Publishing could be popularized?

Kiyotaka ISHIKAWA

The year 2012 might be the first year of self-publishing in the United States while it is called the first year of e-book history in Japan. Before the e-book prevails over the Internet, self-publishing meant a literary coterie magazine (Doujin-shi) or an expensive hobby for scholars and amateur writers, but that will be no longer so. Every writer can publish his or her works only at the cost of manuscripts if they are distributed on the Kindle e-book store which allows anyone to sell their books directly to all Kindle readers over the world. This sounds innovative but little chance to be a million seller; instead, book authors can meet a tiny demand for his story that would be too small to be captured by conventional paper publishing. 

Another Long Tale by Amazon

One reason why Amazon could have successfully introduced self-published e-books by obscure authors is that those books are so cheap compared to those produced by the big publishing house. It costs only 2.99 dollars and distribute 70 per cent of sales for self-published writers; Amazon said such books accounted for 30 of its top 100 sellers in October (TIME, issued December 10, 2012). Self-published titles now exceed 200,000 and still grow at a much higher pace than the printed does. Consequently, adding up all those little sales that the traditional houses missed out, it is estimated self-publishing blessed Amazon about 100 million dollars in revenue last year. 

How so many writers go solo

First, self-publishing before the Kindle was so expensive and a high possibility of no return for the considerable investment. An American amateur writer costed 1,800 dollars for her romance story by hiring a freelance editor and a cover artist, but she sold 20 or so copies, netting about 60 dollars. Second, every writer can get an access to the world largest e-book store that consists of tens of millions of Kindle readers. No concern that your work might be lost amongst the infinite market place full of similar self-publishers. The algorithms behind online book recommendations are so powerful to bring potential readers  based on other reader's book review if your books are worth writing an impression. 

The cost of self-publishing (or the role of publishing houses)

The more famous such self-publishers become and the more revenues they gain from the Kindle store, however, the more publishing affaires they have to devote their time which otherwise would be performed by the publishing houses. Producing yourself as a writer on your own requires various things; cover art, back matters, PR, oversea translation for foreign markets, pricing, and arranging all these matters together. Another problem in self-publishing is that all risk of publishing need to be treated by the writer himself. Once he get a contract from the publishing industry although it is very difficult, the publisher will share his risk of failure. Actually, the nine of the ten fails commercially but those loss could be covered by the only one hit, which is called the rule of thumb. Also, no matter which his works go hit or trash, his editor will prevent him from having legal troubles due to his carelessness against plagiarizing and offensive expressions. These models indicate that self-publishing has just found a niche market between indie writers and lovers and it is nothing like replacing the conventional roles of professional publishers. 

What ‘Big Data’ make difference in political campaigns?

Kiyotaka ISHIKAWA

Tomorrow is the vote day for Japan’s parliamentary election. This is why a couple of advertising vans are coming and going on the every major streets all the time, calling for supports with a speaker loudly. The mass advertisement seems still powerful in political campaigns at least for now that would be the last thing still remaining popularized while most of ads and media has been individualized along a variety of characteristics after an information revolution. However, this might be no longer so.

The information gap in the U.S. presidential election 

It was not only the campaign promise that gave Obama victory in the election, but also the aggressive information strategy which extracted every single tips about voter’s preference from massive personal databases, called ‘Big Data’, and utilized them into persuasive campaigns tailored along each voter’s taste in a various form of appeal. One example goes like this. If George Clooney was statistically proved fascinating amongst West Coast females ages 40 to 49, those women would be the most likely to hand over cash for a chance to have a dinner with Clooney - and Obama. 

The background of the information revolution in the U.S. campaign

A U.S. campaign manager said, ‘Politics was the goal but political instincts might not be the means. (TIME, Issued November 19, 2012).’  It might be surprising for such an exciting presidential election in America, but the poll has been conventionally around 60%, deteriorating over time. A common challenge for American political parties is how to get supports out of populations who shows indifference about politics. The individualized persuasive appeals through Big Data analysis is an efficient way in the country of huge territory and small density of population although it cost much for correcting data and hiring a number of analyzers, but it would be even cheaper than visiting door to door or buying ad for local papers or TVs in every state, not to mention about running advertising cars over the country. 

The common or deferent aspects in Japan’s political campaign

While Japan also suffers from political indifference especially among young-adult generations, approximately 70% on average over whole voters at the last parliamentary election, contrarily Japan still have advantages of mass advertisement due to a high concentration of populations in metropolitan areas and a high market shares of national newspapers and broadcast stations. This is partially why the mass advertising in Japan sounds imprinting rather than persuading, shouting the candidate’s name repeatedly from a mini-van with a large signboard writing its name and picture. 

An expected information revolution in Japan’s political campaign

However, the situation is gradually shifting digital in this country as well as America. This election will be the first one after twitter and other social network services has prevailed over the country, and many candidates have declared their political stances and replied voters for their supports and oppositions. It is said that the Japanese shows less reluctance against anonymous activities on the Internet, so now would be the time for politicians to call for a vote not from windows of a car but from a window of a display. 

Why Do We Have to Learn the Liberal Arts?

Kiyotaka ISHIKAWA

Students and teachers in Kyoto University face a radical reform in the curriculum of general education which has been criticized that the liberal arts are no more than credit makers since the “yutori” education—devoting longer time for moral education and career development at the expense of fundamental subjects such as language and science, prevailed in high school education schemes and more and more university students started to graduate only with disciplines they majored, or some with nothing. 

Enthusiastic and systematic education or independent and voluntary attitude

The university’s response to such a situation is to reorganize the general education system into a more effective and productive scheme in which students can discover clear academic values and manage their own academic or career goals through learning the liberal arts. In other words, the college authorities try to establish a new curriculum and syllabuses with order and purpose. However, as the reform proposal points out, some subjects would be selected out of the curriculum for abolition due to the limit of supervision and that all lecturers would be controlled under subject requirements, which are concerned  to result in the university education with less diversity and academic neutrality. 

For a nice-looking transcript and meta-academic training

Kyoto university students, on the one hand, spend their undergraduate for taking easy subjects, but on the other hand most of students in typical western universities study hard to take better grades for a perfect transcript. An academic history, e.g., grade point average (GPA), is one of the most important element in job hunting amongst western society, so students try to make a parade of the highest grade on their transcripts. Moreover, the liberal arts are good opportunity to sharpen up one’s critical thinking and discussion skills for his or her following career no matter which is proceeding into further study or starting business. Those subjects consist not only of lectures but also of tutorial or discussion terms that provide students with conventional argument topics regarding  politics, cultural diversity, gender discrimination, bioethics, and so on. 

Learning for liberty

The Bible says, ‘The truth shall make you free (John, Chapter 8, Verses 32).’ In a modern interpretation, those who pursue the truth shall be free from political ideologies, mass media, and his own stereotypes. The liberal arts let students find a diversity of viewpoints of the world through discussions with other students and teachers and give them a recognition that their textbooks have no correct answers for most of issues in the society, nor do politicians, mass media, and even scientists sometimes. These learning processes ensure the intellectual liberty in which one would not forced to believe biased information and keep rational in every important stage of their lives, which I think is one of the fundamentals of higher education. For example, lack of this sense in Japan’s society might run this country into a wrong way, remaining stuck in every stage; politics, diplomacy, economy, and energy. After the Tohoku earthquake and the nuclear disaster, such an aspect of this country has been highlighted in the problems regarding some people brainwashed by health risks of radioactive materials who claims the threats of intaking foods from Tohoku even at the absence of scientific evidences.

Answer to 2012 Social Benefit Cost Analysis: Dam Project

The study

This report studies social preferability of the dam proposal which aims at an extension of crop yields in the dry-farming area by introducing the irrigation system, including a branch with or without concerning an environmental impact, and then investigates a variation of  social influence of the options under certain assumptions which change within a reasonable range. The study is based on basic methods of Benefit Cost Analysis from evaluating each scenario with their Net Present Values to testing sensitivities of the options against considerable fluctuation of crop prices and yields due to market and weather risks. The investigation proceeds in the following order; introducing each option and their expected impacts, identifying and evaluating costs and benefits, calculating net benefits at the present value, sensitivity tests, and conclusions as a final recommendation for decision makers. 

The options and their likely impacts

Option 1 - The Base Case

Under this option without the irrigation scheme, farms will continue conventional dry-land farming, which earns a hundred dollars per hectare annually without any further costs. River downstream from the dam will remain available and provide with fishing and recreation services at a value estimated with the Travel Cost Method. These values are counted as the opportunity costs in the following options of the dam construction. In addition, downstream wetlands which would be damaged if the dam is constructed will be preserved with their associated natural ecosystem.

Option 2 - Dam Construction Without the Environmental Flow for Wetlands

This option allows the irrigation system installed into the participant farms so that the farmers can achieve higher crop yields as a primary purpose of this project although it will cost much not only for the water authority and the farmers but also for the surrounding natural environment and other economic activities. On the other hand, the dam project is expected to have a couple of positive side-effects such as flood protection and fishing and recreation services. These benefits and costs as a whole, in the form of the Net Present Value, applied a few typical discount rates, are to be assessed in comparison with the base case. 

Option 3 - Dam Construction With the Environmental Flow for Wetlands

Finally, the case with the environmental water flow for wetlands is to be examined in order to estimate an minimum required value of their environmental services to implement the dam project. Under this case, less water is available for irrigation and that will cause crop yields decreased and so benefits from irrigated farmlands reduced; also, some costs just like annual water charges for the farmers will be saved as well. Thus, it is necessary to calculate changes in Net Present Values under the discount rates and estimate an annual required value of the wetlands. 

The costs

Costs for Option 2 and 3, the dam construction with-without the environmental flow for wetlands, are classified on Table 1 into primary or secondary columns and priced or unpriced columns. The primary costs basically consist of those for the dam construction and maintenance and fixed and variable expenditures for the farmers to start and manage irrigation farming. The secondary costs come from a wide range of economy of the country from an economic impact on farmers in other regions with poorer cost-competitive farming to a few environmental damages in the surrounding areas like Algal Blooms and salinity effects. 

Labor costs

A treatment of labour costs needs to be paid a special attention because unemployment  exists in the case of the dam proposal. If the unemployed are entitled to gain some unemployment benefits, those payments are considered as transfer payments in the Benefit-Cost Analysis. 

In this case, a half of the labour employed to construct the dam are currently unemployed and will get the wage equal to the unemployment benefit which are assumed to be 25 per cent of the market wage rate as shown in Table 2. The unemployment benefit, a typical example of transfer payments, is excluded in the analysis because money is transferred from the government to the unemployed without any goods or resources being traded in exchange. Therefore, the real cost arises in employing this kind of labor, otherwise the unemployed makes no opportunity cost by remaining jobless. 

Contrarily, the rest half of the employed labor for the dam construction are currently employed in other industries of the country, if assuming no wage inflation in the labor market by implementing the dam proposal, with being paid the same wage as the dam construction. In other words, even if the dam proposal is not taken place, this labor is supposed to cost the same wage in other parts of economy; thus, the cost for the currently employed labor is not counted in this analysis. 

Income tax

Extra income tax on the farmers in the irrigation district would be regarded as a transfer payment for the same reason mentioned in the discussion of labor costs. Unless making any differences in the quantity of inputs or outputs in the market, taxes and subsidies are basically excluded from calculation. 

Table 1:  A classification of costs

Primary		Secondary
Priced		Priced	Unpriced
Capital costs to construct the dam Annual operation cost	Cost of converting farm land and the associated on-farm capital costs	The crop yield reduction elsewhere in the country	Salinity effects on the surrounding dry-land farmland
Cost of water for operating the irrigation system	Farm variable and overhead costs each year	Additional cost for Algal Blooms
Cost of water for the initial water storage	Annual water charges for the farmers
Costs of labor currently employed and unemployed	Opportunity costs of earning from dry-land farming

Table 2:  Annual labor cost for the construction of the dam

Wage for labors currently employed	Wage for labors currently unemployed	Annual labor cost	Annual labor cost (real cost)
$2,500,000/yr	$625,000/yr	$3,125,000	$625,000

The benefits

A main benefit from the dam project is extended crop yields in the irrigation district to an annual value of twenty four hundred dollars per irrigated hectare (see Table 4). Moreover, a variety of secondary benefits will appears in upstream or downstream industries from the crop production and also arise as intangible effects in the surrounding environments of the dam (see Table 3). For example, secondary industries located in downstream of the value chain of the extra crop production, such as flour millers and bakers if the crop is grain, will experience a competitive market amongst competing other traders to obtain the extra product; the similar phenomenon will take place in upstream industries, namely between farmers and input suppliers.  

Table 3:  A classification of benefits

Primary		Secondary
Priced	Unpriced	Priced	Unpriced
Earning form the irrigated crop yield	Salvage value of the initial capital investment in the dam	Additional value of the farmer’s extra crop products	Flood protection service of the dam
	Salvage value of the initial capital investment in the on-farm irrigation system	Additional value of the processor’s extra products	Fishing, water sports and recreation services of the dam instead of the river
		Extra fertilizers sales of input suppliers in the irrigation district	Fish catches for commercial fishers
		Extra fuel and chemical sales in the irrigation district

Table 4:  Annual benefits from irrigated farmlands

Yield	Price	Land	Annual benefit per hectare	Annual benefit as a whole
4t/ha/yr	$600/t	50,000ha	$2,400	$120,000,000

Secondary benefits

In a competitive market, there are no secondary benefits (and costs,) so none should be included in calculation. For instance, given an extra amount of wheat available for flour millers, a flour miller will have to include any extra profit from grain processing in his payments for the wheat. Otherwise competing millers will bid higher and obtain the wheat. So the miller will have no true increase in net income. 

The competition in the output market causes processors and retailers of the extra crop product to bid higher for it, by adding four hundred dollars per ton and a hundred dollars per ton respectively, in order to obtain it. In the analysis, added values in price as a result of competition are omitted from calculation of the Net Present Value as two items corresponding to these values in Table 4 are lined with strikethrough. 

Opposite to the former case, additional revenues of input suppliers from extra fertilizers, fuel, and chemical sales (underlined in Table 4) should be considered as substantial benefits because farm variable and overhead costs include expenditures for extra usage of them.

Calculating net benefit

Option 2 - Dam Construction Without the Environmental Flow for Wetlands

In the case of Option 2, the Net Present Value shows negative figures, and the Benefit Cost Ratio is less than one, under any discount rates not less than 7 per cent, which means the total discounted cost exceed the total discounted benefit if the social rate of time preference or the market rate of inflation in the country is at least 7 per cent. Table 5 also indicates that the Internal Rate of Return, defined as the rate at which the sum of all discounted benefits and costs is zero, is equal to 6.03%.

Table 5:  Net Benefit of Option 2 under three different discount rates

Discount rate	5%	6%	7%
NPV	$60,027,520	$1,285,680	-$43,882,142
BCR	1.03	1.00	0.970
IRR		6.03%

Option 3 - Dam Construction With the Environmental Flow for Wetlands

Under Option 3, all NPV figures corresponding to the same discount rates in Option 2 mark considerable amount of loss in the society, as a result of the reduction in benefit exceeding the save in cost from the the decreased irrigated farmland (see Table 6). In order to compensate such loss in the economy, the environmental services of the wetlands are required to have a minimum value per annum under each discount rate. These values are assumed to arise at the start of year 4 after the dam construction is finished and continue until the end of the project.

Table 6:  Net Benefit of Option 3 under three different discount rates

Discount rate	5%	6%	7%
NPV	-$164,467,310	-$188,612,211	-$206,190,255
BCR	0.904	0.875	0.846
Minimum value of the wetland per annum	$11,095,665	$14,929,930	$18,946,703

The treatment of uncertainty

Price fluctuation

Fluctuation of commodity prices in the world market frequently takes place due to unpredictable market factors, e.g., good harvests in other countries. Assuming that the world market price for the crop faces the change either by 10 per cent more or less every 5 years (the first one occurs in year 8) from the case of Option 2, the Net Present Values show variations from the case without fluctuation, so the Internal Rate of Return slightly shifts  (see Table 7 and 8). Consequently, normal changes in the world commodity prices, a maximum margin of 10 per cent plus or minus, does not seem to affect the dam project significantly. 

Table 7:  Net Benefit under three different discount rates while the price for the irrigated crop decreases by 10 % every 5 years

Discount rate	5%	6%	7%
NPV	$27,837,177	-$25,607,247	-$66,590,832
BCR	1.02	0.984	0.954
IRR		5.49%

Table 8:  Net Benefit under three different discount rates while the price for the irrigated crop increases by 10 % every 5 years

Discount rate	5%	6%	7%
NPV	$92,217,864	$28,178,608	-$21,173,453
BCR	1.05	1.02	0.985
IRR		6.54%

Drought

Another risk that farmers and other relevant subjects of the project are likely to face is drought. Let the analysis suppose that the irrigation district experiences a drought every 10 years (the first one occurs in year 13,) and the whole water flows for irrigation is unavailable in the drought years; the farmers in the district have to temporarily go back to dry-land farming in those years, but any relevant costs to irrigation does not exist. Compared to the result of the case with price fluctuation, effects of the droughts on the project seem considerably influential; the Internal Rate of Return falls more than one per cent (see Table 9).

Table 9:  Net Benefit under three different discount rates while a drought prevent farmers from irrigation every 10 years 

Discount rate	4%	5%	6%
NPV	$41,431,034	-$16,926,545	-$61,301,244
BCR	1.02	0.990	0.961
IRR		4.68%

Conclusions

First, the study demonstrated that Option 2, the dam construction with the environmental flow for wetlands, is beneficial under a certain range of discount rate; however, even if so, returns from the project which the society will gain are not huge as the Benefit Cost Ratio shows under conventional discount rates. 

Second, under Option 3 which preserves the wetlands at an expense of a portion of water for irrigated farming, the value of the wetlands is required to hold at least some million dollars per annum to implement the project, though the exact value depends on the applied discount rate. 

Finally, the dam project does not seem significantly vulnerable to market and weather risks; if some risks against the crop production like price fluctuation and droughts are expected through the project term, it will be feasible to achieve the net social benefit at a positive figure.

2012 Social Benefit Cost Analysis: Dam Proposal 

A proposal has been made to divert water from a major river and establish a large scale irrigation scheme for agricultural production.

The Proposed Project

Following a prolonged period of dry weather, a State government in Australia proposes to build a dam on a major river primarily for the purpose of irrigating farm land in the near vicinity of the dam. Annual river flows are reliable. An 800 gigalitre (800,000 megalitres) dam is proposed. It will provide 500,000 megalitres of water available for irrigation each year. The balance of 300,000 megalitres is available as 200,000 megalitres for operating the irrigation system and as carryover security when needed, and 100,000 megalitres as permanently retained water.

It will take the water authority responsible for the irrigation scheme three years to construct the dam and the water delivery system, incurring capital costs to construct the dam of $100m in year 1, $100m in year 2 and $50m in year 3 in current dollars. These costs do not include labour costs.

The irrigation project will have a life of 43 years and the irrigation scheme will operate for 40 years from the start of year 4 to the end of year 43.

The dam will enable 50,000 hectares of farm land to be irrigated each year.  Ten megalitres of water are used per hectare of crop each year.

At the end of year 40 the salvage value of the $250m initial capital invested in the dam and water delivery system is expected to be 25% of the value of the initial capital invested, even with annual maintenance expenditures. (Annual maintenance expenditures are included in the annual operating costs of the water authority). The annual operating cost of the water authority that will administer the water supply is expected to be $3m.

To grow 50,000 hectares of irrigated crop each year involves using a crop rotation in which there are three crops grown every four years on a piece of land. Thus around 67,000 hectares of land needs to be developed into irrigation bays with water delivery systems, in order to have 50,000 hectares (75 per cent of 67,000) of land growing irrigated crops each year. The land not used for cropping in any year is rested, with no income or costs associated with it.

It is anticipated that the dam will be constructed and filled by the end of year three. The 67,000 hectares of farmland to be used for irrigation farming (50,000 cropped ha/yr) will be set up for irrigation during year three. 

The 67,000 ha of farm land that is to developed for irrigation will continue to be used for dryland farming as before, during the first two years of dam construction and will earn a net $100/ha/yr. No income will be earned from this land when it is being prepared for irrigation during the whole of year three.

The cost of converting farm land currently used for dryland farming to land levelled for irrigation and the associated on-farm capital costs of changing over to irrigation farming are a total of $1000/ha.

The capital invested in the on-farm irrigation systems will last for around 20 years at which time major renovation will be needed involving new capital investment costing 50% of the original investment cost of the on-farm irrigation system.

In year 43 the on-farm investment in irrigation systems will have a salvage value of 20 per cent of the value of the initial $1000/ha capital invested in the on-farm irrigation system.

On the farms, the irrigated land will be used to grow a crop, in appropriate rotations, and it is expected (expected value, probability weighted value) that crop yields of 4 tonnes per hectare of crop per year will be achieved from irrigated crops each year. Irrigated cropping will commence, and reap the first havest, in year 4.

The irrigated crop yield is expected to return $750/tonne in today’s dollars net at farm gate. This crop price is a subsidized price paid by the national government with a $150 subsidy from general tax revenue. World market prices for this crop have a probability weighted value of $600/tonne in today’s dollars for the past decade, and it is highly likely that this price will apply in the future.

Farm variable and overhead costs for the irrigated cropping each year (including maintenance of the on-farm irrigation system but not including the water charges paid to the irrigation authority) are expected to amount to $700/irrigated hectare/year. This cost includes such variable costs as extra fertilizer, seed, chemicals, fuel, casual labour used by farmers, as well as their overhead costs.

Annual water charges for the farmers are $40/megalitre ($400/irrigated hectare/year) because if the water that is used for irrigation was used in some other way it would have a value to the community of $40/megalitre in its alternative use.

The 200,000 megalitres of water used each year to operate the system also has other uses and has a cost of $40/ML.

The 100,000 ML of water retained permanently in the dam represents a once-off removal, in the year the dam is filled, of 100,000 ML of water from other uses in the economy, at a cost of $40/ML. In subsequent years, this quantity of water would be available as usual to the economy and the environment as it was before the dam was built.

The irrigation farmers involved in the new scheme will pay, in total, an extra $10m in income tax each year from year 4 onwards on their net before tax earnings from their irrigated cropping businesses.

Processors of the extra crop product, who compete to buy the extra crop product that becomes available from the irrigation farmers, will add $400/tonne in value annually to the farmer’s crop product.

Retailers will add a further $100/tonne to the processed crop product annually.

There will be extra fertilizer sales by input suppliers in the irrigation district to the irrigation farmers of an extra 100kg/ha/year at $400/tonne, and extra fuel and chemical sales equal to $5m per year in the irrigation district to produce the extra crop output.

Off Site Salinity Effects
An extra 50,000 hectares of land surrounding the irrigation scheme and used for dryland farming will be indirectly affected by the irrigation scheme through water from the irrigation scheme contributing to the underground water supply and causing water tables to rise, causing increasing salinity in the surrounding 50,000 hectares of land used for dryland farming. Over the 40 years of irrigation of irrigation the surrounding 50,000 hectares of dryland farmland will suffer a decline in annual productivity and profitability, and thus a fall in land value as well. 

Following the commencement of nearby irrigated agriculture, there is expected to be an annual decline in net profit per hectare in these surrounding farming areas from the current $100/hectare to $20/ha by year 43. These losses due to salinity are expected to occur in a linear manner (constant rate) over this time, i.e. each year each hectare is expected to produce $2 less net profit per year than would have been the case of the irrigation scheme had not been set up. The loss of profit in any year is relative to the current $100 profit that would have been earned each year if the dam had not been built. Annual reductions in profit are also equivalent to the total loss in land value that would occur between start and finish of the project as a result of increases in salinity. 

The annual and total magnitude of this salinity effect will not be affected by how much water is used for irrigation or for environmental uses.

Flood damage
Building of the dam is expected to improve flood control downstream. Over the past couple of decades, when the river has not been dammed, there have been major floods downstream every 5 years which have caused around $3m damage in today’s dollars each time there was a flood. With the dam it is expected that such major floods will occur half as frequently as in the recent past, and when a major flood does occur, the damage will be at least 50 per cent less than in the undammed situation. That is, half as many floods (one every 10 years instead of one every 5 years), causing half as much damage when it occurs, as before the dam was built. For the analysis, the last flood was in the year before work commenced on the dam. Flood protection commences when the dam is completed at the end of year 4. Assume the next flood occurs in year 8.

Wetlands
As a result of damming the river there are 5000 ha of Wetlands downstream which have no commercial use and which will experience a marked reduction of water flows. These Wetlands and their associated fauna and flora (which are becoming increasingly rare) will disappear once the dam is filled. This effect could be prevented if an ‘environmental flow’ of 100,000 megalitres of water was released regularly through the year. However, to do this would require that the water available for the irrigated agriculture is reduced from the planned 500,000 megalitres per year to 400,000 megalitres per year. This would involve developing only 54,000 ha for irrigation, and 40,000 ha would be used for cropping in any year. In this scenario in which the wetlands are preserved, apart from the change in cropping area, all the other factors can be assumed to remain the same as with the alternative (no wetlands) 50,000 hectare of crop scenario.

Other crop farmers
The extra irrigated crop produced because of the irrigation scheme will have the effect of causing some producers of the same type of crop produced elsewhere in the country, in areas more distant from the markets, to cease to produce these crops. It is estimated that each year from the start of year 4 $25m p.a. worth of the type of crop now being irrigated, from non-irrigated farms in other areas, will no longer be produced on these farms.

Algal Blooms
A consequence of the high input agriculture that will take place once the Dam is built will be an increase in Algal Blooms occurring in streams and the river in dry seasons. This phenomenon is expected to double in frequency as a consequence, and incur an additional cost to the water authority of $2m every 5 years from the commencement of irrigated agriculture to ameliorate the problem from the beginning of irrigation farming.

Labour
The labour required to build the dam (not included in the construction costs) would cost $5m per year at market wage rates for each of the three years of construction if it was the case that all labour was drawn from those currently fully employed. However, in practice only half of the actual labour force employed will come from employing labour that was already fully employed. The other half of the labour force used will come from people who would otherwise be unemployed over the first three years of the project when the dam is built. Any extra labour employed on farms come from the employed and are accounted for in the farm variable and overhead costs.

The labour force that comes from people drawn from the ranks of currently unemployed are people who receive unemployment benefits. This means that by giving up unemployment and working on the dam this previously unemployed labour is foregoing whatever benefits they received from being unemployed. We can approximate the cost of this labour (previously unemployed-receiving benefits ) (i.e. the cost incurred by giving up unemployment) as being equal to the unemployment benefits they received. That is, the unemployment benefit is 25 per cent of the market wage rate. This is the benefit the previously unemployed currently gain from being unemployed and are now giving up to work on the dam. This is the opportunity cost of the previously unemployed people who will work on building the the dam.

However, there is also a benefit to society from saving the unemployment benefits that previously were being paid.

Fishing and Other Recreation
Downstream from the dam is a popular fishing (non-commercial) and recreation spot. Estimates of the demand for using this fishing and recreation spot have been made and it is estimated that 5000 person-visits per year would be made to use this fishing spot at a cost (willingness to pay) of $50 per user per fishing visit. (This would have been estimated using the Travel Cost Method). The change to the river flows after the dam is filled will mean that this fishing spot will no longer exist.

From the end of year three the new dam is expected to become an attractive place for water sports, fishing and other recreation visits. It has been estimated that the demand for using the new dam for fishing, water sports and recreation each year would be 10,000 users at a willingness to pay of $50 per user for fishing, water sports and recreation visits. This number of visits will occur each year regardless of how much water is in the dam and how much is used for irrigation or environmental uses.

As well, the dam is expected to yield 200,000 kgs of fish each year to commercial fishers, worth $3/kg – regardless of how much water is in the dam and how much is used for irrigation or environmental uses.

Task
Note: A comprehensive Social Benefit Cost Analysis has to be based on a valid With-Without scenario, and take account of all benefits and costs, including opportunity costs, and unpriced benefits and costs, and consider risk.

The merit or otherwise of this investment of public resources in an irrigation project is to be assessed for the typical discount rates used in public project appraisal. 

The option of building the dam and preserving the wetland is also to be considered, i.e. if the decision was made to preserve the wetland, what minimum value is implicitly being placed on the wetland. 

The prices and yields and water volumes in the following details are the expected values (sum of probabilities of values in the whole distribution) levels expected to prevail over the life of the project.

Some assessment of key risks and sensitivities is to be included in the analysis.

Note that a key assumption underlying this BCA is that in the economy resources are currently fully utilized unless otherwise specified.

©Bill Malcolm, Assoc Prof, The university of Melbourne