Department Environmental Social Sciences

Switzerland plans to restore 4000 km of rivers by 2090. Despite the immense investment costs, river restoration benefits have not been valued in monetary terms, and a cost-benefit analysis (CBA) does not exist for any river restoration project in Switzerland. We apply stated preference methods to elicit public preferences and willingness to pay for restoring two specific but representative river sites. The benefits of restoration are compared with its costs. Upscaling the results to the national level shows that the government budget allocated for river restoration (CHF 1200/m) is insufficient to cover the costs of local restoration projects. However, the surveyed local populations are willing to pay substantially more for restoring rivers in their area of residence than they are legally obliged to do. The CBA results demonstrate that the benefits outweigh the costs in the two case studies, and hence that restoration efforts are justified from an economic point of view. A sensitivity analysis shows that the main results and conclusions do not change when we change some of the key assumptions underlying the CBA.

This study investigates choice certainty, choice consistency, and choice monotonicity and their underlying common and idiosyncratic determinants in discrete choice experiments. We test the equality of choice behaviour between respondents who differ with respect to these concepts. Our results suggest that there are significant differences in the choice behaviour between certain and uncertain, as well as consistent and inconsistent, respondents. The hypothesis of equality of choice behaviour between samples with and without a self-reported choice certainty follow-up question cannot be rejected. We identify a variety of idiosyncratic determinants of choice certainty, consistency, and monotonicity, but only the time spent reading informational pages and gender are identified as common drivers. We find that female respondents are less certain about their choices, but display a higher degree of monotonicity and consistency in their choice behaviour.

This paper provides a comprehensive review of two decades of published research that applies different economic approaches to address forested watershed management decisions. The review takes stock of the applied integrated economic and ecohydrological modeling approaches and assesses the way these approaches capture the complexities involved when linking ecohydrological and economic systems. The implications of integrating watershed services into forest management decisions are discussed, lessons are drawn from existing approaches and future research needs identified. Existing modeling approaches are categorized from independent modular models with a unidirectional flow of information to fully coupled holistic models, and are analyzed, among others, in terms of the efficiency improvement that forest-based investments achieve in watershed services provision. The review shows that the number of studies investigating the relationship between forest management and watershed services in economic decision-support models is very limited. Only 14 studies that were identified examine these relationships for water supply, while 9 studies were found to focus on the impact on water quality, 2 of which addressed water quality in combination with water supply. A shortcoming is that about half of the studies do not clearly specify baseline conditions to test the incremental value of the evaluated forest management actions in terms of watershed services provision, which undermines evaluating their cost-effectiveness or economic efficiency. A promising finding is nevertheless that in 8 of the 10 studies where these relationships were evaluated in terms of their costs and benefits compared to a specified baseline alternative, forest conservation or forest management is shown to be an economically efficient nature-based solution to supply the watershed services of interest. The limited availability of geo-referenced data and information, including the often complex and confidential nature of cost and price data, and the high data demands of more advanced spatial econometric models are among the main barriers to address relevant forest and water economic interactions. Important future extensions of existing integrated approaches include the further coupling of more detailed ecohydrological models and multi-sectoral hydro-economic models that are able to account for the different risks (floods, droughts, wildfires) and uncertainties under climate change and their impact on watershed services and water security.

Decision-making about flood protection is surrounded by outcome uncertainty. In this paper we look at the influence of individual risk attitudes on flood protection decisions. To this end, we combine the results of a lottery game with the findings from a discrete choice experiment focusing on flood risk reduction measures. We find that the inclusion of non-linear probability weighting increases the explanatory power of the choice model. The result is however sensitive to behavioral assumptions about decisions under uncertainty, as well as whether the lottery was played in the loss or gain domain. Including risk attitudes in the probability weighted model decreases marginal willingness to pay for measures with a low to intermediate flood risk reduction capacity and increases marginal willingness to pay for measures with a very high flood risk reduction effect. This has important implications for the social acceptability of flood reduction measures under different baseline conditions.

A novel discrete choice experiment (DCE) design allows testing of substitution effects based on the framing of, and distances to, substitute sites. The same ecosystem services and biodiversity provided at different sites are valued independently in single- site DCEs and simultaneously in a multiple- site DCE, using an identical experimental design. Site-specific utility functions are estimated with and without controlling for spatial preference heterogeneity. Framing choices as alternative projects at single or multiple sites significantly influences substitutability between sites, choice behavior, and welfare estimates. Distance decay displays significant heterogeneity in different directions from the valued sites and between urban and rural areas.

In densely populated areas, surface waters are affected by many sources of pollution. Besides classical pollutants like nutrients and organic matter that lead to eutrophication, micropollutants from various point- and non-point sources are getting more attention by water quality managers. For cost-effective management an integrated assessment is needed that takes into account all relevant pollutants and all sources of pollution within a catchment. Due to the difficulty of identifying and quantifying sources of pollution and the need for considering long-term changes in boundary conditions, typically substantial uncertainty exists about the consequences of potential management alternatives to improve surface water quality. We therefore need integrated assessment methods that are able to deal with multiple objectives and account for various sources of uncertainty.
This paper aims to contribute to integrated, prospective water management by combining a) multi-criteria decision support methods to structure the decision process and quantify preferences, b) integrated water quality modelling to predict consequences of management alternatives accounting for uncertainty, and c) scenario planning to consider uncertainty from potential future climate and socio-economic developments, to evaluate the future cost-effectiveness of water quality management alternatives at the catchment scale. It aims to demonstrate the usefulness of multi-attribute value functions for water quality assessment to i) propagate uncertainties throughout the entire assessment procedure, ii) facilitate the aggregation of multiple objectives while avoiding discretization errors when using categories for sub-objectives, iii) transparently communicate the results. We show how to use such multi-attribute value functions for model-based decision support in water quality management.
We showcase the procedure for the Mönchaltorfer Aa catchment on the Swiss Plateau. We evaluate ten different water quality management alternatives, including current practice, that tackle macro- and micropollutants from a wide spectrum of agricultural and urban sources. We evaluate costs and water quality effects of the alternatives under four different socio-economic scenarios for the horizon 2050 under present and future climate projections and visualize their uncertainty. While the performance of alternatives is catchment specific, the methods can be transferred to other places and other management situations. Results confirm the need for cross-sectoral coordination of different management actions and interdisciplinary collaboration to support the development of prospective strategies to improve water quality.

In stated preference research focusing on the elicitation of willingness to pay for reducing environmental or health risks, it is of crucial importance how risk is communicated to survey respondents. This study applies a split-sample approach to examine the effect of using a risk ladder on choice behavior, welfare estimates and choice certainty in a stated discrete choice experiment. It values the improvement of water quality in Switzerland in terms of the reduction in environmental and public health risks that would result from implementing new wastewater treatment technologies that substantially reduce micropollutant discharges into water bodies. Results show that the risk ladder significantly influences respondents’ choice behavior and welfare estimates, but not choice certainty. We find evidence of preference learning.

This study tests the temporal stability of preferences, choices and willingness to pay (WTP) values using both discrete choice experiment (DCE) and open-ended (OE) WTP elicitation formats. The same sample is surveyed three times over the course of two years using each time the same choice sets. Choice consistency is positively correlated with choice certainty and choice complexity. The impact of choice complexity fades away in time, most likely as a result of learning and preference refinement. Although the OE WTP values remain stable over a time period of 2 years as in previous stated preference studies, DCE based WTP measures differ significantly, suggesting their use in benefits transfer may be limited.

We develop a model that estimates spatially allocated environmental asset values for the simultaneous provision of seven ecosystem services. We examine the effect of heterogeneous spatial and economic factors on asset figures, and identify potential forestry abandonment problems when continuing with forestry activity becomes unprofitable for the landowner. Our results show a relevant spatial variability according to forest species distribution and structure. We examine potential trade-offs among silvopastoral provisioning services, water, and carbon sequestration services. Results forecast the abandonment of forestry activity and quantify the significant impact of discount rates and prices on asset values. (JEL Q23, Q51)

We conducted a choice experiment (CE) to estimate willingness to accept (WTA) values for a planned conditional cash transfer (CCT) programme designed to increase toilet use in South Africa. The payment is made conditional on using a toilet and bringing urine to a central collection point. In a split-sample approach, a segment of respondents were given time to think (TTT) (24 hours) about their responses, while the remaining respondents had to answer immediately. We found significant differences in the choice behaviour between the subsamples. To validate the stated preferences with actual behaviour, a CCT programme was implemented afterwards. The stated WTA estimates were far below those revealed by actual behaviour for both subsamples. Contrary to our expectations, the TTT group had underestimated their actual WTA values by an even larger margin. The preferences for various attributes were nevertheless useful in informing the design of the real intervention.

Management objectives of the European Union for North Sea fish stocks are shifting towards considering both biological sustainability and economic benefits. As part of multiannual management plans, an adjustment restriction on fish quota has been introduced. Its objective is to obtain an efficient fish stock and to reduce overcapacity for the fishing industry. We develop and apply a bi-level stochastic dynamic programming model to study the effect of a quota adjustment restriction on the net present value of resource rents, overcapacity and fish stock, when the system is recovering from a downward environmental shock. At level one, a policy maker sets the quota, considering fishermen behavior, stochastic fish stock dynamics, capital stock dynamics and a quota adjustment restriction. At level two, fishermen harvest myopically and make long-term investment decisions, assuming that fish stock and quota do not change over time. The two levels are linked by the quota, which is optimized by the policy maker at level one and becomes a restriction for myopic harvest and long-term investment decisions of fishermen at level two. Our analysis suggests that in the long run, overcapacity can be reduced by 54 % at modest costs, namely at a 1 % reduction in the net present value of resource rents. Long and short run sustainability of the fish stock is not affected.

Aim of study: this paper objective focuses on the contribution of multifunctional natural forest silviculture, incorporating both private and public product managements, to forest and woodland economics.
Area of study: Spain and California (USA).
Material and methods: this conceptual article has developed a critical revision of the existing literature on the main economic issues about the multifunctional natural forest silviculture in the last decades.
Main results: multifunctional natural silviculture has secular roots as a local practice, but as a science of the natural environment applied to the economic management of forest lands it is still in the process of maturation. Timber silviculture remains the central concern of forest economics investment in scientific publications. By contrast, silvicultural modeling of the natural growth of firewood, browse and other non-timber forest products of trees and shrubs receives scant attention in scientific journals. Even rarer are publications on multifunctional natural silviculture of forest and woodland managements, including environmental services geared to people’s active and passive consumption. Under this umbrella, private environmental self-consumption is represented by the amenities enjoyed by private non-industrial landowners. As for environmental public products, the most relevant are carbon, water, mushrooms, recreation, landscape and threatened biodiversity.
Research highlights: this paper is a good example about the conceptual research on forestry techniques and economic concepts applied to multifunctional silviculture in Mediterranean areas of Spain and California. The combination of technical knowledge and private and public economic behaviors definitively contributes to the multifunctional management of natural forest systems.

This paper presents a meta-analysis of existing research related to the economic valuation of the external effects of hydropower. A database consisting of 81 observations derived from 29 studies valuing the non-market impacts of hydropower electricity generation is constructed with the main aim to quantify and explain the economic values for positive and negative hydropower externalities. Different meta-regression model specifications are used to test the robustness of significant determinants of non-market values, including different types of hydropower impacts. The explanatory and predictive power of the estimated models is relatively high. Whilst controlling for sample and study characteristics, we find significant evidence for public aversion towards deteriorations of landscape, vegetation and wildlife caused by hydropower projects. There is however only weak evidence of willingness to pay for mitigating these effects. The main positive externality of hydropower generation, the avoidance of greenhouse gas emission, positively influences welfare estimates when combined with the share of hydropower in national energy production. Sensitivity to scope is detected, but not linked to specific externalities or non-market valuation methods.

In this paper, linear and spatial hedonic price models are applied to the housing market in Switzerland, covering all 26 cantons in the country over the period 2005–2010. Besides structural house, neighborhood and socioeconomic characteristics, we include a wide variety of new environmental characteristics related to water to examine their role in explaining variation in sales prices. These include water abundance, different types of water bodies, the recreational function of water, and water disamenity. Significant spatial autocorrelation is found in the estimated models, as well as nonlinear effects for distances to the nearest lake and large river. Significant effects are furthermore found for water abundance and the distance to large rivers, but not to small rivers. Although in both linear and spatial models water related variables explain less than 1% of the price variation, the distance to the nearest bathing site has a larger marginal contribution than many neighborhood-related distance variables. The housing market shows to differentiate between different water related resources in terms of relative contribution to house prices, which could help the housing development industry make more geographically targeted planning activities.

This study presents the first quantitative meta-analysis of the non-market valuation literature on the external effects associated with wind power production. A data set of 60 observations drawn from 32 studies is constructed. The relative economic values of different types of externalities as well as the impact of various methodological and sample characteristics on welfare estimates are examined. The results indicate a significant effect of visual externalities on welfare estimates in both directions, i.e., a positive effect of visual improvements and a negative effect of deteriorations. This finding corresponds to predictions of the importance of visual impacts in the social science literature. External effects of wind power on biodiversity (mainly birds) do not affect welfare estimates. Indirect externalities caused by conventional sources of electricity that can be avoided by wind power, such as a the reduction of air pollution, do neither have a significant impact on welfare measures. Methodologically, we find substantial but inelastic income effects and, for choice experiments, clear evidence of sensitivity to scope. From a policy point of view, our results suggest that a policy mix combining a promotion of wind turbines with another green policy facilitates expansion of wind energy.

Operators of underground water supply networks are challenged with pipe replacement decisions, because pipes are subject to increased failure rates as they age and financial resources are often limited. We study the optimal replacement time and optimal number of pipe replacements such that the expected failure cost and replacement cost are minimized, while satisfying a budget constraint and incorporating uncoordinated and coordinated replacement. Results show that coordinated replacement is economically preferred to uncoordinated replacement. It depends on the size of the budget whether the increase in the number of pipe replacements is sufficient to reduce the total expected failure cost.

Despite increasing attention paid to the value of marine resources, in particular marine protected areas (MPAs), their economic valuation focuses mainly on use values of ecosystem services such as fishery and tourism. Furthermore, most MPA related studies are carried out for coastal ecosystems, especially tropical coral reefs. The valuation of remote marine ecosystems is rare. The main objective of this paper is to estimate public willingness to pay (WTP) for alternative management regimes of a network of offshore MPAs in the North Sea under the Marine Strategy Framework Directive (MSFD). In a baseline valuation study carried out just before the adoption of the MSFD, beach visitors and a random sample of coastal and non-coastal residents were asked for their preferences for two alternative management options of three remote, ecologically sensitive areas with multiple use conflicts. Despite the lack of public awareness and familiarity with the offshore marine areas, a majority of 70% is willing to pay extra tax for their protection. Using a conservative value elicitation procedure, Dutch households are willing to pay on average maximum 0.25% of their annual disposable income to ban access and economic use. This serves as an indicator of what a network of remote MPAs in the MSFD is allowed to cost according to the Dutch tax payer.

In this study we model the preferences and willingness to pay (WTP) of downstream farmers in one of the largest irrigation schemes worldwide in Sudan for improved irrigation water supply through transboundary collaboration with farmers upstream in Ethiopia. In a choice experiment, Sudanese farmers are asked to pay an increase in existing irrigation fees to secure future irrigation water availability by either enhancing the removal of sediments in their local irrigation channels or compensating farmers in the Ethiopian highlands for taking soil conservation measures to prevent land degradation and soil erosion. Although Sudanese farmers downstream do not feel very connected to farmers upstream in Ethiopia, we find a high degree of trust in international cooperation and a positive WTP for improved irrigation water supply and water use efficiency through transboundary collaboration.

Background. Access to safe drinking water has been on the global agenda for decades. The key to safe drinking water is found in household water treatment and safe storage systems.
Objective. In this study, we assessed rural and urban household demand for a new gravity-driven membrane (GDM) drinking-water filter.
Methods. A choice experiment (CE) was used to assess the value attached to the characteristics of a new GDM filter before marketing in urban and rural Kenya. The CE was followed by a contingent valuation (CV) question. Differences in willingness to pay (WTP) for the same filter design were tested between methods, as well as urban and rural samples.
Results. The CV follow-up approach produces more conservative and statistically more efficient WTP values than the CE, with only limited indications of anchoring. The effect of the new filter technology on children with diarrhea is among the most important drivers behind choice behavior and WTP in both areas. The urban sample is willing to pay more in absolute terms than the rural sample irrespective of the valuation method. Rural households are more price sensitive, and willing to pay more in relative terms compared with disposable household income.
Conclusion. A differentiated marketing strategy across rural and urban areas is expected to increase uptake and diffusion of the new filter technology.

We provide critical notes to the paper by Kallis et al. (2013) on monetary valuation. We evaluate the four criteria they propose for assessing valuation studies. We argue that no clear distinction is made between monetary valuation and pricing instruments. The selected criteria are more relevant to assessing policy than monetary valuation. The examples provided are not representative of the diversity of valuation studies encountered in the literature. Moreover, no clear examples are provided of where valuation and associated cost–benefit analysis of environmental policy go wrong. We plea for a more fair, constructive and consistent criticism of all "valuation languages" and offer relevant issues for consideration.

This study tests the transferability of the nonmarket values of water conservation for domestic and environmental purposes across three south European countries and Australia applying a common choice experiment design. Different approaches are followed to test the transferability of the estimated values, aiming to minimise transfer errors for use in policy analysis, comparing both single- and multicountry transfers, with and without socio-economic adjustments. Within Europe, significant differences are found between implicit prices for environmental water use, but not for domestic water use. In the Australian case study, alleviating restrictions on domestic water use has no significant value. Pooling the three European samples improves the transferability of the environmental flow values between Europe and Australia. Results show that a reduction in transfer error is achieved when controlling for unobserved and observed preference heterogeneity in the single- and multicountry transfers, providing additional support for the superiority of socio-economic adjustment procedures in value transfer.

Employing a multi-region multi-sector computable general equilibrium (CGE) modeling framework, this study estimates the direct and indirect economic impacts of the Grand Ethiopian Renaissance Dam (GERD) on the Eastern Nile economies. The study contributes to the existing literature by evaluating the impact of the dam under three different climatic and hydrological scenarios, taking into account both the transient GERD impounding phase and the long-term operation phase in a global CGE setting. The results demonstrate the significance of the GERD in generating basin-wide economic benefits and improving welfare in the Eastern Nile basin. During the impounding phase, the GERD benefits mainly Ethiopia and to some extent Sudan. GERD impounding inflicts economic costs, however, on Egypt, especially if it occurs during a sequence of dry years, and depending on the level of water withdrawal in Sudan. The negative effects of the GERD on Egypt׳s economy are reversed when the GERD becomes operational. In that case, the GERD generates substantial economic benefits and enhances economic growth and welfare in all the Eastern Nile countries. Instituting a basin-wide power trade scheme would substantially boost Egypt׳s economy and thereby further increase the economic value of the dam.

This paper applies a choice experiment to estimate how Austrian households value the multiple impacts associated with future hydropower investments. Clear evidence was obtained that Austrian households are willing to pay for an expansion of hydropower capacities. More precisely, Austrians are willing to incur extra costs for economic (employment) and environmental (reduced air emissions) benefits related to the generation of electricity from hydroelectric power, but wish to be compensated for the loss of nature and landscape new hydropower plants are associated with. This relation can formally be denoted as the ‘energy–water trade-off’ imposed by the use of hydropower. Moreover, confirmation of the ‘Not in my backyard’ phenomenon was found, meaning that people prefer the construction of new hydropower stations, but not close to their homes.

The success of river restoration was estimated using the ecosystem services approach. In eight pairs of restored–unrestored reaches and floodplains across Europe, we quantified provisioning (agricultural products, wood, reed for thatching, infiltrated drinking water), regulating (flooding and drainage, nutrient retention, carbon sequestration) and cultural (recreational hunting and fishing, kayaking, biodiversity conservation, appreciation of scenic landscapes) services for separate habitats within each reach, and summed these to annual economic value normalized per reach area. We used locally available data and literature, did surveys among inhabitants and visitors, and used a range of economic methods (market value, shadow price, replacement cost, avoided damage, willingness-to-pay survey, choice experiment) to provide final monetary service estimates. Total ecosystem service value was significantly increased in the restored reaches (difference 1400 ± 600 € ha^–1 year^–1; 2500 – 1100, p = 0.03, paired t test). Removal of one extreme case did not affect this outcome. We analysed the relation between services delivered and with floodplain and catchment characteristics after reducing these 23 variables to four principal components explaining 80% of the variance. Cultural and regulating services correlated positively with human population density, cattle density and agricultural N surplus in the catchment, but not with the fraction of arable land or forest, floodplain slope, mean river discharge or GDP. Our interpretation is that landscape appreciation and flood risk alleviation are a function of human population density, but not wealth, in areas where dairy farming is the prime form of agriculture.

Contamination of freshwater with micropollutants (MPs) is a growing concern worldwide. Even at very low concentrations, MPs can have adverse effects on aquatic ecosystems and possibly also on human health. Switzerland is one of the first countries to start implementing a national policy to reduce MPs in the effluents of municipal sewage treatment plants (STPs). This paper estimates the benefits of upgrading STPs based on public’s stated preferences. To assess public demand for the reduction of the environmental and health risks of MPs, we conducted a choice experiment in a national online survey. The results indicate that the average willingness to pay per household is CHF 100 (US$ 73) annually for reducing the potential environmental risk of MPs to a low level. These benefits, aggregated over households in the catchment of the STPs to be upgraded, generate a total annual economic value of CHF 155 million (US$ 113 million). This compares with estimated annual costs for upgrading 123 STPs of CHF 133 million (US$ 97 million) or CHF 86 (US$ 63) per household connected to these STPs. Hence, a cost-benefit analysis justifies the investment decision from an economic point of view and supports the implementation of the national policy in the ongoing political discussion.

Predicted climate change is likely to increase beach erosion in the future, inducing higher costs of beach maintenance. Hence, additional funds for their protection will be required. We examine the willingness to pay (WTP) of beach visitors for preventing beach erosion in the form of daily beach entrance fees in Crikvenica, Croatia, by applying the contingent valuation method. This is the first beach valuation study for this country in transition which has emerged as an important Mediterranean tourist destination. The novelty of our study is that it compares WTP estimates for an existing and a non-existing beach market. This is done by conducting a survey at the beach where an entrance fee is already levied and at the nearest open-access beach. Based on the initial (follow-up) valuation question, the stated WTP per adult per day for avoiding beach erosion equals €1.69 (€1.26) for the paid beach and €2.08 (€1.84) for the free beach. In addition, the travel cost method is employed. It reveals that consumer surpluses for visiting the paid and the free beach amount to €2.57 and €1.74, respectively.

In a choice experiment, households in Vietnam are offered flood insurance to mitigate increasing catastrophic flood risks due to climate change. Participants are asked to choose their most preferred insurance policy given expected future flood and mortality risks, insurance cover and associated insurance premiums. Although not affordable to everyone, there exists substantial demand for flood insurance. Insurance demand is spatially differentiated, non-linear in flood probabilities and mortality risks, and subject to significant preference heterogeneity. Since respondents are unfamiliar with the concept of flood insurance and education levels are low, choice consistency tests were conducted. These show that choice consistency depends on a combination of respondent characteristics, such as gender and education level, and experimental design characteristics.

This study examines willingness to pay (WTP) in Bangladesh for arsenic (As) safe drinking water across different As-risk zones, applying a double bound discrete choice value elicitation approach. The study aims to provide a robust estimate of the benefits of As safe drinking water supply, which is compared to the results from a similar study published almost 10 years ago using a single bound estimation procedure. Tests show that the double bound valuation design does not suffer from anchoring or incentive incompatibility effects. Health risk awareness levels are high and households are willing to pay on average about 5 percent of their disposable average annual household income for As safe drinking water. Important factors influencing WTP include the bid amount to construct communal deep tubewell for As safe water supply, the risk zone where respondents live, household income, water consumption, awareness of water source contamination, whether household members are affected by As contamination, and whether they already take mitigation measures.

More efficient and sustainable use of water is increasingly becoming an urgency in drought prone parts of the world. In particular, in water scarce regions such as the Mediterranean, water supply is expected to become more uncertain because of climate change. Consequently, pro-active policy initiatives are proposed to increase supply reliability. Local context is important when the effectiveness of policies is assessed. The aim of this paper is to evaluate farmers' acceptance of policy strategies to increase water supply reliability in the Segura, a water scarce river basin in the south-east of Spain. Results from a choice experiment suggest that farmers are willing to pay twice as much as their current irrigation water price to ensure water supply reliability through government supply guaranteed programs. However, they are averse to any institutional changes that might assist the government to achieve increased water supply.

Stochastic dynamic programming (SDP) is a useful tool for analyzing policy questions in fisheries management. In order to understand and reproduce solution procedures such as value function iteration, an analytic elaboration of the problem and model characteristics is required. Because of the increased use of numerical techniques, our aim is to improve the understanding of mathematical properties of the solution procedure and to give more insight into their practical implementation by means of a specific case that uses value function iteration. We provide an analytic description of model characteristics and analyze the solution procedure of a bi-level SDP model to study fisheries policies. At the first level, a policy maker decides on the fish quota to be imposed, keeping in mind fish stock dynamics, capital stock dynamics, long-term resource rents and anticipating fishermen behavior. At the second level, fishermen reveal short-term behavior by reacting on this quota and on current states of fish stock and capital stock by deciding on their investments and fishing effort. An analysis of the behavior of the model is given and a method is elaborated to obtain optimum strategies based on value function iteration. Bi-level decision making enables us to present the model in an understandable manner, and serves as a basis for extension to more complex settings.

This article examines available methods for assessing all types of drought costs, including both damage costs and costs arising from adopting policy measures to encourage mitigation of, and adaptation to, droughts. It first discusses damage costs, distinguishing between direct, indirect and non-market costs. Then it examines the suitability of existing methods for estimating drought costs in different economic sectors, their underlying theoretical assumptions, complementarity between different methods, and conditions relevant for their application. The latter include precision, ability to deal with future climate change risks, data needs and availability, and required financial and human resources. The article further considers potential policies for drought mitigation and adaptation and different cost types associated with them. It ends with providing recommendations for good practices regarding the use of methods as well as drought mitigation and adaptation policies.

The costs of natural hazards around the world are rising. While the number of events reported in the last 10 years has decreased slightly, the number of affected people and their related costs is increasing, indicating also an augmented exposure and vulnerability of humankind to natural hazards (see Figures 4.1.1 and 4.1.2, EM-DAT 2013, IPCC 2012). Some outstanding events in the last decade in terms of their economic damage were, for example, the Tsunami in Japan in 2011 with damages of around US$ 210 billion, Hurricane Katrina in 2005 (US$125 billion), the Wenchuan earthquake in China in 2008 (US$85 billion), the floods in Thailand in 2011 (US$40 billion) and the drought in the US in 2012 which caused damage of more than US$20 billion (EM-DAT 2013, Munich Re, 2006, Munich Re, 2012, Munich Re, 2013). [...]