Cost-Benefit Analysis of Alaskan Development and Conservation

Douglas Hill

DOI: 10.2190/C1GU-BQ70-XDPV-J1CN


The costs and benefits of Alaskan oil development will be unequally distributed among the many parties affected: oil and construction companies, governments, Eskimos, other Alaskans, and other members of the U. S. public. Assuming that the objective is to provide the benefits of oil development at minimum total cost to society, means are needed to estimate environmental costs and to establish a basis by which gainers can compensate losers. The marketplace provides a mechanism by which such adjustments take place for private goods, but environmental degradation is an example of a "market externality," i.e., a cost incurred by the public that is not reflected in any market price. Cost-benefit or cost-effectiveness analysis has been used in planning for public goods such as water supply systems and national defense. With proper concern for environmental values, cost-benefit analysis can assist in evaluating the public "bads" that may accompany alternative means of Alaskan development.

Regulations to control environmental degradation can be based on an economic model in which the cost of environmental damage that will be suffered by the public is traded off against the cost of abatement incurred by the polluter. Estimating the cost of environmental damage presents difficulties, particularly in evaluating the psychic cost of aesthetic offenses which has proved to be a large part of both air and water pollution damage. The translation of the cost of environmental damage into an effluent charge levied on the polluter has been controversial-in part, because it condones some level of pollution, however little. To preserve wilderness areas, therefore, the regulations must take the form of zoning restrictions.

Environmental choices are influenced by notions of justice, and they must serve multiple objectives; thus, they are ultimately political. However, cost-benefit analysis provides a framework for understanding some of the causes of environmental degradation and some of the means for controlling it. There is no indication that decision-makers in Alaska are explicitly making such calculations at present.

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