Adapting the economic tools for better decisions.
Researcher: Luis Catela Nunes
Public policy makers often hold preconceived ideas that do not match people's actual preferences. By using new participatory approaches and economic valuation tools, the decision making process regarding environmental policies can be improved in terms of better accounting for the final users' actual preferences.
Very often, human interventions with impacts on nature imply costs or benefits that are not traded in markets and thus have no prices that convey their value for people. This lack of knowledge of monetary values is often the reason why they are not considered in deliberations about policy options with the inherent risk of sub-optimal decisions being made.
To address this problem, several economic valuation techniques have been developed over the last years, so that those values can be included in Cost–Benefit Analyses (CBA) that evaluate alternative policy options. In fact, CBA is increasingly recognized as an indispensable tool for policy design and evaluation. The European Union has introduced legal provisions requiring cost–benefit assessments of all major policies. However, the CBA approach has not yet been adopted by many national and local policy decision makers on a systematic basis.
A local policy problem: voters and tourists
A team of researchers including Nova SBE’s Professor Luís Catela Nunes conducted a study considering a local authority assessing different investment options, leading to the development of nature based tourism as a way of promoting local development. Local authorities are essentially committed to their local constituents' interests rather than to the welfare of tourists themselves. So they do not necessarily deem relevant the information regarding tourists' welfare. Local electors, as well as the local population, would rather know about the increase of tourist inflow resulting from the investment options under consideration.
This is a case in which a cost–benefit approach is required to assess an investment, but not one focused on the net welfare effect usually computed in CBA. What is required is to value the increased tourist inflow and its effects on the local economy, and whether these effects would justify going ahead with the investment proposals. This makes the conventional CBA and the standard applications of valuation techniques not very useful for such decision-making process. Nevertheless, some forms of valuation and cost–benefit comparisons are still relevant to support this decision.
A new approach to valuation
The study explores the possibilities of altering a conventional valuation technique in a way that it can provide the type of information required by a decision-making setting as the one presented above. In particular, researchers assess specific management options aimed at promoting bird watching activities in the Portuguese island of Terceira in the Azores.
The usual willingness-to-pay measure was replaced by the willingness-to-stay longer in the island for bird-watching, given changes in the site attributes. Results of the valuation study were presented to stakeholders and policy-makers using an innovative method. In particular, results were incorporated into a modeling tool which simulated the impact of alternative policy packages. The tool provided a fast and clear way of communicating relevant information, resulting in a more informed and inclusive deliberative process.
The managers' goal was to promote bird-watching. The results show which management actions can lead to the achievement of this goal. The team found that some of the previously planned actions for the bird watching infrastructures, based on technical expertise advice, would not have any effect on visits to the study site while others could actually decrease the interest in the area for bird watching activities. The results showed that some formats of eco-tourism depend on landscapes being kept in their wildest format. Actually, this is even compatible with a decrease in conservation costs and an increase in economic return, while safeguarding natural resources.
These results reinforce the importance of understanding final users' preferences towards better management practices and more effective and efficient use of public financial resources.
For more details check the article published in Ecological Economics: "Using Choice Modeling to estimate the effects of environmental improvements on local development: When the purpose modifies the tool", Ecological Economics, 2014, vol. 108, pp. 79-90 - joint work of Luis C. Nunes with Maria Helena Guimarães, Lívia Madureira, José Lima Santos, Carlos Sousa, Tomasz Boski, and Tomaz Dentinho.