Methods of monetizing the natural environment and its impact for decision makers

Eaton, Ann A.
Michael Simpson, MS
Department of Environmental Studies
This thesis focuses on the use of neoclassical economic procedures as environmental decision making tools. The intent is to examine the effectiveness and the legitimacy of some of these methods when applied to the natural environment. As many environmental decisions are made employing economic tools, it is imperative to understand the limitations of economics when it tries to monetize nature. In this study, one U.S Army Corps of Engineers project is used to illustrate the problems economic methods have in accurately monetizing the environment. The Corps project examined is the flood control measures for the Charles River in Massachusetts. This involved the use of wetlands to prevent flood damages. The corps' economic study and a later study of the same site are evaluated for the various methods the natural environment was monetized. The results of the evaluation show that both economic analyses omitted various aspects of the environment. In part this is due to the models used as well as the biases of the institutions where the analyses were done. The implications for future study indicate that economic methods used to quantify environmental costs are not without their problems, and although further refinement may aid the accuracy of the study, the natural systems themselves may prevent a truly comprehensive study. Needless to say, the implications for decision makers in using these models are that no economic method is a 100% correct in quantifying the environmental costs. More likely, the costs due to the environmental damages will be much greater.

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