Assigning values to costs and benefits

Estimating the cost of losses is difficult. While some losses can be given monetary values fairly simply, others are much harder to value. There are various categories of impact and consequent loss. One way to list these is as follows:

Direct monetary effects: damage and destruction of infrastructure and buildings.

Indirect monetary effects: loss of production and clean-up costs (some economists may judge the latter to be direct costs).

Direct non-monetary effects: deaths, injuries, loss of cultural items.

Indirect non-monetary effects: disruption of schools, health, stress.

Loss of non-renewable natural resources: environmentalists are developing increasingly general definitions of these (encompassing such considerations as genetic diversity and ecological balance). They certainly include productive agricultural land and some forestry resources.

Some direct and indirect monetary effects can be assigned values in a relatively straightforward way. However, where resources and activity in the non-formal sector need to be assigned values, quantification is more difficult, especially with measures of income. Direct non-monetary effects are also problematical. Measuring the costs of death and injury draws upon methods used in health economics, and the insurance industry; and there are established methods and critiques. However, there is much controversy.

Assigning value to damaged or lost cultural items is even more controversial, but again may be feasible. Finding appropriate values for indirect non-monetary effects is much more difficult. Some costs are simply not quantifiable in any reasonable way, particularly psychological effects. Finally, adding the costs associated with loss of non-renewable natural resources is extremely difficult, primarily because of difficulties of pricing the lost-production.

There are similar problems in quantifying benefits. When analyzing investment in preparedness/mitigation the primary benefits can be defined as the savings of the losses which would have occurred. There are thus the same problems in assigning values as those noted earlier. But there are also secondary benefits which are as hard or harder to quantify. These include improvements in the climate for development resulting from stability and greater certainty and maintenance of an entrepreneurial spirit within communities.

The costs of preparedness or mitigation measures are generally the easiest to quantify. Accurate estimates are usually possible, especially for planned capital investment using well-defined methods, systems, and resources, over relatively short periods of time.

Q. Which are easier to predict accurately: costs, benefits or losses?

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