Cost-effective mitigation of risk from natural hazards needs to be informed by economic analyses that include up-to-date and relevant tangible and intangible values.
The calculation and analysis of tangible values – such as income, equipment and other measurable resources – are well understood by land managers, planners and other practitioners in the emergency management sector.
However, intangible values – values that are not bought or sold on the market, such as health, environmental and social factors – are rarely accounted for in decision making. This is partly because quantifying such values is difficult, resource intensive and expensive, however these intangible values are often significant and should be accounted for when prioritising investment in natural hazard risk mitigation.
To facilitate the inclusion of intangible values in economic analyses and decision making relating to natural hazards, the Bushfire and Natural Hazards CRC and the University of Western Australia have developed the Value Tool for Natural Hazards.
The purpose of the Value Tool is to provide an accessible list of peer-reviewed, non-market value estimates for economics professionals and policy makers to use in decision making about natural hazard management.
The Value Tool comprises two elements that work together to allow decision makers to obtain financial estimates of the intangible values affected by natural hazards or their mitigation:
- The Value Selector – a database of intangible values compiled from existing studies that are suitable for use in benefit transfer for natural hazard decision making.
- Guidelines: Value Tool for Natural Hazards – that provide guidance on the importance of intangible values, how to locate relevant values in the database, how to use these values, and how to adjust the database values for use in a particular decision context.
Note: the Value Tool is intended for use by economics professionals, planners and managers, and should be used in conjunction with the Guidelines: Value Tool for Natural Hazards.
The intangible values included in the database include:
- health – such as physical health and mental health
- environment – such as ecosystems and water quality
- social – such as recreation, amenity, safety, cultural heritage, social disruption, memorabilia and animal welfare.
The Value Tool provides a dollar amount for each intangible value, combined with units of measure for each value to guide how the value(s) are incorporated into economic analyses. The values are supported by the most up-to-date, peer-reviewed economic research available. Using the Value Tool, intangible values can be directly compared with other monetary estimates of costs and benefits related to natural hazards (for example, impacts or mitigation).
The Guidelines: Value Tool for Natural Hazards (found here) illustrate how intangible values can be used to make decisions and assist with the prioritisation of resources.
Values from this Value Tool can be used in the Economic Analysis Tool, which was also developed by the Bushfire and Natural Hazards CRC and the University of Western Australia. You can find out more about the Quick Economic Analysis Tool (coming soon).
Example: value of life
The database estimates that the value of a statistical life per year in 2019 = AUD$83,776.00.
If a mitigation strategy reduces the risk of death from a natural hazard from 20 anticipated deaths in one year to 10 anticipated deaths that year = 10 lives saved.
Therefore, one of the intangible (non-market) benefits = AUD$83,776.00 x 10 people x 1 year.
As such, the total intangible value = AUD$837,760.00 per year in 2019.
This information can then be used by economic professionals, in conjunction with the guidelines, to conduct informed economic analyses that contribute to effective decision making, planning and risk mitigation.