Redefinition of Cost-Benefit Efficiency of Land-Use Projects: Focusing on Environmental Cost

Abstract

The cost-benefit efficiency of projects is often wrongly evaluated due to the neglect of projects' impact on the environment. In this paper, we aim to establish a model to measure such an impact and hence propose a more reasonable approach to evaluating cost-benefit efficiency of projects. We divide the total cost of a certain project into two parts: Business Cost (BC) and Environmental Cost (EC). BC is the explicit cost that can be approached from financial statements, while EC is the implicit cost which we try to quantify. EC is composed of three parts: (1) the Ecosystem Service Value (ESV), (2) the Restoration Cost (RC) to treat the pollution caused by the projects, and (3) the Disaster Cost (DC), potential losses caused by disasters due to launch of new projects. In order to make a cost-benefit efficiency analysis, we introduce profitability index, which is further developed into an adjusted profitability index by taking time value into consideration. Two case studies are conducted to evaluate the effectiveness of the model. A regional case of a coal-mining project proves that RC and DC play a significant role in cost-benefit efficiency analysis, while a nationwide case of high-speed rail shows that project scale matters. Additionally, we put our attention on the intensity of the project, which is a created measurement to characterize the project. Based on the study of intensity, the mechanism of cost-benefit break-even is further explained and some suggestions are proposed to policy makers.