Criticism needs to be constructive. For many years I have been highly critical of our government approaches to cost-benefit analysis, and US Forest Service economics directives generally. In "Economic Advice for Forest Managers: Project and Program Planning," the final installment in our three-part series on economics, I offer advice to field practitioners and managers on the use of economics in the decisions they face. Both "Ecosystem Management" and "Reinventing Government" call out for new approaches to management. Consider this three-part package as my bid for a new beginning in applying economic principles and practices in decision-building. --6 pages.-- Dave.

Economic Advice for Forest Managers:
Project and Program Planning
by Dave Iverson

When resources are not scarce, there is no need to choose. We can take what we need today, tomorrow, forever. When resources are scarce, though, each choice we make has an economic aspect. In these cases we begin to search for economical means to achieve desired ends.

When resources are used to pursue one end, though, they cannot be used to pursue another. There is a tradeoff. The tradeoff between means is wherein economics has a say. On ends, however, economics must be silent. In environmental disputes, as in many other settings, tradeoffs between ends are moral choices and therefore outside the purview of economics. As recognized by the Council of Environmental Quality, weighing the "merits and drawbacks of the various alternatives need not be displayed in a monetary cost-benefit analysis and should not be when there are important qualitative considerations."(40 CFR 1502.23, emphasis added)

In choosing between ends, monetized cost-benefit analysis plays a very limited role: to appraise the means available to achieve each end or set of ends. This suggests that benefit-cost ratios, and present net value indices, cannot be used directly to compare alternatives that confer benefits and impose costs in different ways on different people. It makes no sense, for example, to say that a "commodity emphasis" forest plan alternative is better (or "more efficient") than an "amenity emphasis" alternative if it has a higher present net value. The comparison is simply meaningless, despite the fact that it is frequently made by practicing economists.

It does makes sense, however, to trace dollar flows derived from projected sales of goods and services, along with the cost of providing them. Analysts commonly develop such information because funding for projects is scarce and decision-makers and the public want to know how much projects are going to cost; and how much they might make (i.e. profit) from the project.

Analysts also trace acreage allocated to specified uses, projected use patterns, social and environmental impacts, and other information to help decision-makers evaluate the merits and drawbacks of proposals, each compared with the current situation.

Using monetized cost-benefit analysis only to help create a set of efficient alternatives represents a departure from traditional neo-classical economic practice. In particular, it denies the concept of an economic best. No alternative is deemed "the most efficient." Efficiency is used as a developmental consideration - to help screen-out relatively inefficient means toward desired ends - not an evaluation criterion.

When evaluating efficiency I find it useful to ask four questions: Efficient at what?, Efficient for whom?, Efficient for how long?, and Efficient by what standard? If businesses become very efficient at shifting costs to others, through environmental pollution for example, then we must wonder whether such 'commerce' is helpful or harmful. Maybe we need to redefine our efficiency standard and change the politicial/institutional framing for commerce.


Most forest management decisions confer benefits and impose costs differently on different people. For this reason, among others, we must rethink traditional economic analysis as used by the Forest Service and many other government agencies. Rather than performing "economic analysis" by developing present net value indices and benefit-cost ratios to be used in choices between alternatives, we need to think more in terms of providing a broad base of information (some of it economic) to be synthesized in making subjective holistic decisions. When making holistic decisions -- decisions in context with nature and society1-- costs and benefits (described qualitatively for the most part) are weighed in a common sense cost-benefit test, where decision-makers subjectively assess the worth of projects and programs relative to the cost as measured in dollar expenditures and foregone opportunities. The decision itself is at best one that maximizes utility but, in reality, is probably more akin to "just muddling through": trying (1) to serve the public interest as defined by law, regulation, and policy, (2) trying not to waste the taxpayers' money, and (3) trying to learn from what we've done and from what we will endeavor to do in the future.

In developing alternatives, economic, social, political, and environmental criteria can be set up. The criteria are used as side-boards to ensure that each alternative is consistent with the objectives proposed for that particular alternative. After objectives have been set and side-boards established, each alternative is developed to be efficient. That is, interdisciplinary team members would structure it so as to not waste tax dollars or land. Remember, though, that "efficiency" is a relative term: among options considered, we chose the least wasteful means to accomplish desired ends.

In evaluating alternatives a holistic comparative framework is needed; one that aids in the synthesis of social, political, and environmental impacts of alternatives. With such synthesis, decision-makers must choose one alternative as best -- the alternative said to maximize net public benefits. This subjective, value-laden choice is retained as a managerial prerogative by law although safeguards are in place so that the manager can not act as a (benevolent or malevolent) dictator. Typical safeguards include: standards imposed by legislation and policy, public involvement, appeals, and litigation.

Regulations for implementing both the National Environmental Policy Act and The National Forest Management Act provide for the public and interdisciplanary teams of specialists to participate in decision-making. This results in broad public deliberation of issues, culminating in decisions that emanate from the public and are said to maximize net public benefits. The analyst's job in all this is to provide information about the choices: to organize information, not to second guess management.


We display information to facilitate discussion of opportunities, not to convince anyone that one worldview is superior to another -- that "use" is superior to "preservation", for example. No one would expect a livestock permitee to value riparian ecosystems in the same manner as a member of the Sierra Club. To both there is value, but desired ends and means to accomplish each end are very different. These differences hold true even if different groups share perceptions of ultimate ends like sustaining quality of life.

Evaluation of projects and programs requires that social, economic, and environmental factors be considered. The amount of information needed depends on the magnitude of the tradeoffs between resource programs and the amount of money involved in the project or program. If the debate surrounding issues is strong, or tradeoffs massive, then more formal economic analysis may be desired. In such cases social impact, demand, supply, market feasibility, or other assessments may be helpful for public deliberation.

Evaluation is seldom zero-based, though. Standards and guidelines from NFMA forest plans give us a means to maintain a conservation bias, a "land ethic", among other things. Standards and guidelines are themselves put to the test in the context of site-specific circumstances as programs and projects are developed. In each case a reasoned judgment is exacted from resource managers, as refined in the fires of public deliberation.

As analysts we need to champion alternative views to help decision-makers and the public understand the varied and legitimate worldviews held by those who hold a stake in decision outcomes.

When financial information is displayed, I recommend not developing comprehensive present net value or benefit-cost indices. Rather, use dollars as factors for comparing one alternative with another. Separate receipts and costs, and include qualitative factors (pictures and narrative) and other quantitative factors where appropriate.

A few simple rules help organize financial information:

Finally, I've said nothing about uses of money not considered in the alternatives displayed. The worth of a preferred alternative, relative to what else money might buy, is another judgment call played out in the halls of Congress and in many administrative settings where the public is allowed to comment on public expenditures.


Once a decision has been made, and the storm clouds of controversy have dissipated, it is time to revisit the territory of cost-benefit, to refine economical means to achieve desired ends. Once objectives have been set, monetized cost-benefit analysis, sometimes called "value analysis", becomes a driving force. Value analysis seeks to optimize the use of scarce resources in meeting objectives: aligning means with ends. It is "least cost", tempered with offsetting receipts in some cases. It also allows for a final test: if the objectives prove too costly (i.e., something was overlooked in preliminary analysis) then the project may be redesigned or scrapped.


Books (general):

Sustainable Forestry: Philosophy, Science, and Economics. Chris Maser. St. Lucie Press, Delray Beach, FL. 1994.

Living Within Limits: Ecology, Economics, and Population Taboos. Garrett Hardin. Oxford University Press, New York. 1993.

Valuing the Earth: Economics, Ecology, Ethics. Herman E. Daly and Kenneth N. Townsend, eds. The MIT Press, Cambridge, MA. 1993.

The Ecology of Commerce: A Declaration of Sustainability. Paul Hawken. HarperBusiness, New York. 1993.

The Illusion of Choice. How the Market Economy Controls our Destiny. Andrew Bard Schmookler. State University of New York Press. 1993.

Population, Technology, and Lifestyle: The Transition to Sustainability. Robert Goodland, Herman E. Daly, and Salah El Serafy, eds. Island Press, Washington, D.C. 1992.

Ecosystem Health: New Goals for Environmental Management. Robert Costanza, Bryan G. Norton, and Benjamin D. Haskell, eds. Island Press, Washington, D.C. 1992.

The Good Society. Robert N. Bellah, Richard Madsen, William M. Sullivan, Ann Swidler, and Steven M. Tipton. Vintage Books, New York. 1992.

For the Common Good: Redirecting the Economy Toward Community, The Environment, and a Sustainable Future. Herman E. Daly and John B. Cobb, Jr. Beacon Press, Boston. 1989.

The Economy of the Earth. Mark Sagoff. Cambridge University Press, Cambridge, NY, 1988.

Small is Beautiful: Economics as if People Mattered. E.F. Schumacher. Harper & Row, New York. 1989 (First Edition 1973).

Books (more toward specifics):

Benefit-Cost Analysis: A Political Economy Approach. A. Allen Schmid. Westview Press, Boulder, CO. 1989.

An Essay on the Nature and Significance of Economic Science. Lionel Robbins. St. Martins Press, New York. 1969 (First Edition 1932).

Theoretical Welfare Economics. J. de V.Graaff. Cambridge University Press, London. 1967 (First published 1957).

Articles (general):

Design for a Sustainable Economics. Robert Gilman. In Context 32. Summer 1992. Context Institute. Bainbridge Island, WA. 1992.

Articles (more toward specifics):

A New Role for Economics in Integrated Environmental Management. David C. Iverson and Richard M. Alston. Pages 27-40, in Implementing Integrated Environmental Management. J. Cairns, Jr., T.V. Crawford, and H.Salwasser, eds. Virginia Polytechnic Institute, University Center for Environmental and Hazardous Materials Studies, Blacksburg, VA. 1994

Choices without Prices without Apologies. Arild Vatn and Daniel W. Bromley. Journal of Environmental Economics and Management 26: 129-148. 1994.

Ecosystem-Based Forestry Requires a Broader Economic Focus. David C. Iverson and Richard M. Alston. Journal of Sustainable Forestry 1(2): 97-106. 1993.

The Emperor's Old Clothes: The Curious Comeback of Cost-Benefit Analysis, John Adams. Environmental Values 2(3): 247-260. 1993.

"Ask a Silly Question . . . ": Contingent Valuation of Natural Resource Damages. Anon. Harvard Law Review 105(8):1981-2000. June, 1992.

Thoreau's Insect Analogies: Or, Why Environmentalists Hate Mainstream Economists. Bryan G. Norton. Environmental Ethics 13(3):235-251. 1991.

The Ideology of Efficiency: Searching for a Theory of Policy Analysis. Daniel W. Bromley. Journal of Environmental Economics and Management 19:86-107. 1990.

Ecological Economic Modeling in a Pluralistic, Participatory Society. Judith A. Maxwell and Alan Randall. Ecological Economics 1(3):233-249. 1989.

From Plastic Trees to Arrow's Throrem, Daniel A. Farber. University of Illinois Law Review 1986(2): 337-360. 1986.

Methodology, Ideology, and the Economics of Policy: Why Resource Economists Disagree. Alan Randall. American Journal of Agricultural Economics 67(4):1022-1028. 1985.

Economic Efficiency and Policy Comparisons. Mahlon George Lang. American Journal of Agricultural Economics 62(4):772-777, 1980.

The Political Economy of Efficiency: Cost-Benefit Analysis, Systems Analysis, and Program Budgeting, Aaron Wildavsky. Public Administration Review, pp. 292-31. December 1966.

Government Reports:

Cost-Benefit Analysis: Wonder Tool or Mirage?, Report by the Subcommittee on Oversight and Investigations, Committee on Interstate And Foreign Commerce, US House of Representatives. Dec. 1980, (The sequel is even more interesting: EPA's Asbestos Regulations: Case Study on OMB Interference in Agency Rulemaking. Oct. 1985.)

1 Context includes notions of hierarchy and scale, the interrelationship of problems embedded within systems of problems, etc. Although these ideas are beyond the scope of this note, they are covered well in suggested readings.