B.A. (Hons), M.A (Econ). Ph.D., Hon. D.Sc Europe).

distinguished Indian Economist


  • Overview
  • Preface
  • Index
  • Impressions

The world is increasingly concerned with bridging the developmental gap between the developed and developing countries. With the establishment of a number of institutions for funding the projects including the World Bank. Asian Development Bank, and many other agencies, the need to develop mechanisms to assess economically viable projects is more important than ever. The Social-Cost Benefit Analysis (SCBA) is an important technique used in formulating, appraising, and evaluating projects. It is a facet of applied welfare economics that is increasingly being used to identify ar assess public projects in both developing and developed countries

This volume presents a comprehensive view of cost-benefit analysis in i theoretical and applied dimensions. Both theory and case studies a presented. The theoretical setting for Cost-Benefit Analysis is establishei by the first five chapters:"Spatial General Equilibrium and Cost- Benefit Analysis," by David M. Newbery: "Optimum Growth Theory and Social Time Preference: A Computerised Mathematical Modeling Exercise to Choose a Social Discount Rate." by Sardar M..N. Islam: "A Theoretical Inquiry of the Axiomatic Consistency of Distributional Weights Used in Cost-Benefit Analysis," by Giuseppe Munda: "The Output Gap: Measurement. Related Concepts, and Policy Implications," by Parameswar Nandakumar: and "A Methodological Comparison of Theoretical Approaches in Dichotomous Choice Contingent Valuation." by John C. Whitehead. This book will be useful as a reference text for professors and students in project appraisal classes and-will be of equal value to analysts, planners, and interested general readers.

In the context of planning for development, particularly when the World is concerned in bridging the developmental gap between the developed and developing countries and with the establishment of a number of funding institutions to the projects including those from the World Bank, the Asian Development Bank and many other agencies, the importance for economically viable projects has come to stay. The Social Cost-Benefit Analysis (SCBA) is an important technique used in project formulation, appraisal and evaluation. Thus, it is an important facet of applied welfare economics which is increasingly being used for identifying and assessing the worthwhileness of public projects, both in the developing and developed countries.

The idea of bringing out this treatise on "Cost-Benefit Analysis" (CBA) arose in my mind, as I had formulated a large number of projects which were accepted by the World Bank and other agencies for funding. The academic urge borne out of this experience spanning a period of three decades added luster to this task. Normally, nay, fundamentally, CBA was being, hitherto applied to major irrigation projects to a large measure and, to some extent, to other projects, the sizes of which have been substantial. As days passed by, more and more projects had to be pressed into the developmental process; other sectors, though not perfectly, started getting the benefits of CBA to evaluate the worthwhileness of them. Now, CBA is being applied to many areas, thanks to the endeavor of the World Bank to take up more varieties of projects and try to formulate techniques appropriate to evaluate them.

In this context, the environmental and ecological development on the one hand, hazards and destruction on the other are more and more pronounced and this has become a challenge to the planners. The study of environment in different countries of the World remains as before (World Development Report, 1997) and many changes have taken place in other areas of development in this changing World. The fundamental resources, namely forest resources are being decreased, instead of increasing, as could be seen from the indicators given in the above World Development Report, though, much effort has been made to increase it. After five decades of Planning (Indian, for instance), it looks paradoxical. This is really an astonishment and calls for emergent plans covering a period of at least 10 to 15 years. Keeping the importance of environmental protection the World over, seminars and conferences on the subject have been held in plenty and projects are many. These are to be looked into critically by an evaluator and the tool necessarily becomes the SCBA. I had myself prepared a project for "Social Forestry in Karnataka" (1980) for World Bank Assistance. In fact, it was considered as one of its kind or the first itself to track the social forestry area by the application of SCBA in the World. This project was successfully implemented in Karnataka and a repeat project was also of equal success. At that time, the "Social Forestry Project" was altogether a new concept. It is these factors that prompted a Special Issue of the "Indian Journal of Applied Economics" (IJAE) on "Cost-Benefit Analysis with Particular Reference to Environment and Ecology" which is presented here in book form.

To apply SCBA to any project, one should know the fundamental concepts and methods of evaluating them. My first work; "Fundamentals of Applied Evaluation," which is the quintessence of my experience, was published in 1979 in which, starting from the conceptual framework, methods and issues of investigation, techniques to be used in the current and general contexts which may crop up as we are going on the road to reach the end results of evaluation, and finally presentation of a comprehensive report on the subject of the study are discussed. The evaluation study, when we start, looks fearful as if one is entering the forest. Once one goes through all the hurdles and crosses the thick and evergreen forests which might be full of dreadful beasts and comes to the end, which means the end of the study with full data, he feels totally relieved and he will be impressed that he has at his command full facts and tabulated data necessary for presenting a report. When he sits with all the where-with-all he has collected and is sure of writing a good report, he still faces many problems which were not earlier contemplated. He might have collected multiple data through a questionnaire and that data, to some extent, might have misfired and have become useless, because of inappropriate questions in the questionnaire. The presentation of an evaluation report is thus not an easy task even for an experienced evaluator. That sense of exhilaration or despair that the evaluator experiences when he completes the analysis of his data is usually absent when he begins to write the report. The effective scientific writing is rigorously logical and his first task is to visualize and construct a logical pattern or design that he can follow. If the design is not evident, much of the effect is lost. The integration of scientific thinking and writing should begin the moment a problem is conceived. When the final picture emerges, certain creative satisfactions result, some mistakes do occur and it is the duty of the evaluator to introduce correctives. ("Fundamentals of Applied Evaluation" K.Puttaswamaiah, 1979, P. 187). Thus, the study results act as a curtain raiser suggesting the problems which must be selected for further attention. This book was my early ambition and I reached my goal, to some extent. The whole saga of evaluation is brought out in this work in over 200 pages which is considered to be the first book from India coming as it did from an individual and the reviewers held that it was also the first such book in the style of a manual for evaluators in the World.

The Evaluation Division of the Indian Planning Commission (IPC), after the selection of the subjects for evaluation studies for the next period based on the need of the Government of India for future planning or for introducing correctives in the on-going programmes, would prepare a note on each of the studies, defining the objectives, formulating the hypothesis and developing a methodology. They were also used to prepare questionnaires for studies for different purposes. For example, there may be a questionnaire for collecting the recorded data from the Government of India and the State Governments; then, questionnaires/schedules for canvassing beneficiaries at different levels which have been selected by sampling technique. These sets of papers used to be thoroughly discussed in separate seminars. First, at the Planning Commission Level, they used to be discussed by the Chief, Evaluation Division with the senior officers of the Planning Commission, the Government of India and Heads of the Evaluation Divisions of the State Governments and the Officers belonging to the discipline to which the studies related. At the second stage, these seminars were held at State levels in which the field officers also participated. In the context of one study, such a seminar was conducted at Bangalore, the capital city of Karnataka, under the aegis of the Planning Department of the State Government in 1978. In this seminar, I raised the subject of the need for a manual on evaluation which would serve as a hand book for evaluators and explains all, from the definition of evaluation to field work and writing of the report. The discussion of the note and questionnaires mentioned above used to be normally thorough, a practice which now appears to be not so regular or perhaps lost sight of. I used to be on almost all the Steering Committees of the studies conducted by the Planning Commission. All these prompted me to make a statement about the need for a textbook type manual on evaluation. This seminar was attended by the Chief, the Evaluation Division, Directors of Evaluation of different States and the subject matter specialists relating to the subject under evaluation. The background for this book was thus in the above context in which I requested bringing out successfully a manual for the use of the evaluators in the country in a short duration of one year, as "in the long-run, we are all dead." Dr. P.K. Mukherjee, then Chief, the Evaluation Division of the Indian Planning Commission, who heard me said that such a technical manual/book, which would guide the evaluators in a country like India, which is of continental size, is extremely important and mere discussions about a study without the knowledge of the fundamentals and the methodologies will not give us good report. It was agreed that the IPC would bring out within a year such a manual. At that time I made a spontaneous joke and said that "if not, we will bring out such a manual/book within that year." We did bring out that most important book, duly published in the very early years of my career, which was well received. It became good material for training, evaluation personnel in the country.

Dr. R.K. Hazari who was then the editor, "Economic and Political Weekly" wrote a review article on this book: "Fundamentals of Applied Evaluation" under the title: "Guiding the Evaluators” He has said, while concluding the review article that "the task of guiding the evaluators in the country by the Planning Commission of India has been actually done by an individual which is highly creditable."

By the time this book came out, I had already conducted more than 25 evaluation studies in various sectors of the economy; more important summaries have been published under the title: "Studies in Evaluation" (1982). For instance, "Evaluation of the Roads Programme" (1970) is a hard nut to crack, unlike other sectors. "The genesis of roads programmes in Karnataka presented by K.Puttaswamaiah wouldn't have been possible but for his background as editor, Karnataka State Gazetteers, for nearly a decade. The report on 'Roads Programmes' contains the criteria and norms at every stage and to every point under discussion-whether it be a road formation stage or a maintenance one. It is a report which is not just useful to Karnataka but is useful anywhere in the world." This has been said by the late Dr. P.K. Bhattacharjee, Chief, the Policy Analysis Division, FAO Rome, prior to which he was Chief, the Evaluation Division, the Indian Planning Commission. Every study has been received very well. That is the only satisfaction that the author has. If one newspaper points out that the report identifies "the zigzags and pitfalls in the roads system," other newspaper names the author as a "watch dog of Planning”. Many other sectors of planning have been evaluated similarly with the same success. It is this experience that enabled me to publish the "Fundamentals of Applied Evaluation" which defines evaluation objectives, and in many ways, goes on to the Evaluatory Methods- Techniques—and thus the whole saga of the evaluation journey, long indeed, up to the presentation of the report during which the evaluator will have faced many pitfalls to get the final exhilaration. My book on "Cost- Benefit Analysis-A Theoretical and Applied Critique" is the result of my experience with the application of CBA to many projects including those sent to the World Bank. When the book came out, even forgetting all the rest, I would be failing in my duty if I did not recollect here the impressions of some wellwishers. Late. Prof. Jan Tinbergen, the Nobel Laureate, in a personal letter, considered the book "as a very useful book for project evaluation; especially since it mentions the methods used by various agencies which have to evaluate many projects." Prof. Michael Lipton from Sussex also conveyed his appreciation in a letter saying that: "Your book on Cost-Benefit Analysis should be very useful. I think your closing remarks strike just the right note. We shall have to make do with cost-effective analysis in regard to health projects. While the objections to CBA (and even to cost-effectiveness analysis) have force, the more 'literary' alternatives merely push under the table the problems associated with CBA, rather than solving them. You have presented a very interesting approach. There is, though, a strong argument—maybe even proof-that the UNIDO and Little-Mirrlees methods have given identical results."

Prof. Jan Tinbergen, first Nobel Laureate has favored me with his 'Foreword’ in two of my books: (1) "Nobel Economists-Lives and Contributions" published in a set of three volumes (1994/5) and (2) "Econometric Models-Techniques and Applications" (1994). While he has given a brief 'Foreword' to the second book in a brilliant language, the 'Foreword' to the first book relating to "Nobel Economists-Lives and Contributions" is a very lengthy one. My academic friends in the Netherlands and elsewhere, wrote to me saying that: "Tinbergen has not given such long 'Forewords' to anybody except for you." It shows his utmost affection for me.

In his letter, Prof. Tinbergen wrote to me saying: "You know that my mother-tongue is not English. There might be some English errors as the Foreword is long. If you find any error, you are free to correct." This shows Tinbergen's openness and simplicity. By then, he had seen chapters 1 to 34 of volumes I-III. He has followed my career by going through my manuscripts for over two decades. In the 'Foreword' to this book, he has tried to analyze my major works and has chosen three titles for the purpose. These three titles are: (1) "Economic Development of Karnataka, A Treatise in Continuity and Change" published in a set of two volumes (1980), (2) "Nobel Economists-Lives and Contributions" (1994/5) and (3) Cost- Benefit Analysis-A theoretical and Applied Critique of Alternative Methodologies" (1984, 1988), co-authored with S. Venu. His impressions on the last book have already been indicated in the previous paragraph. I once again take this opportunity to express my gratitude to Prof. Jan Tinbergen, the "Great Man" of the Twentieth Century, who has supported my works all through my life.

The Cost-Benefit Analysis is normally applied to bigger projects to assess the results-both ex-ante and ex-post. Normally, small projects were not considered in the early stages, as it was felt that it was waste of time. Even in American conditions, minor projects were not given that importance to apply SCBA vis-a vis the major ones. The motto was, the minor irrigation works would help "all as against a few at the cost of all”. Major projects amount to the lumping of investments and the benefits flow to only a few, while the smaller projects will not only yield quick results and will also give benefits to a larger section of the community. In larger projects, "covering as large an area as possible" should be the motto. I was impressed by a paper of the American Administration, probably not published, which is entitled: "Policies, Standards, Procedures in the Formulation, Evaluation and Review of Plans for use of Water and Related Land Resources" a document prepared under the direction of the President's Water Resources Council, U.S. Senate, Document No.97, Washington, 1962, popularly known as Kennedy's Paper. Since, I was very much convinced about the views and concepts contained in the paper, I tried to apply them to Indian conditions in a tiny book entitled: "Irrigation Projects in India towards a New Policy" (1977) which was very well received. Later, considering the problems which India is facing in the irrigation front like Inter-State Water Disputes, construction of major dams across the rivers which flows in more than one State, scarcity of water and bad management in the water basins, lack of finance and so on, I thought I should prepare a comprehensive study after visiting all the major projects as an extension of the 1977 study published under the title: "Irrigation Projects in India— Towards a New Policy''

The new study which is in-depth was brought out under the same title: "Irrigation Projects in India towards a new policy" (1994), i.e., under the same title but with a wider scope spelling out in what direction India should go in the Irrigation front for the investment of funds. This latter book is almost like an "Agenda for Indian Rivers!' The policy implications for major irrigation projects as well as the minor merits and demerits of them are discussed in detail and a number of recommendations have been made. The basis for the latter book was inspired by the Kennedy paper which I mentioned above. This I am quoting just to emphasize that even an affluent country like the United States of America, while prioritizing the projects, gave due importance to minor projects which yielded immediate results. It is not to deny the bigger projects as the resources have to be exploited in full to develop the nation. After the initial irrigation monograph (1977) and after the project for "Drought Proofing in Karnataka was approved by the World Bank as the only project which was fit for appraisal," I took up a couple of minor irrigation works for CBA based on socioeconomic studies in the relevant irrigation project areas. This has also been published under the title: "Cost-Benefit Analysis of Irrigation and Drought Proofing" (1989). The World Bank team which had come to India for terminal evaluation of the drought proofing areas programme had praise for this work and minor irrigation works which were incidentally financed by them.

It is because of the above reasons that I was enthusiastic to bring out a Special Issue of the Journal on the subject taking the environmental aspects of development as the focus. Thus, I have given emphasis to papers on SCBA as applied to environment and ecology. I am happy that with the support of the Members of the Advisory Board of IJAE and other colleagues, I have been able to bring out this book.

The genesis of Cost-Benefit Analysis goes back to the publication, "Water Resources Projects Economics" by Edward Kuiper (1971) in which SCBA was applied to water resources projects. This may be read with "Economics of Water Resources Planning" by L. Douglas James and Robert R. Lee published in 1971.

Starting from the water resources planning analysis with the technique of Cost-Benefit Analysis, it took a long time for the Cost-Benefit Analysis to travel to other areas of national problems, but was difficult to evaluate as they were intangibles. A beginning was made in India by the introduction of a scheme called Drought Prone Areas Programme initiated by the World bank in 1973. India was given the opportunity to prepare projects for drought prone areas in 12 districts, two projects of which were given to Karnataka which I had to formulate. These districts are Bijapur in Northern Karnataka and Kolar in Eastern Karnataka. Both are equally drought prone.

Starting from the reconnaissance surveys in these districts, the actual formulation of projects, with due consultation with the World Bank and local officials and the people, was a big task, but had to be done in a short time. When all the twelve projects were sent to the World Bank for their appraisal by personal visits, I was happy to read in their appraisal report that "out of the twelve projects received from India, Bijapur Project was the only one which was fit for appraisal'' It is difficult to quantify the results of such a project, since major elements contained in it are intangibles. It does not help us to estimate direct benefits too. We made our humble attempt to apply SCBA to some components. Similarly, other projects mainly formulated by me are the Indian National Sericultural Project (1978), Regulated Markets Projects (1973), Karnataka Diary Development Project (1975)and a Project for "Agricultural Extension and Research" popularly called the"Training and Visit (TV.) System." Karnataka was the first state anywhere in the World to introduce the last project with the assistance of the World Bank, and on an experimental measure. We now find from the latest World Bank evaluation reports that this System initiated in Karnataka is replicated in thousands of countries. The Karnataka Project thus has done its best to give a multiplier effect. It has given us sufficient challenges and headaches during the formulation of the project to estimate the benefits, both on ex-ante and ex-post levels. "End Evaluation" has given us much encouragement. These examples are some among many such projects.

Having had experience in the formulation of major projects, only some of which are mentioned above, we did take up some sectoral projects which contained a number of elements that were beyond the scope of evaluation, intangibles. Having experienced this and with the interest on SCBA evinced through practical experience spanning over three decades, it was felt necessary to have a Special Issue of the "Indian Journal of Applied Economics" on "Cost-Benefit Analysis." While doing so, we purposely chose the 'Environment and Ecology' sector which is the current area of interest, already explained before. Added to this, more and more countries are coming forward with projects relating to areas which were once thought of as beyond the scope of preparation and appraisal. Environment and Ecology is one such major area. Denudation of forest areas and pollution are contributing to the destruction. It is the primary duty of everyone, particularly planners, to ensure that environment is properly protected and developed further in every country and region. With this emphasis in mind and with the support and enthusiasm of many contributors who are very well trained in the art and science of SCBA and in the environmental arena it has prompted us strongly to bring out this Special Issue, now in book form.

Before we go to the scope of this book, I wish to point out that there are mainly five methods of social Cost-benefit Analysis (K. Puttaswamaiah, CBA, 1988). Of course, the background for Cost-Benefit Analysis, as mentioned earlier, is the welfare economics. With a detailed theoretical setting relating to welfare economics as introductory to that Book— the five methods are presented—covering both theory and practice. These five methods are: (1) Consumer's and Producers' Surplus Approach—Mishan's Contribution, (2) The Little- Mirrlees Method for Project Appraisal, (3) The UNIDO Approach, (4) The World Bank Approach and (5) The 'Value-Added' Approach to Cost-Benefit Analysis. The Methodology followed by the World Bank combines in its ambit the OECD manual, L. M. and the UNIDO guidelines. Not only these three methods are discussed, the merits and demerits are presented in a separate chapter. Much literature and many World Bank methods have come out of late but the basis for it is "Social Cost-Benefit Analysis: A Guide for Country and Project Economists to the Derivation and Application of Economic and Social Accounting Prices" World Bank Staff Working Paper No.239 (Aug. 1976) which has to be read with "On Shadow Pricing," World Bank Staff Working Paper No.792.

My book, which I cited above, namely "Cost-Benefit Analysis-A Theoretial and Applied Critique of Alternate Methodologies" was published in 1984 and reprinted in 1988. With the necessary theoretical background, the five methods are presented from the methodological point of view, as well as applied case studies. This appears to be the only book anywhere that contains all the methods of CBA. The merits and demerits of each of these are also explained and current issues highlighted. Lyn Squire and Herman G. Van der Tak, "Economic Analysis of Projects" a World Bank Research Publication (1975) contains the World Bank Method. A critique of S and T method is now available under the title: "Cost- Benefit Analysis for Developing Countries" by Robert J. Brent, published by Edward and Elgar in 1998, as a most comprehensive critical book, we have so far come across on the World Bank method.

Coming to the scope of this Special Issue on "Cost-Benefit Analysis with particular Reference to Environment and Ecology," there has been lots of enthusiasm among authors who have contributed. Almost all professors that have sent their contributions have rich experience in this area. There are in all 21 papers included in this treatise. Of these, the first five papers provide the necessary theoretical setting.

David M. Newbery in his article: "Spatial General Equilibrium and Cost-Benefit Analysis" starts with the premise, the transport investments which lower travel costs and land use projects which affect land supply and demand will affect land price and demand. He tries to identify the impacts which arise in making such value judgments in SCBA of such projects. The paper demonstrates this in a series of models and the importance of working with the underlying utility function rather than demand schedules which will move in response to relocations. The author has also computed as an example the size of the result error.

Sardar M. N. Islam in his paper: "Optimum Growth Theory and Social Time Preference: A Computerised Mathematical Modelling Exercise to Choose a Social Discount Rate " has tried to analyze how the efforts so far made by the economists for the empirical derivation of the social discount rate for developed and developing countries have ended up with an unsatisfactory outcome. No doubt such a derivation is a difficult task. In this study, the author tries to present illustrative, though realistic exercise of estimating the social discount rate where the rate of growth of per capita GDP and consumption are negative. He has explained limitations of the methodology and suggests further research of resolving the issue by development on a new paradigm. In the third paper by Giuseppe Munda entitled: "A Theoretical Inquiry on the Axiomatic Consistency of Distributional Weights used in Cost-Benefit Analysis" makes a theoretical inquiry to test the consistency and compatability of the axiomatic system, attention is devoted to the relationship between the concept of compensability and meaning of the distributional weights. With a view to tackling this issue, the author has used some results of the multiattribute utility theory and measurement theory literature.

P.Nandakumar in his article: "The Output Gap: Measurement, Related Concepts and Policy Implications" compares the various approaches to the measurement of potential output and the NAIRU, and identifies practical policy implications. While doing so, he tries alternative methods like the Okun's Law approach. The trend-fitting method, the production function approach, the simultaneous equations system method and the stochastic filter methods - are discussed in detail. The merits and demerits are pointed out. John C. Whitehead in his paper: "A Methodological Comparison of Theoretical Approaches in Dichotomous Choice Contingent Valuation " tries to explain the choice of a theoretical approach to CBA implications. While doing so, he tries alternative methods like the Okun's Law approach. The trend-fitting method, the production function approach, the simultaneous equations system method and the stochastic filter methods - are discussed in detail. The merits and demerits are pointed out.

John C. Whitehead in his paper: "A Methodological Comparison of Theoretical Approaches in Dichotomous Choice Contingent Valuation " tries to explain the choice of a theoretical approach to CBA in a dichotomous choice in contingent valuation can have implications for the theoreticalvalidity and bias of willingness to pay estimates. The choice of theoretical approach, according to him should ultimately depend on the type of policy analysis for which the study is designed.

Sarah Lumley in her article: "Cost-Benefit Analysis, Ethics and the Natural Environment" explains the ethics part of the natural environment while applying SCBA. This paper examines the issues which arise while making resource allocation to environment and examines some of the reasons for the controversies.

This paper is based on the economic analysis applied to a proposed mining project within the boundaries of Kakadu National Park in Northern Australia as a case study. It assesses the ethical implication of using standard economic criteria such as those identified in CBA in making decisions about the long term use to natural environment.

The next article: "Transport Cost Analysis: Applications in Developed and Developing Countries", by Todd Litman concentrates on the transport planning and policy analysis and describes the framework that can be used to evaluate the full cost of the different modes of transport for planning and policy analysis applications. The paper will be useful to policy makers and those who wish to improve transport decision making both in develo ped and developing regions.

While, David K. Lewis in his paper: "Cost-Benefit Analysis and the Evaluation of New Technology and Policies in Natural Resources," is concerned with the evaluation of new technology and policy in natural resources, Joseph N. Lekakis in his paper: "Cost-Benefit Analysis and the Environment: A Critical Assessment" provides a critical evaluation of the selection criteria of environmental projects and describes the criteria which are to rely on a social theory based on ecology, social sciences and humanities. Lekakis illustrates his view point of technology and evaluation and the utility of CBA by examples drawn from genetic improvement, forest fertilization, and the preservation of nesting habitat for the northern spotted owl. The utility of Cost-Benefit Analysis is also illustrated with these examples. Sabine O'Hara and Susan Mesner in their paper: "The Limits of Economic Rationality: Social and Environmental Impacts of Recreational Land Use" the so-called negative externalities of development are discussed. They prefer alternative valuation method which they call discoursive valuation or also called discoursive ethics. Peter Clough in his paper: "Cost-Benefit Analysis and Wildlife Conservation: A Sustainable Application " explains the various techniques of non-market valuation that are found wanting and the paper outlines an approach to the valuation of habitats through a set of environmental inventory accounts, encompassing the natural capital-air, water, space, soils, landforms and biological resources-whose contribution to productive sectors and community well-being may be fundamentally transformed by adverse environmental effects. It links these accounts to project appraisal and other environmental economics issues, such as the use of incentives and instruments in implementing policy. Sardar M.N. Islam, Peter Sheehan and Jim Gigas in their paper: "Cost-Benefit Analysis of Climate Change: Towards an Operational Decision Making Rule for Climate Change Policy" discuss the sustainability of CBA as an operational method for policy making to address the issue of climate change. In the next paper entitled: "The Effect of Social Time Preference on the Future of the Australian Economy and Environment: Findings from the Australian Dy-namic Integrated Climate and Economy Model (ADICE)," Sardar M.N.Islam and Jim Gigas emphasize on the social time preference scenario as applied to Intergenerational equity in Australian society. They feel higher efforts for environmental management or higher rates of emission controls are required.

David Pimentel and Madinah S. Ali in their paper entitled: "An Economic And Environmental Assessment of Herbicide-Resistant and Insect/Pest-Resistent Crops" describe the use of insecticide and the environmental pollution and attempts to analyze the economic impact of it. Karl Steininger in his paper:“Spatial Discounting and the Environment: An Empirical Investigation into human Preferences," Fernando Perna and Vitor Santos in their paper: "The FreeRiding Behaviour in Culatra Island Case Study: Detection and Correction” and Susan B. Kask, Jason F. Shogren and Todd. Cherry in their paper:“Valueing in Multiple Health Risks from Long-Term Low Dosage Exposure to Hazardous Chemicals" have given their experiences with reference to their countries in the area of SCBA and natural environment, namely, Australia, Portugal and USA respectively. Fernando Perna and Vitor Santos in their paper: "The Free-Riding Behaviour in Culatra Island Case Study: Detection and Correction relates to an island Culatra placed in the South of Portugal in the heart of Ria Formosa, a natural Park since 1987 and contains a good account of their development and maintenance. Susan B. Kask, Jason F. Shogren and Todd Cherry’s paper mainly relates to valuation of multiple health risks, long term low dosage exposure to hazardous chemicals. Jan van der Slraaten in his paper: "Challenges and Pitfalls of Cost- Benefit Analysis in Environmental Issues" has dealt with the contingent evaluation method, Travel Cost Method, and Hedonic Pricing or techniques taken for attempting an evaluation and to suggest remedial action to get rid of some of the environmental issues in the Netherlands. Jane V. Hall and Victor Brajer in their paper: "Challenges in Valuation: the Health Benefits of Reducing Air Pollutants" identifies and discusses some of the challenges for the case of valuing health benefits that result from better air quality. Bernardo Aguiliar and Thomas J. Semanchin give a very detailed account of the implications of ecological economic theory of value and capital, for effecting the estimates of SCBA and suggest several alternative valuation methods for developing nations with special emphasis on Central America. Thus, the ecological and economic theory of value and capital can be used to promote sustainable development in the decision making process. The author has surveyed the existing trends in ecological economic literature regarding value estimating and their effect on Social Cost-Benefit Analysis. Brief case studies relating to Central America are presented here and there. The paper illustrates with a number of figures and is quite an interesting one.

In all, the purpose of this technical volume on SCBA is to bring together the experiences of different countries in its application of Cost-Benefit analysis with appropriate new methods and techniques in the areas of environment and ecology. Each paper has something new to say about the Cost-Benefit Analysis and the entire collection put together, it is hoped, will be a good set of new theories and applications. All authors have done their best in assisting in this exercise by their wide ranging contributions based on their own country's experience. I am, in fact, very happy to see these papers in this volume.

I wish to thank all the authors who have co-operated in sending papers as requested and then in answering queries of mine and the referees. Their unlimited efforts and co-operation are highly appreciated. This exercise had to be finalized within a year-first for IJAE and for this book. Hence, the mode of communication, namely, email was an excellent source which we could use for collecting the feed-back information and as most of the authors have this facility, the task became easy. I once again place on record my heartfelt gratitude to all the authors who have contributed and co-operated. I specially thank the referees and those who indirectly or directly supported to modify ideas which have been carried out. Prof. Rati Ram, Distinguished Professor, Illinois State University took a very special interest and refereed two very tough articles and got them revised thrice. I am equally grateful to other referees also who were kind enough in extending their co-operation in refereeing articles and making many suggestions.

I am extremely grateful to Prof. Paul A. Samuelson, Institute Professor Emeritus, Massachusetts Institute of Technology and Nobel Laureate, who has been of great support to academics. His blessings have always been there which have inspired my recent research. I am grateful to him. Similarly, Nobel Laureates like Professors Robert M. Solow and Franco Modigliani have supported my work and I wish to express my gratitude to them. Late Prof. Wassily Leontief was also a source of inspiration in my work as he used to readily send his contribution and supported me in my work as a Member of the Editorial Advisory Board. Just at this time when we are bringing out this book, Professors Lawrence R. Klein and M.C. Merton, Nobel Laureates, have joined as Members of the EAB of our journal which has really given me much courage and support for my tasks ahead. I am grateful to them. 1 wish to express my gratitude to Prof. M.S. Swaminathan, world's greatest agricultural scientist, who has been giving me all the moral support, guidance and inspiration in India. The other Members of the Editorial Board, particularly Professors G.C. Harcourt (Cambridge U.K.), W.P. Hogan (Sydney Univ.,) and J.W. Nevile (N.S.W. Univ., Australia) have given their support in this work. Prof. John Lodewijks Professor N.S.W Univ., and editor, History of Economic (Review) has been a source of inspiration, support and courage to me.

Dr. Irving Louis Horowitz, chairman, Transaction Publishers, Rutgers-The State University of New Jersey, spontaneously agreed to publish this work on my approaching him. I wish to record my appreciation for his support and grateful thanks for his follow up and interest in this work. Ms. Mary E. Curtis, president and publisher, has taken a very keen interest in this publication and followed up the quality of production at every stage. I appreciate her goodness in working with me on this project. Ms. Cristina Kollett, associate editor, in-charge of this publication has worked hard in bringing out this publication so neatly in such a short time. I wish to record my appreciation both to Ms. Mary E. Curtis, and Ms. Cristina Kollett for their unstinted support.

In a work of this nature, it would be difficult to thank everybody. If I have forgotten anyone who has helped me in this task, may I be forgiven. 1 am happy that I have been able to bring out this book on "Cost-Benefit Analysis with Reference to Environment and Ecological Perspectives."

January 1, 2000                                                                         K.Puttaswamaiah           

Preface                                                                                                          X1
1. Spatial General Equilibrium and Cost-Benefit Analysis                                 1
-David M. Newbery
2. Optimum Growth Theory and Social Time Preference:                               19
A Computerised Mathematical Modelling Exercise to Choose a
Social Discount Rate
3. A Theoretical Inquiry on the Axiomatic Consistency of                               41
Distributional Weights Used in Cost-Benefit Analysis
-Giuseppe Munda
4. The Output Gap: Measurement, Related Concepts and Policy                   49
-Parameswar Nandakumar
5. A Methodological Comparison of Theoretical Approaches in                      77
Dichotomous Choice Contingent Valuation
-John C. Whitehead
6. Cost-Benefit Analysis, Ethics and the Natural Environment                       95
-Sarah Lumley
7. Transport Cost Analysis: Applications in Developed and                         115
Developing Countries
-Todd Litman
8. Cost-Benefit Analysis and the Evaluation of New Technology                 139
and Policies in Natural Resources
-David K. Lewis
9. Cost-Benefit Analysis and the Environment: A Critical Assessment         151
-Joseph N. Lekakis
10.The Limits of Economic Rationality: Social and Environmental                181
Impacts of Recreational Land Use
- Sabine O' Hara and Susan Mesner
11.Cost-Benefit Analysis and Wildlife Conservation:                                  203
A Sustainable Application?
- Peter Clough

12. Cost-Benefit Analysis of Climate Change: Towards an                         217
Operational Decision Making Rule for Climate Change Policy
-Sardar M.N.Islam, Jim Gigas and Peter Sheehan
13. The Effect of Social Time Preference on the Future of the                    227
Australian Economy and Environment: Findings from the
Australian Dynamic Integrated Climate and Economy
Mode (ADICE)
-Sardar M.N.Islam and Jim Gigas
14. An Economic and Environmental Assessment of Herbicide-                 241
Resistant and Insect/Pest-Resistant Crops
-David Pimentel and Madinah S. Ali
15. Spatial Discounting and the Environment: An Empirical                       253
Investigation into Human Preferences
-Karl Steininger
16. The Free-Riding Behaviour in Culatra Island Case Study:                   269
Detection and Correction
-Vitor Santos and Fernando Perna
17. The Cost of Wealthy Modern Cities                                                     291
-Peter Seidel
18. Valuing Multiple Health Risks from Long-Term Low                              303
Dosage Exposure to Hazardous Chemicals
-Susan B.Kask, Jason F. Shogren and Todd L. Cherry
19. Challenges and Pitfalls of Cost-Benefit Analysis in Environmental      323
-Jan van der Straaten
20. Challenges in Valuation: The Health Benefits of Reducing                  347
Air Pollutants
-Jane V. Hall and Victor Brajer
21. The Implications of Ecological Economic Theories of Value to             367
Cost-Benefit Analysis: Importance of Alternative Valuation for
Developing Nations with Special Emphasis on Central America
-Bernardo Aguilar and Thomas J. Semanchin
Index                                                                                                        421

“The volume contains a wonderful mixture of highly technical articles, practical case studies and the occasional polemical piece that highlights the deeply held concerns people have aboutenvironmental- degradation and resource depletion. It deals with the vexing issues of discounting—which environmentalists are critical of—and distributional weighting. The volume covers areas as diverse as biodiversity, air pollution, wildlife conservation, dioxin exposure, climate change and even the state of the northern spotted owl! This collection does not gloss over the areas of controversy and is quite candid about the deficiencies of the unguarded application of CBA to environmental concerns. As such it represents a valuable addition to the literature on these topics."

                                  —John Lodewijks, University of New South Wales, Australia.