South-Western College Publishing - Economics  
How Much is a Manatee Worth?
Subject Cost/benefit analysis is questioned in a new book.
Topic Economic Analysis; Economics and the Environment
Key Words

Cost/Benefit Analysis; Costs; Benefits; Environmental Regulation

News Story

A new book co-written by an economist and a law professor takes issue with the conventional notion of cost/benefit analysis, arguing that it is rigged in favor of lower regulation.

Conventional cost/benefit analysis implies that difficult policy questions can be answered quantitatively and objectively by putting the costs and benefits into a common denomination-- typically money. Once all costs and benefits of additional regulation, for example, are considered and tallied, the outcome that provides the greatest benefits for the least cost must be the preferred outcome. However, this process is criticized because many environmental characteristics cannot be quantified, and are therefore given an implicit value of zero in typical cost-benefit analyses. Writers of regulatory measures tend to assign very specific costs to additional regulation, but environmental benefits are more difficult to assess in dollar terms. Thus, cost/benefit analyses as practiced in political arenas tend to overstate true costs and understate true benefits.

As the title implies, a manatee could be valued by the amount of money its skin, meat and other parts would be worth on an open market. But is the manatee as a species worth more than the sum of the market value of its parts? Critics argue that many environmental attributes are similarly impossible to value in a monetary sense, and therefore do not lend themselves to inclusion in cost/benefit analysis.


(Updated May, 2004)

Questions
1.

Some economists make a distinction between cost/benefit analysis, in which the goal and its outcome can be chosen, and cost-effective analysis, in which the least-cost path to a predetermined outcome is chosen. Ronald Reagan's Executive Order in 1983 (the first of its kind relating to how cost-benefit analyses should be conducted) required that all regulations be accompanied by cost-benefit analyses indicating that the benefits outweighed the costs to society. Would you characterize this executive order as calling for true cost-benefit analysis, or cost-effective analysis? Why?

2. Suppose pollution were defacing the structures on Mount Rushmore in South Dakota. Regulation suggested curbing the creation of pollution to reduce the damage to the sculpture there. How would you define and quantify the benefits of such regulation?
3. Environmental economists sometimes use contingent valuation theory, in which individuals are asked questions regarding their hypothetical valuation of environmental resources. Environmental economists hope to thereby ascertain not only the value of the use of the resource, but also the non-use of the resource. In other words, contingent valuation tries to determine not only the value I may get by, say, actually visiting Mount Rushmore, but also the non-use you may get by knowing that the sculpture is there for you to visit someday if you choose. Is a non-use value positive in this case? Why or why not? Would you suggest using non-use value in determining costs and benefits?
Source Malcolm Scully. "How Much is a Manatee Worth?" The Chronicle of Higher Education. Volume 50, Issue 26. 5 March 2004.

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