Value is central to benefit-cost analysis and, in economics, all values are subjective: the value of some ‘good’ is given by the individual and reflects his or her subjective preference for that ‘good’.
In this respect, the shorthand term ‘good’ is used to denote any commodity, resource or item which an individual prefers or desires (for example, a coastal protection project, a flood alleviation scheme, a beach, a river, or a recreational experience).
Value is also ‘sacrificial’. This means it quantifies or reflects the degree to which the individual would be willing to give up an amount of that ‘good’ in order to have more of another.
There are three general strategies for deriving values for use in benefit-costs analysis:
1. Using market prices (e.g. the cost of repairing flood damage).
2. Using ‘inferential’ methods, which use statistical techniques to infer the value of something that does not have an observable market price (e.g. valuing a recreation resource by the distance people are prepared to travel to enjoy that resource).
3. Using ‘expressed preference’ methods which usually involve questionnaires to elicit a value (e.g. asking people what choices they would make between different recreation venues).
Penning-Rowsell, E.C., Priest, S., Parker, D., Morris, J., Tunstall, S. Viavattene, C., Chatterton, J.B., and Owen, D. (2013) Flood and Coastal Erosion Risk Management: A Manual for Economic Appraisal. London: Routledge.