Report on a Cost and Benefit Analysis of The Sale of a Reserve

Executive Summary

The purpose of this report was to analyze the key issues and evaluation tools involved in the sale of the reserve owned and administered by the City Council. Specific objectives were to examine the benefits and costs associated with the sale and to offer recommendations to the City Council.

Analyses demonstrate that there are three scenarios concerning the sale of the reserve: an outright sale, an outright preservation and partial sale. Each scenario has its own strengths and flaws. The report recommends the City Council to commission professional agencies to conduct on-site investigation and evaluation of the reserve with a view to finalizing the scenario with the highest net benefits or the highest benefit cost ratio.

Table of Contents

Executive Summary

Table of Contents

1. Introduction

2. Conclusions

3. Recommendations

4. Discussion

4.1 Total Economic Value of the Reserve

4.1.1 Use values

4.1.2 Nonuse values

4.2 Cost-benefit Analysis

4.2.1 Benefit-cost comparison

4.2.2 Valuation tools

5. References

1. Introduction

This report was commissioned by the City Council. Its purpose is to analyse the key issues associated with the sale of a reserve owned and administered by the Parks and Recreation Division of the City Council and offers recommendations on how to address the issue.

The reserve is a 1,000-acre wilderness and resort area that is 15 kilometres from a large city. It is a very popular area where people can, free of charge, enjoy the use of the small lake, river, picnic and camping sites, fishing and walking trails. As the City Council is currently in dire shortage of cash, a developer has approached it with an offer to purchase the reserve and transform it into 10-acre life-style or small holder blocks.

Based on the knowledge of resource economics and cost-benefit analysis, this report analyses the total economical value of the reserve, benefits and costs associated with the sale and provides three scenarios of handling the reserve.

2. Conclusions

2.1 The reserve has not only market values (e.g. land), but also nonmarket values including both use and nonuse values (e.g. timber, biodiversity, miroclimate).

2.2. There are three scenarios regarding the sale of the reserve: an outright sale, an outright preservation and a partial sale, each having its own strengths and drawbacks.

2.3 Scenario I, an outright sale of the reserve, will trigger an irrevocable loss of both use and nonuse values of the reserve.

2.4 The cash-strapped dilemma confronting the City Council can be resolved using other ways instead of selling the reserve completely, for example, the imposition of an entrance fee.

3. Recommendations

1.  

   1. Commission professional agencies to conduct on-site investigation and evaluation of the three scenarios and finalise the one with the highest net benefits or the highest benefit cost ratio.

   2. Suppose Scenario II, namely an outright preservation of the reserve, is culled, entrust professional agencies to define the yardstick for an entrance fee or the appropriate proportion of the reserve to be leased out.

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