town  Operational  Research  and  the  Social  New  York: Peter  Planning," in J.R. Sciences.  London:  Tavistock Publications, pp. 337-345. Lichfield, Nathaniel  of Cambridge.  (1966b). Cost Benefit  Analysis  in  Town  Planning.  A  Case  Study  England: Cambridgeshire and Isle of Ely County Council, 66 pp.  Lichfield, Nathaniel (1966c). "Cost Benefit Analysis in Town Planning: A Case Study: Swanley." Urban Studies, Vol. 3, pp. 215-249. Lichfield, Nathaniel (1969). "Cost Benefit Analysis in Urban Expansion. Study: Peterborough." Regional Studies, Vol. 3, pp. 123-155. Lichfield, Nathaniel, Peter Kettle and Michael Whitbread (1975). Evaluation Planning Process. Oxford, England: Pergamon Press, 325 pp. Lindblom,  Charles  Through  Lipsey, R.G.  Mutual  E.  (1965).  Adjustment.  and Kelvin  Best." Review  The  Intelligence  Democracy.  Decision  Case in  the  Making  New York: The Free Press.  Lancaster (1957).  of Economic  of  A  Studies,  "The General  Vol. 24, pp. 11-32.  Theory  of the Second  172 Little, I.M.D. (1957). A Critique University Press.  of Welfare  Economics,  (2nd ed.). London: Oxford  Livengood, Kerry R. (1983). "Value of Big Game from Markets for Hunting Leases: The Hedonic Approach." Land Economics, Vol. 59, No. 3 (August), pp. 287-291. Lord, William River  (1982). A Critical  B. and Sam Sydneysmith  Site  C  Benefit/Cost  Analysis.  Prepared  Review  of the  for S.P.E.C., presented  Peace to the  B.C. Utilities Commission Panel on Site C, Exhibit #400. M. (1980). Evaluation Social, Economic, and  McAllister, Donald Environmental,  in Environmental Planning: Assessing Political Trade-offs. Cambridge: MIT  Press. McKean, R. (1958). Efficiency  in  Government  through  Systems  Analysis.  New  York:  Wiley. Maler, Karl-Goran (1977). "A Note on the use of Property Values in Estimating Marginal Willingness to Pay for Environmental Quality." Journal of Environmental Marglin,  Stephen  Economics A. (1967).  and Management, Public  Vol. 4, pp. 355-369.  Investment  Criteria,  Benefit-Cost  Analysis  for  Planned Economic Growth, Studies in the Economic Development of India, No. 4. London: George Allen & Unwin Ltd.  Marshall, David, Barry Sadler, John Secter and John Wiebe (1985). Management  and  Impact  Assessment:  Some  Lessons  and  Environmental  Guidance  from  Canadian and International Experience. Paper prepared for the Workshop on Environmental Impact Assessment Procedures in Australia, Canada and New Zealand, Wellington, New Zealand, March 27-29. Martin,  Brian  Randall  Assessment  and  (1985).  Management:  The  Causes  The  Utah  of Mines  Scientific Case.  Disputes  in  Impact  Unpublished M.A.  Thesis.  Vancouver, B.C.: University of British Columbia. Mason, R.O. and I.I. Mitroff (1981). Challenging Strategic Theory, Cases and Techniques. New York: Wiley.  Planning  Assumptions:  Messick, David M. and Marilynn B. Brewer (1983). "Solving Social Dilemmas: A Review," in Ladd Wheeler and Phillip Shaver (eds.) Review of Personality and Social Psychology, Vol. 4. Beverly Hills: Sage Publications, pp. 11-44. Meyer, Philip  A. (1974). Recreational  and  Preservation  Values  Associated  with  the  Salmon of the Fraser River. Environment Canada, Fisheries and Marine Service, Information Report Series No. PAC/N-74-1, Southern Operations Branch, Pacific Region. Vancouver, B.C.: Environment Canada.  Meyer, Philip A. (1979). "Publicly Vested Values for Fish and Wildlife: Criteria in Economic Welfare and Interface with the Law." Land Economics, Vol. 55, No. 2 (May), pp. 223-235. Mill,  J.S. "Representative Government,"  in Robert  Maynard  Hutchins  (ed.) (1952)  173 Great  Books of the Western  World,  Vol. 43. Chicago: Encyclopaedia Brittannica  Analysis  (3rd ed.). London, England: George Allen  Inc., pp. 327-444. Mishan, E.J. (1982). Cost-Benefit & Unwin. Nash,  Christopher, David Cost-Benefit  Analysis  Pearce  and John Scottish  Criteria."  Stanley Journal  (1975).  "An Evaluation of  of Political  Economy,  Vol. 22,  No. 2 (June), pp. 121-134. National Environmental Policy January 1, 1970.  Act (U.S.),  Public Law 91-190, 91st Congress, S.1075,  Nemetz, Peter N., W.T. Stanbury, and P.D. Larkey (1980). "The Seven Mile Dam  Nwaneri, V.C. (1970). "Equity in Cost-Benefit Analysis - The Case of the Third London Airport." JTEP, September, pp. 235-254. O'Riordan, Timothy and W.R. Derrick Sewell (1981). "From Project Appraisal to Policy Review" in T. O'Riordan and W.R.D. Sewell (eds.) Project Appraisal and Policy Review. New York: John Wiley and Sons Ltd. Overstall, Richard (1982). "Statement of Evidence," witness for S.P.E.C., presented to the B.C. Utilities Commission Panel on Site C, Exhibit #96 (mimeo). P.A.D.P.G. (Peace-Athabaska Report  on  Low  Delta  Water  Project  Levels  in  Group) (1973).  Lake  Athabaska  Peace-Athabaska Delta. Ottawa, Ontario: Information Environment - Canada, Alberta, and Saskatchewan). Pearce, D.W. (1976). Environmental Pearce, D.W. (1983). Cost-Benefit  Economics. Analysis.  Technical  and  the  Report:  Effects  Canada  of  Transport  Economics  A the  (Ministry of  London: Longman Group Ltd.  London: The MacMillan Press Ltd.  Pearce, D.W. and J. Wise (1972). "Equity in Cost-Benefit Analysis: A Journal  on  and  Policy,  Comment,"  Vol. 6, No. 3 (September), pp.  324-325. Percy, D.R. (1984). "Federal/Provincial Jurisdictional Issues," in H. Rueggeberg and A.  Thompson,  Water  Law  and  Policy  Issues in  Canada.  Vancouver, B.C.:  Westwater Research Centre, University of British Columbia, pp. 83-91. Pigou, A.C. (1912). Wealth  and Welfare.  Pigou, A.C. (1920). The Economics Ltd.  London, England: MacMillan and Co. Ltd.  of Welfare.  London, England: MacMillan and Co.  Popper, F. (1985). "The Environmentalist and the LULU." Environment, 2, pp. 7-40.  Vol. 27, No.  Prest, A.R. and R. Turvey (1967). "Cost-Benefit Analysis: A Survey," in Surveys of  174 Economic  Theory,  Resource  Allocation,  Vol. III. New  York: SL Martin's Press.  Price, Colin (1984). "Project Appraisal and Planning for Overdeveloped Countries: II. Shadow Pricing Under Uncertainty." Environmental Management, Vol. 8, No. 3 (May), pp. 233-242. The  Province p. 53  The  Province (1978). "Hydro chief slams moratorium 14, 1978, p. 20.  The  Province (1979). "Hydro kicks off Peace dam 1979, p. A l .  The  Province A4.  (1979). " 'Another  The  Province Cl.  (1982). "Doubt cast on Hydro's Site C plans," February 7, 1982, p.  The  Province  (1984). "More Hydro dams feared," March 15, 1984, p. 26.  (1976). "More dams would hurt ecology - report," October 30, 1976,  Quade, E.S. (1975). Analysis Publishing Co. Inc.  on energy  projects," February  project at Site C," October 3,  dam, dammit!' yells North," October  for  Public  Decisions.  New  York:  4, 1979, p.  American  Elsevier  Randall, Alan and John R. Stoll (1980). "Consumer's Surplus in Commodity Space." American  Economic  Review,  Rees, Judith (1985). Natural  Vol. 70, No. 3 (June), pp. 449-455.  Resources.  Allocation,  Economics  and  Policy.  New  York:  Methuen. Sadler, Barry (undated). "Impact Redevelopment," (mimeo).  Assessment  Schelling, Thomas C. (1978). Micromotives Norton & Co. Inc. Schramm, Gunter Analysis."  (1973).  Journal  of  "Accounting  and  in Transition: Maerobehavior.  for Non-economic  Environmental  Management,  A  Framework for  New  Goals  Vol. 1, No.  York:  W.W.  in Benefit-Cost 2  (April), pp.  129-150. Schulze, William D., Ralph C. d'Arge and David S. Brookshire (1981). "Valuing Environmental Commodities: Some Recent Experiments." Land Economics, Vol. 57, No. 2 (May), pp. 151-172. Schulze, William D. and Allen V. Kneese (1981). "Risk in Benefit-Cost Analysis." Risk  Analysis,  Vol. 1, No. 1, pp. 81-88.  Scott, Anthony (1955). Natural Resources, The Economics of Conservation, Carleton Library Series, No. 68 (1983 edition). Ottawa: Carleton University Press. Self, Peter (1975). Econocrats  and the  Policy Process.  London: The MacMillan Press  175 Ltd. Sen, Amartya K. (1961). "On Optimising the Rate of Savings." Economic Vol. 71 (September), pp. 479-96. Sewell, W.R.D., John Davis, A.D. Scott and D.W. Ross Benefit-Cost Analysis. Ottawa, Ontario: Queen's Printer. Stanbury,  W.T.  Leviathan.  (1986).  Business-Government  Relations  in  (1965).  Canada.  Journal, Guide  Grappling  to  with  Toronto: Methuen.  Stefan, H.G. (1981). Proceedings  of the  Vol. 1. New York: American  Symposium  on Surface  Water  Impoundments,  Society of Civil Engineers.  Subcommittee on Benefits and Costs (1950). Proposed Practices for Economic Analysis of River Basin Projects, Report to the Federal Inter-Agency River Basin Committee, May. Swartzman, Daniel (1982). "Cost-Benefit Analysis in Environmental Regulation: Sources of the Controversy," i n D. Swartzman et al. (eds.) Cost-Benefit Analysis and Environmental  Regulations:  Politics,  Ethics  and Methods.  Washington, D.G: The  Conservation Foundation, pp. 53-85. Town of Peace River v. B.C. Hydro Review,  &  Power Authority (1973). Dominion  Law  Vol. 29 (3d), p. 769.  Thompson, Andrew R., Nigel Bankes and Joel Souto-Maior (1981). Energy Project Approval in British Columbia. Vancouver, B.C.: Westwater Research Centre, University of British Columbia. Treasury Board Canada (1976). Benefit-Cost Printer. Tribe, Laurence Public  H. (1972). "Policy  Affairs,  Analysis  Guide. Ottawa, Ontario: Queen's  Science: Analysis or Ideology." Philosophy  and  Vol. 2, No. 1, pp. 66-110.  Tribe, Laurence H. (1976). "Ways Not to Think About Plastic Trees," in Laurence H. Tribe, Corinne S. Schelling and John Voss (eds.) When Values Conflict. Cambridge, Mass.: Ballinger Publishing Co., pp. 61-92. U.S. Government, Bureau of the Budget (1952). Budget Circular D.C. Utilities  Commission  A-47.  Washington,  Act (1980). SBC 1980, Chapter 60.  Vancouver 29.  Sun (1977). "Ecology groups band to oppose Hydro," January 17, 1977, p.  Vancouver A3.  Sun (1978). "B.C., Idaho discuss sale of electricity," March 4, 1978, p.  Vancouver  Sun (1978). " 'Selfish' environmentalists hurt power plans," June 16, 1978.  176 Vancouver  Sun (1980). "Hydro's plans draw no cheers," August 8, 1980, p. A16.  Vancouver Sun (1981). "David-Goliath battle waged over 1981, p. A12.  new dam," October 16,  Vancouver  Sun (1983). "More Site C hearings advised," November 9, 1983, p. C3.  Vancouver  Sun (1984). "More Hydro dams feared," March 15, 1984.  Vancouver Sun (1985). "Bennett's dam revival has host of caustic critics," August 30, 1985, p. A16. Vancouver  Sun (1986). "Need for low-cost electricity assures Site C dam: Johnson," 1986, p. E l .  Viscusi, W. Kip (1985). "Environmental Policy Choice with an Uncertain Chance of Irreversibility."  Journal  of Environmental  Economics  and  Management,  Vol. 12,  No. 1 (March), pp. 28-44. Walsh, Richard G., John B. Loomis and Richard A. Gillman (1984). "Valuing Option, Existence and Bequest Values for Wilderness." Land Economics, Vol. 60, No. 1 (February), pp. 14-29. Walsh, Richard G., Nicole P. Miller and Lynde O. Gilliam (1983). "Congestion and Willingness to Pay for Expansion of Skiing Capacity." Land Economics, Vol. 59, No. 2 (May), pp. 195-210. Warr, Peter G. and Brian D. Wright (1981). "The Isolation Paradox and the Discount Rate for Benefit-Cost Analysis." Quarterly Journal of Economics, Vol. 96, No. 1 (February), pp. 129-145. Water Act, R.S.B.C. 1979, c.429. Weisbrod,  Burton  A.  Individual-Consumption  (1964). Goods."  "Collective-Consumption Quarterly  Journal  of  Services  Economics,  of  Vol. 78  (August), pp. 471-77. Weisbrod, Burton A. (1968). "Income Redistribution Effects and Benefit-Cost Analysis," in Samuel B. Chase, Jr. (ed.) Problems in Public Expenditure Analysis. Washington, D.C: The Brookings Institution, pp. 177-209. Whitney, J.B.R. and V.W. Maclaren (eds.) (1985). Environmental Impact Assessment: The Canadian Experience, Environmental Monograph No. 5. Toronto, Ontario: Institute for Environmental Studies. Wierzbicki, Andrzej P. (1983). "Critical Essay on the Methodology of Multiobjective Analysis." Regional  Science  and Urban  Economics,  Vol. 13, pp. 5-29.  Willard, D. and M. Swenson (1984). "Why Not in Your Backyard? Scientific Data and Nonrational Decisions about Risk." Environmental Management, Vol. 8, No. 2 pp. 93-100. Winch, D.M. (1971). Analytical  Welfare  Economics.  England: Penguin Books.  


Citation Scheme:


Citations by CSL (citeproc-js)

Usage Statistics



Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            async >
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:


Related Items