Question

1. The city of Ottawa is planning to build a man-make lake at LeBreton flats. The government would like to know how to value and monetize the benefits of such a project. You have been asked to advise the city of the appropriate approach to use for the valuation and monetization of the benefits. What approach will you advice the city to use? What are the key steps of your proposed approach? What are the limitations of the approach?

Answer 1

Various approaches that can be used to value and monetize the benefits derived from the lake are:

· Travel cost method: It is a measure used to estimate the economic values of various environmental goods. The used value of the environmental good is estimated by the travel cost method. The travel cost method is generally used to determine the economic values associated with the recreation sites. The travel cost method also determines the impact of increase in fee or price of these environmental goods on the number of visitors or consumers.

· Cost-benefit analysis: It is a type of analysis used to estimate the social cost and benefits associated with different environmental goods. This method also helps in formation of more informed and consistence policy decisions. The economic efficiency that is generated with the use of products or services is also estimated by using Cost-benefit analysis. This method of analysis uses prediction and valuation techniques.

Out of these two approaches the best approach that the city should use is travel cost model as it will completely monetize and value the benefits of Lake. This is the best approach to be used as Lake is a recreational site and this approach is also concerned with the determination of the value of recreational sites.

The key steps in using travel-cost method are:

· Determining the total number of individuals visited in the site.

· Estimating the time of visit by each individual.

· Estimating the cost associated with the maintenance and formation of the site.

The limitation associated with this approach is that it does not determine the social cost and benefit imposed by the Lake on rest of the individuals in the society.