Alternatives to cost-benefit analysis – an example

Emil Urhammer

Decision support tools
When discussing major construction projects, such as motorways, wind farms or bicycle infrastructure, it has gradually become routine to include socio-economic analyses in the form of cost-benefit analysis (CBA). Therefore, CBA has become an important tool of persuasion when it comes to making decisions about major public projects and investments. However, CBA is only one of several tools that can be used to guide what is a complicated and difficult decision. In the following, we present some different decision support tools which are based on a current example.

The Hærvej motorway
At the moment, there is a discussion about whether a new highway called the ‘Hærvej motorway’ should be built in Jutland. The incumbent government, several mayors in Jutland and business representatives are advocates of the project, while local activists, the Danish Society for Nature Conservation and the environmental organisation, NOAH, oppose it. The arguments on the yes-side focus on creating economic growth, reducing transport times and fighting congestion, while the arguments on the no-side focus on preserving the beautiful landscape, and assert that highways do not fight long-term congestion and that car-use is harmful to health, has negative consequences for the climate and is noisy.

CBA
If you want to use a CBA to determine whether the motorway should be built, all the benefits need to be added together to give a total from which all the disadvantages have to be deducted to see if the end result is in favour of the motorway or against it. On the positive side is reduced transport time and less congestion, while degraded nature values and noise pollution are on the negative side. However, one of the problems with this approach is that all the advantages and disadvantages must be assigned a monetary value in order to be included in the calculation. In practice, this means that many important elements are omitted from the calculation or are not assigned a reasonable value. Thus, there is a risk that the analysis will be in favour of the interests that are best at ‘manipulating’ the calculation to their benefit. Partly in order to overcome this problem, various alternatives to CBA have been developed over time. In the following, we present some of these.

Multi-Criteria Analysis
As the name suggests, multi-criteria analysis involves approaching a particular decision on the basis of several criteria. It should be stressed that these criteria are also numerical, but it is important to note that these figures do not have to be in DKK. Thus, if we take the example of the Hærvejs motorway, figures in the form of the construction cost (in DKK), reduction in transport time (in hours), increase in CO2 emissions (in tonnes), noise increase (in decibels) and reduction of area (in square kilometres) may be included. This provides a more nuanced numerical analysis that does not reduce everything to monetary value. In addition, an attempt is made to involve alternative options. In the case of the Hærvej motorway, the alternatives could be the development of public transport or the expansion of existing motorways.

As well as the numerical calculations, multi-criteria analysis also involves some consistent roles in the decision-making process. For example, decision makers (e.g. a town council or government), analysts (e.g. experts in nature or traffic), stakeholders (e.g. landowners and companies) and citizens (the wider population with an interest in the problem). When you conduct the analysis, you can let the various stakeholders fill out a form where they prioritise the alternatives and indicate how they weigh the different figures in the analysis. An environmentalist would probably put more weight on figures that emphasise natural values, while a business owner would probably put more weight on transport times and opportunities for lower transport costs.

skema-alternatives

Multi-criteria table. The table shows the general layout of a multi-criteria analysis, where alternative decision-making options are presented next to each other, and different criteria are given a specific weighted score. The table is a reproduction of a similar table in Arild Vatn’s book ‘Institutions and the Environment’.

If you wanted to conduct a multi-criteria analysis of the Hærvejs motorway, you would have to put a figure on all the different elements that are part of the problem: how much will it cost to build the motorway? By how much would transport time be reduced? How much valuable nature would we lose? By how much would noise increase? By how much would CO2 emissions increase? And how would the various stakeholders weight these inputs? Ultimately, one hope that the tables prepared in connection with the analysis would guide the decision maker and provide a nuanced basis for the decision.

Deliberative methods
The so-called deliberative methods focus on communication, interaction and arguments. Here it is about involving the public in discussions about a given problem and providing input to decision makers. One of the purposes of the method is, thus, to create opportunities for achieving consensus and compromise in relation to various value conflicts. If you wanted to use deliberative methods in connection with the Hærvejs motorway, you would try to involve the public by establishing: focus groups, citizen juries and consensus conferences.

The focus group involves gathering together a randomly selected group, which is led by a chairman. The problem that the group has to discuss is defined in advance, and there must be no direct stakeholders or experts in the group. The work of the group is not meant to result in a conclusion. The aim is instead to contribute input to the decision-making process. For example, in the case of the Hærvejs motorway, the route of the motorway could be known in advance, and there must not be any people who would be directly affected by the motorway or any traffic experts in the group. Based on the knowledge and opinions of the individual members, the group should discuss the pros and cons of the motorway and send their reflections to decision-makers.

A citizens’ jury, like the focus group, is also composed of randomly selected citizens, but in contrast to the focus group, there are more members, and the jury is tasked with reaching a final recommendation. In connection with the Hærvejs motorway, the recommendation could be, for example, that the motorway should not be built, and instead public transport should be extended. The idea is that the jury then convenes different stakeholders and experts who can qualify the jury’s recommendation. A citizens’ jury often lasts from three to five days, and it is preferable that the panel reaches a consensus regarding a recommendation, but if this can not be achieved, a final vote can be made.

Consensus conferences are almost the same as a citizens’ jury, but they have a stronger focus on consensus, i.e. the panel discusses and reaches a consensus rather than voting on a decision. In Denmark, the Danish Board of Technology, in particular, has held a wide range of consensus conferences over the years.

Value-articulating institutions

When studying societal decisions, it becomes clear that certain institutions can help highlight some values while making sure that others stay in the background. In order to handle this value-forming characteristic of institutions, ecological economists, such as Arild Vatn, apply the concept of value-articulating institutions. Here institutions are understood in very broad sense as rules we follow in all kinds of different contexts: A family rule that the children have to clean up after dinner, or the procedure for setting up a cost-benefit analysis; both can thus be perceived as institutions. Both cases may be defined as value-articulating institutions. In the first example, the institution marks a family value that the children should also help with the housework, while in the latter case the institution determines which values should be taken into account when making a social decision and what price they should be assigned in the calculation. These two examples are very different, and usually the concept of value-articulating institutions is limited to different decision-making tools like those previously described in this section.


When cost-benefit analysis is used as a value-articulating institution, sometimes it is necessary to value a good that does not have a price. One of the methods used is to ask people about their willingness to pay for the good. For example, if the Hærvejs motorway were to be built through a special nature reserve, which would make the reserve less attractive, people could be asked what they would be willing to pay for an annual entrance ticket to the area, which could then be used to calculate the value of the area for people. This method means that people respond based on their own private interests, just as they would be expected to do when buying a product in a store. If, on the other hand, a deliberative method is used as a value-articulating institution, the participants are encouraged to formulate more collective values because they have to decide what would be best for society as a whole based on the different arguments they hear.


The reason why it is important to focus on value-articulating institutions is because their role as judges in terms of the question of value is often hidden. There is a tendency to think of value-articulating institutions, such as the CBA, as being objective and scientific, but they are in fact not value neutral, on the contrary, they favour some values at the expense of others when important decisions have to be made.



Next: Ecological economists’ view on value and prices