Guidelines for economic appraisal of watershed management projects

by

H.M. Gregersen

K.N. Brooks

J.A. Dixon

L.S. Hamilton

FAO CONSERVATION GUIDE 16

FOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Rome, 1987

TABLE OF CONTENTS

FOREWORD

DEFINITION OF TERMS

1. INTRODUCTION

1.1 Introduction: Watershed management practices, programs and projects

1.2 Objectives and scope

1.3 The watershed approach for planning and management

1.3.1 The watershed focus and political jurisdictions

1.3.2 Complications due to lack of market values

1.3.3 Implications for the guidelines

1.4 Appraisals and decision-making

1.4.1 Making appraisals useful

1.4.2 Appraisal of economic effects of a project

1.5 Organization of the Guidelines

2. FRAMEWORK FOR ECONOMIC APPRAISAL

2.1 Introduction

2.2 Steps in the appraisal process

2.3 Stages in the appraisal process

2.4 A framework for identifying and valuing watershed management inputs and outputs

3. ESTIMATING INPUT-OUTPUT RELATIONSHIPS

3.1 Introduction

3.2 Quantifying technical relationships

3.2.1 Defining the "without" project situation

3.2.2 Defining the "with" project impacts

3.2.3 Defining appropriate measures of project impact.

3.3 Identifying inputs

3.4 Transforming inputs into outputs

3.5 Nonmarket considerations

3.5.1 Irreversibilities

3.5.2 Catastrophic events

3.5.3 Preservation of ecosystems

4. QUANTIFYING WATER YIELD AND STREAMFLOW BENEFITS FROM WATERSHED PRACTICES

4.1 Introduction

4.2 Water yield-quantity

4.2.1 Estimating changes in water yield

4.2.1.1 Regional relationships

4.2.1.2 Water budget approach

4.2.1.3 Computer simulation models

4.2.2 Upstream-downstream considerations

4.3 Stormflow - flooding

4.4 Groundwater/baseflow changes

4.4.1 Vegetation management effects

4.4.2 Salinization

5. QUANTIFYING BENEFITS OF SOIL STABILIZATION PRACTICES

5.1 Introduction

5.2 Matching the appropriate practice with the problem

5.3 Soil erosion-productivity relationships

5.3.1 Special considerations for upland watersheds

5.3.2 Procedures for estimating soil erosion impacts on productivity

5.3.3 Estimating rates of surface erosion

5.3.4 Estimating rates of gully erosion

5.3.5 Estimating mass soil movement

5.4 Soil erosion - downstream sedimentation

6. VALUING INPUTS AND OUTPUTS

6.1 Measures of value and shadow pricing

6.2 Assigning monetary values: three approaches

6.2.1 Using market prices

6.2.2 Using surrogate market prices

6.2.3 Using hypothetical valuation (surveys, "cost-prices," or description)

6.3 General categories of outputs and inputs and their relationships to value measures

6.4 Valuing watershed management inputs (see EAFP Chapter 6)

6.5 Valuing watershed management benefits (see EAFP Chapter 7)

6.5.1 Beginning the valuation process

6.5.2 Valuing soil related effects

6.5.3 Valuing water quality and quantity related effects

6.5.4 Special considerations for valuing watershed benefits

7. COMPARING BENEFITS AND COSTS - MEASURES OF PROJECT WORTH

7.1 Introduction

7.2 Evaluation questions of interest

7.3 Analyses using only prices for marketed goods and services.

7.3.1 Budget implications of public sector cash flow

7.3.2 Financial implications for private entities

7.3.3 Income redistribution implications

7.4 Economic efficiency analysis

7.4.1 Derivation of value flow tables and treatment of transfer payments

7.4.2 Measures of project worth

7.4.3 The discount rate for public evaluations

7.5 Stability and balance of payments assessments

7.5.1 Regional impacts of projects

7.5.2 Balance of payments effects

7.6 Assessment of non-monetary benefits and costs

8. UNCERTAINTY

8.1 Introduction

8.2 Guidelines for dealing with uncertainty

8.3 Identifying likely sources of uncertainty

8.4 The sensitivity analysis

8.4.1 Biophysical input-output considerations

8.4.2 Examples of sensitivity analysis

8.5 Dealing with critical factors identified in the sensitivity analysis.

8.5.1 Changing the project design

8.5.2 Building safeguards into a project

9. USE OF ECONOMIC ANALYSIS IN PROJECT DESIGN

9.1 The importance of using economics and social experience in project design

9.2 The role of economic analysis in the design task

9.2.1 Cost effectiveness analysis

9.2.2 Benefit-cost analysis and mutually exclusive alternatives.

9.3 Important economic factors in the choice of technology

9.4 Timing and scale in project design

9.5 Project siting and the locational dimension

9.6 Adding on a project purpose and dealing with joint costs

9.7 Treatment of sunk costs

10 . PRESENTING THE ECONOMIC APPRAISAL

10.1 General guidelines for presentation

10.2 Content of a typical economic appraisal report

10.2.1. Inputs into the analysis (Chapters 2-6)

REFERENCES

ANNEX 1

ANNEX 2

ANNEX 3

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