Environmental cost of using poor decision metrics to prioritize environmental projects |
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| Authors: | David J Pannell Fiona L Gibson |
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| Affiliation: | Centre for Environmental Economics and Policy, School of Agricultural and Resource Economics, University of Western Australia, 35 Stirling Highway, Crawley, WA, Australia |
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| Abstract: | Conservation decision makers commonly use project‐scoring metrics that are inconsistent with theory on optimal ranking of projects. As a result, there may often be a loss of environmental benefits. We estimated the magnitudes of these losses for various metrics that deviate from theory in ways that are common in practice. These metrics included cases where relevant variables were omitted from the benefits metric, project costs were omitted, and benefits were calculated using a faulty functional form. We estimated distributions of parameters from 129 environmental projects from Australia, New Zealand, and Italy for which detailed analyses had been completed previously. The cost of using poor prioritization metrics (in terms of lost environmental values) was often high—up to 80% in the scenarios we examined. The cost in percentage terms was greater when the budget was smaller. The most costly errors were omitting information about environmental values (up to 31% loss of environmental values), omitting project costs (up to 35% loss), omitting the effectiveness of management actions (up to 9% loss), and using a weighted‐additive decision metric for variables that should be multiplied (up to 23% loss). The latter 3 are errors that occur commonly in real‐world decision metrics, in combination often reducing potential benefits from conservation investments by 30–50%. Uncertainty about parameter values also reduced the benefits from investments in conservation projects but often not by as much as faulty prioritization metrics. |
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| Keywords: | benefit:cost analysis costs decision theory economics uncertainty aná lisis de costo‐beneficio costos economí a incertidumbre teorí a de decisió n |
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