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Method for the application of the cost benefit analysis to the integrated pest management

Up to date, Cost Benefit Analysis (CBA) has a rather long history of applications to the forest field. Since the issuing of Gregersen and Contreras' manual in 1979, which only followed of five years Little and Mirrlees' Project Appraisal and Planning (1974), the profitability of many forest projects, especially in developing countries, has been assessed through this technique.

Five levels of costs and benefits, including externalities and distributional effects, are identified, each corresponding to a step forward towards the TEV of natural resources, as well as a more reliable approximation of the 'true' social costs and benefits, that is the welfare gain of the investments:
1. Financial Analysis (FA): only monetary flows of expenditures and revenues are taken into account; prices are those observed in the market and market profit is the only objective
2. Conventional Economic Analysis (CEA): market prices of costs and benefits are adjusted by means of conversion factors to reflect the true value of resources, therefore eliminating distortions and market failures (monopolies, etc.) and transfer payments (taxes, subsidies, etc)
3. Extended Economic Analysis 1 (EEA1): off-site market effects are taken into account, namely those external to the areas of IPM but internal to the market; economic valuation techniques used are based on indirect market effects, such as productivity changes outside the area of intervention, effects on real estates market values, possible off-site damages and so on
4. Extended Economic Analysis 2 (EEA2): effects external to the market (intangibles, externalities, public goods/bads, etc, on-site and off-site) enter the CBA; non-market values have to be estimated using Consumer Surplus measures, e.g. Travel Cost and/or Contingent Valuation (CVM); environmental variations in and outside the area are considered and the objective-function is open to include people welfare
5. Socio-Economic Analysis (SEA): costs and benefits are assigned to the various social groups and weighted according to 'utilities'; this is the most critical and controversial step both from the theoretical and practical point of view, a way of attempting a 'social' analysis of the projects' gains and losses that could be done at each step of the CBA; the objective is again welfare taken into account utilities weighted according to people income and benefits and costs accruing to low income people (e.g. costs and benefits of villagers nearby the forest are given a higher weight).

For our purpose we will only carry out FA, EAA1 and EAA2. The following methods for estimating benefits and costs have been applied throughout the five case-study areas:
(i)market revenues include timber sales, both from thinning and final fellings (when the market for wood is active), valued with reference to stumpage values, roadside and/or market according to situations and a figurative (i.e. implicit) value of the fixed asset of the forest, which has been accounted for in terms on an annual land rent. This value remains stable in a well-managed forest, while on the contrary it decreases if the forest estate is not properly managed, as it is in the case of pest attacks.
(ii)market costs include a overhead cost linked to land tax, surveillance and management and project costs in the with-analysis, including purchase of specific products - Btk or other products - of equipment (rent or purchase) and labour costs of personnel involved
(iii) Off site market benefits (accounted for in EA1) refer to protection from erosion and Carbon sequestration. The first one is estimated based on data provided by a recent publication on the estimated provided by Mediterranean Forests (Croitoru and Merlo, 2005). Carbon sequestration has been estimated on the basis of the net annual increment of the forest given a value of 13 euros per ton of C fixed (Croitoru and Merlo, 2005).
(iv) Off-site market costs (accounted for in EA1) are estimated through the daily costs of hospital treatment for a person struck by dermatitis after having being in contact with the pine moth.
(v) Off-site non-market benefits (accounted for in EA2) include externalities such as recreation and landscape. These have been estimated through values taken from literature when available and judged reliable, or from ad hoc surveys in some cases.
(vi) Analysis has been performed using a discount rate of 2%, while a sensitive analysis has been carried out to assess more precisely the effects of discount rates on the cash flow values.

The model is suggested for application in any situation requiring a careful evaluation of pest control. It gives to managers, forest service staff and administrators a valuable tool for the assessment of the profitability of the control by taking into account all costs and benefits for the society, including the costs related to the medical treatment of people showing allergic reactions.

Reported by

University of Padova
35020 Legnaro
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