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52 benefit±cost analysis
nature and even comprise ideological facets, such
as whether massive tourism investments should be
allowed to penetrate into sensitive local communities.
The process of the analysis starts with the
identification of the stream of costs and benefits
that take place in the course of the project. The
realisation of the project, such as building and
maintenance of a road, causes some immediate
costs, such as working capital, material and labour
expenses. Correspondingly, the road, once ready
and in use, would directly serve motorists and
public transport service. In addition to these
apparent benefits and costs, the analysis may take
into account issues that are more complex to
identify. For instance, the new road might cut down
the number of traffic accidents, and these gains
include savings in insurance payments. In other
words, benefit±cost analysis strives for holism by
taking also intangible benefits and costs into
account. It may, however, be somewhat sensitive
to double processing. This means that some costs
and benefits can simply consist of transfer payments
from one agency to another �this is often the
case with taxes). Rise in land values due to
economic growth also portrays the risk of double
counting. Therefore, the analysis should follow
attentively that all benefits listed have a basis on
actual change in productivity or wealth and,
correspondingly, all costs draw on utilisation of
resources.
The analysis synthesises benefits and costs that
occur over time. Typically, costs come first, with
benefits delayed. This is the case, for instance, with
a tourism resort where the basic investments �such
as infrastructure, building and recruitment)
must be taken care of before the project starts
bringing revenues in entrance fees. In order to fully
compare costs with benefits, all such future
transactions are converted by discounting them
into their present value.
All costs and benefits in this analysis associated
with the proposed development of a project are
analysed regardless of to whomsoever they accrue.
Both tourists and the host locality must be
considered, as well as other stakeholders. The most
obvious costs fall on those who are responsible for
the realisation of the project, and the benefits are
due to those who will most profit from the project.
In addition to these apparent consequences, the
analysis observes effects on more distant parties
including people outside the marketplace. The
road project taken as an example may cause
reverberations that have no immediate market
price, such as changes in the scenery, climate, or
in air quality. These positive and negative thirdparty
effects, also called externalities, are usually
unintentional side effects of production, consumption
or other economic transactions. Pollution
caused by the tourism industry serves as an
example of a negative externality provoking
environmental damage to those living near the
destination.
As the process draws on a wide scope of analysis,
the total benefit of the given project is measured as
its total utility to its users. The total utility of a
product or service usually turns out greater than
the price paid for it. For instance, the recreational
value of a day visit to a national park may well
seem greater than the minor entrance fee paid at
the gate. The visitors then feel that they would be
ready to pay a larger entrance fee, if needed. The
gap between the total utility of the product or
service and the price paid for it is called consumer
surplus. In benefit±cost analysis, consumer surplus
is taken into examination when identifying and
assessing the benefits.
Finally, the scope of benefit±cost analysis may be
enlarged to touch social costs and benefits that fall
not on their origin but on the whole society. For
example, the costs of environmental damages
caused by massive tourism development and
accommodation of mass tourists may eventually
fall on the whole society, as people living in the
damaged areas may start to migrate to more
attractive areas. This may cause unemployment in
receiving areas and pressure on the social security
system, as individuals in working age are paid
unemployment benefits.
Further reading
Curry, S. �1989) `Cost-benefit analysis', in S.F. Witt
and L. Moutinho �eds), Tourism Marketing and
Management Handbook, Hemel Hempstead: Prentice
Hall, 83±7. �Discusses the benefit±cost
analysis and introduces its use in commercial
organisations.)