A bottom-up approach to environmental Cost-Benefit Analysis

Johannes Friedrich Carolus1, Nick Hanley2, Søren Bøye Olsen1, Søren Marcus Pedersen1


1Department of Food and Resource Economics, University of Copenhagen

2Institute of Biodiversity, Animal Health & Comparative Medicine, University of Glasgow


Cost-Benefit Analysis is a method to assess the effects of policies and projects on social welfare. CBAs are usually applied in a top-down approach, in the sense that a decision-making body first decides on which policies or projects are to be considered, and then applies a set of uniform criteria to identifying and valuing relevant cost and benefit flows. By suggesting an alternative approach, this paper investigates the possible advantages, prerequisites and limitations of applying CBA in what may rather be considered a bottom-up approach. Instead of starting out with a pre-defined policy option, the suggested approach departs from the underlying environmental problem, and thus assesses costs and benefits of various strategies and solutions suggested by local and directly affected stakeholders. For empirical case studies concerning two river catchments in Sweden and Latvia, the bottom-up CBA approach utilises local knowledge, assesses strategies and solutions which are not only developed for local conditions but are also likely to be more acceptable by the local society, and sheds additional light on possible distributional effects. By not only benefitting from, but also encouraging and supporting participative environmental planning, bottom-up CBA is in line with the growing trend of embedding stakeholder participation into environmental policy and decision-making.