Cost-based methods - indirect opportunity cost, Public Economics

Cost-based Methods - Indirect Opportunity Cost

This method is used when individual labour is involved in harvesting or collecting the natural resource. A basic assumption is that capital requirement for such a job is minimal. For example, for gathering &el wood in forests individuals need to spend time and do not need much capital. The opportunity cost of such time spent could be considered as the value of the environmental resource under consideration.

The pitfall of this method is that the value of environment obtained bears no relationship with its cost of production. The value of fuel wood, if taken to be its gathering cost only, then it assumes that cost of production of fuel wood is zero. Secondly, in many cases fuel wood gathering is a subsidiary activity; farmers on their way back home may collect some fuel wood. In such cases it involves joint production (farm output and fuel wood) and separating labour cost of fuel wood is arbitrary.


Posted Date: 12/18/2012 5:45:08 AM | Location : United States

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