RECENT TRENDS IN PROJECT APPRAISAL Prof. Dr. Phoebe Koundouri Athens University of Economics & Business, School of Economics London School of Economics, Grantham Research Institute ICRE8: International Center for Research on the Environments and the Economy http:// www.icre8.eu/founder-scientific-director David Pearce Workshop, LSE, 10 Sept. 2015
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R ECENT T RENDS IN P ROJECT A PPRAISAL Prof. Dr. Phoebe Koundouri Athens University of Economics & Business, School of Economics London School of Economics,
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RECENT TRENDS IN PROJECT APPRAISAL
Prof. Dr. Phoebe Koundouri
Athens University of Economics & Business, School of Economics
London School of Economics, Grantham Research InstituteICRE8: International Center for Research on the Environments and the Economy
DAVID PEARCE CONTRIBUTED TO ALMOST ALL ASPECTS OF CBA AND DEFINED MANY CURRENT TRENDS.
The Theoretical Foundations of CBA The Stages of a Practical CBA Total Economic Value (TEV) Revealed Preference for Valuing Non-Market Impacts Stated Preference (CVM & CM) for Valuing Non-Market Impacts The Value of Ecosystem Services Valuing Health and Life Risks Benefits Transfer Discounting & Temporal Framing Spatial Framing Equity and CBA Sustainability and CBA Uncertainty and CBA The Political Economy of CBA Multi-Criteria Analysis & Interdisciplinary aspects
TOTAL ECONOMIC VALUE: THE CENTRAL CONCEPT IN CBA
DP major contribution to the definition and use of TEV. Current Research: To refine the theoretical models and empirical methods towards:
A. Better understanding of the concept and determinants of the total economic value of ecosystem goods and services
B. More accurate modelling of this value
C. More robust estimation and forecast of this value
D. More efficient integration of this value in interdisciplinary resource management and policy-making.
IS THERE A DOMINANT DRIVING FORCE SHAPING ECONOMIC VALUES AND ALLOCATION OF RESOURCES?
My research points on Information!
Crucial Questions to be answered: Does relevant information exist? Who owns it? Who understands it? How is it diffused over time/over space? How to handle information uncertainty? Do we face risk or deep uncertainty? How people react to information uncertainty? How we deal with information uncertainty in the LR?
It is important to explicitly incorporate the level, quality & dynamics of information in the theoretical and empirical attempts to measure values.
Required Information is truly Interdisciplinary!
VALUING ECOSYSTEMS AND BIODIVERSITY (TEEB) FOR CBA
“Making nature’s values visible”: mainstream the values of biodiversity and ecosystem services into decision-making at all levels.
Major Challenges:- Interdisciplinary- Valuation is an estimation of a snapshot- Spatial and Temporal Frameworks- Uncertainty about present & future of stocks
and flows of ES
SPATIAL FRAMES IN ES-BASED CBA Knowledge of how and where ecosystem services are
generated, altered and experienced is often insufficiently detailed.
Risk adopting spatial boundaries that do not encompass all the impacts of a planned change.
GIS-based spatial analysis is needed.
TEMPORAL FRAMES IN ES-BASED CBA
What is the relevant time horizon? Preferences for or against an impact may change through time
and this “relative price” effect also has to be accounted for. C/B not known with certainty so that risk (probabilistic outcomes)
and uncertainty (when no probabilities are known) have to be taken into account.
Co-evolution of social-ecological systems is not predictable. Choice of temporal scale of analysis determines to what extent
the interests of future generations are included in the analysis. This choice involves the selection of an appropriate discount rate.
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GLOBAQUAEC-DG Research-FP6
10,000,000 euro
Managing the effects of multiple stressors on biodiversity and functioning of aquatic ecosystems http://www.globaqua-project.eu, Budget: 10,000,000 euro
Business ScenariosSustainable Financing of OpenAIRE
GOVERNMENT PROJECTS APPRAISAL: ALTERNATIVE APPROACHES TO DEFINE THE DR
Discount Rate
Social Rate of Time Preference
Rate of Return Required by
Consumers in order to Exchange
Current Consumption for
Future Consumption
Social Opportunity Cost
Government DR should not differ
from DR applied by Private Investors. Risk should be
taken into Account
THE VALUE OF DISTANT BENEFITS & UNCERTAINTY[SERIES OF PAPERS WITH PEARCE, GOLLIER, GROOM, KOUNDOURI AND OTHERS]
In an Uncertain Environment:- Persistent shocks on the growth rate of consumption and- Persistent shocks on short-term interest rates- Translate into persistent shocks on growth expectations, translate into persistent shocks on interest rates
Determine the shape of the term structure of the socially efficient discount rate & imply DDR.
Estimate Theory Consistent DDR trajectory• Using Historical Data• Without a Structural Model• Using univariate time series regime switching models:- describe stochastic dynamics of the real IR - future properties of the IR are determined
by its own past behaviour
Information accumulation may transmit patterns of preferences towards risk & influence time preferences & attitudes towards the public goods such education, environment. As they become more important and current generationscare more about the future: DDR for PV of LR effects!
RECOMMENDED SCHEDULE OF DISCOUNT RATES PROVIDED IN UK
DDR in various formsadopted in: UK, USA, France, Norway,Etc.
Now working on Ukraine, Cyprus,Moldova.
RISK: probabilities of random events (RE) are known
Bayesian Paradign & Expected Utility Framework UNCERTAINTY: probabilities of RE are unknown (different data
generating mechanisms possible for the true process)
E.g. Climate Change: Within CC an analysis of uncertainty is especially important
becausedifferent studies use different models, different physical
parameters anddifferent methodologies. These differences generate alternativeprobability distribution for possible outcomes.
- Theoretical Models to investigate dynamic convergence to a probability distribution.
- Lab Experiments to elicit current preferences under uncertainty: controlled variation in the levels of uncertainty and probability distributions. Target populations:- General Public: elicit ambiguity aversion re. effects of climate
change.- Policy Makers: reaction to types of uncertainty presented by
experts.- Scientists: preferences under uncertainty that will result in different
outcomes.
WHEN I TALK TO POLICY-MAKERS I WISH THAT DAVID WAS THERE!WHEN I TALK TO AN INTERDISCIPLINARY AUDIENCE I KNOW
THAT THEY ARE USING DAVID’S WORK!.. SOMETIMES THEY DO NOT KNOW IT!
WHEN I TALK TO ENVIRONMENTAL ECONOMISTS I KNOW THAT DAVID HAS PARTLY DEFINED THEIR WORK.. SOMETIMES THEY DO NOT KNOW IT!
PUBLISHED AND FORTHCOMING BOOKS
Forthcoming: Koundouri, P. (editor) Innovative Multi-Purpose Offshore Platforms: Economic Engineering andEcological Perspectives. Springer Publishing, 2015. Koundouri, P. (editor) The Economics of Marine Energy Production: A framework of analysis andits application in European oceans. Springer Publishing, 2015. Markandya, A., and Koundouri, P. (editors) Fisheries Policy and Management. World Scientific Publishing, 2016. Koundouri, P. (editor) Handbook on Ecosystem Services and Water Resources Management. Cambridge Uni Press.