Animal Waste, Water Quality and Human Health

432Animal Waste, Water Quality and Human Healthdistributional concerns can be accommodated in economic evaluation in a numberof ways.12.2.1 Cost/Benefit analysisCost/Benefit Analysis (CBA) provides a systematic assessment of the costs andbenefits associated with an intervention. The benefits of an action are contrastedwith the associated (opportunity) costs within a common analytical framework.Economic theory defines a benefit as a change that increases human well-being,whilst a cost is defined as a change that decreases human well-being. Asdescribed above, and for the purpose of comparison, these increases anddecreases in well-being are measured using money as the common denominator.The net benefit of a change is given by the difference between the costs andbenefits. Delayed benefits and costs are converted to their present dayequivalents through a process called discounting. The change is said to beeconomically efficient if the present value of net benefits (NPV) is positive, orthe ratio of total benefits to total costs (B/C ratio) is greater than one.In general, the following steps are included in a CBA:Step 1: Define the objective of the intervention.Step 2: Define the baseline, that is, what would happen if no action is taken.Step 3: Define the alternative options to achieve the objective.Step 4: Quantify the investment costs of each option compared to the baseline.Step 5: Identify and quantify the positive and negative welfare effects of eachalternative option compared to the baseline.Step 6: Value the welfare effects in monetary terms, using market prices andeconomic valuation methods.Step 7: Calculate the present value of costs and benefits occurring at different pointsin time using an appropriate discount rate.Step 8: Calculate the Net Present Value (NPV) or Benefit/Cost (B/C) ratio of eachalternative option.Step 9: Perform a sensitivity analysis.Step 10: Select the most efficient intervention option.Carrying out a CBA is a multi-disciplinary process, involving expertise fromdifferent fields and the input from policy and decision-makers. Whileeconomists are involved in all steps, environmental expertise of many kinds isalso needed, especially in steps 2, 3 and 5.