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Cost- benefit analysis of the location of new forest land

Ellen Moons ()

Energy, Transport and Environment Working Papers Series from KU Leuven, Department of Economics - Research Group Energy, Transport and Environment

Abstract: In this paper we show how cost-benefit analysis can be used as a decision support mechanism for the location of new (urban) forest land, starting from the multifunctional role of these new forests. We start with a simple presentation of the cost-benefit analysis (CBA) technique. Key features of this evaluation technique are that (i) all - both positive and negative - impacts for all relevant parties (i.e. not only the project promoter) are taken into account and (ii) evaluation occurs on the basis of monetary values. Next, we give an overview of all relevant costs and benefits of afforestation projects for the whole society. On the cost side, we distinguish costs directly related to the afforestation project itself, such as tree planting and forest management on the one hand and opportunity costs on the other hand. On the benefit side we make a distinction between use and non-use values. Use values include timber production, hunting, recreation and ecosystem values. Non-use and option values capture forest benefits that are independent from the actual use made of the forest area. As valuation of recreation and non-use/option values is not straightforward, we discuss their valuation methods in more detail. For valuing recreation the travel cost method (TCM) is the most widely used technique. TCM seeks how the visit frequency responds to changes in the price of a visit. Non-use values can only be valued using the contingent valuation method (CVM). CVM uses survey questions to elicit people's preferences for public goods by finding out what they would be willing to pay for specified changes in them. Finally, we apply the CBA to a real life policy problem. The Flemish government has agreed on a 10.000 ha forest expansion in Flanders, focusing on the multifunction role of forests. In our case study we give an example for the Ghent region (East Flanders). We investigate the net benefits per hectare of combinations of potential forests that meet the surface restriction of 540 ha. We show the importance of including recreation benefits in the evaluation of afforestation projects and more specifically the role of alternative forests (substitutes) in the valuation of one specific forest. We find that this substitution effect is significant in the decision on the location of new forests and leads to a wide variation in the net benefits per hectare of different combinations.

Keywords: Environmental economics; Cost-benefit analysis; Valuation; Land use change; Forestry (search for similar items in EconPapers)
JEL-codes: D61 Q23 Q26 R14 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2002-07
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