Socioeconomic Evaluation

1
Socioeconomic Evaluation

• Hydrological products have no intrinsic value in
  an economic sense
• Value is acquired through influencing behavior of
  users whose activities are influenced by water.
  Benefit of increased information is the increase
  in the economic efficiency of the decision taken
  with that information vs the one taken without
  that information
• The documented Benefits/Costs ratios are normally
  quite high
• 5 lt B/C lt 20
• The Benefit part is always more difficult to
  evaluate than the Cost part
• For forecast products, benefits cost of
  avoided losses
• For design-oriented products, benefits
  economies in construction other terms more
  difficult to quantify

2
Results of studies of the value of Hydrological
data (B. Stewart, Bureau of Meteorology,
Australia, 1994)
3
Socioeconomic Evaluation

• Value of data can be defined as the difference of
  benefits from a project resulting from decisions
  made and actions taken with and without the data.
  
• This concept is generally applicable, but
  difficult to apply
• Prescriptive approach
• Assumes that users behave in a manner consistent
  with prescribed principles (e.g.
  maximization of individual economic welfare)
• Generally involves the use of formal models for
  decision-making problems
• Descriptive approach
• Attempts to describe the actual behaviour of
  users (e.g. their actual information-processing
  and decision-making procedures)
• May or may not involve the use of formal models

4
Methodologies and modeling

• Forecast/decision systems can be classified
  according to
• Deterministic vs probabilistic forecast
• Single-objective vs multi-objective decisions
• Monetary vs non-monetary objectives
• Static decision vs dynamic decision problems
• Optimal vs non-optimal decision procedures
• Modelling economic consequences of decision
  makers actions requires
• A model of the physical outcome of the actions
• An economic model of the social welfare
  consequences of these physical outcomes

5
Claudios Theorem

• A person/bank/institution that asks the question
  Why do we need at all a Hydrological Service?
  will not normally read a report produced as a
  response. At most, he/she/it will look at the
  Executive Summary and conclusions, trying to find
  a figure, normally the value of B/C .

6
Corollary

• When asked to produce a B/C analysis for the
  hydrological services, one should
• Always answer in numerical terms
• Avoid explaining why it is difficult to produce
  definitive figures
• Produce a glossy and weighty report