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Cost-effectiveness analysis (CEA) takes a predetermined objective (often an outcome negotiated by key stakeholder groups in a society) and seeks ways to accomplish it as inexpensively as possible. The thorny issues of compensations and actual transfers boil down to less complex but still contentious issues of burden sharing.
CBA will always be controversial because of the intricacies of valuing benefits of many public policies, especially intangible benefits of environmental policies, properly. CEA takes the desired level of a public good as externally given (a vertical marginal benefit curve) and minimizes costs across a range of possible actions. Like other target-based approaches, CEA often turns into an implicit CBA, especially if even the minimum costs turn out to be too high and beyond the ability to pay of the society. In this case, the target is iteratively revised until an acceptable solution is found.
Consider the foregoing example of changing precipitation pattern induced by climate change and resulting high-water conditions. In many countries, legally binding criteria exist regarding the level of flood protection (e.g., protection against a 50- or 100-year return flood). CEA would take these or other socially agreed flood protection targets and seek the mix of dams, reservoirs, and other river basin management options that would minimize the costs of achieving the specified target.
The policy exercise (PE) approach involves a flexibly structured process that is designed as an interface between academics and policymakers. Its function is to synthesize and assess knowledge accumulated in several relevant fields of science for policy purposes in light of complex practical management problems. At the heart of the process are scenario writing ("future histories," emphasizing nonconventional, surprise-rich, but still plausible futures) and scenario analyses via interactive formulation and testing of alternative policies that respond to challenges in the scenario. These scenario-based activities take place in an organizational setting that reflects the institutional features of the issues addressed. Throughout the exercise, a wide variety of hard (mathematical and computer models) and soft methods are used (Brewer, 1986; Toth, 1988a,b; Parson, 1997).
The product of a PE is not necessarily new scientific knowledge or a series of explicit policy recommendations but a new, better structured view of the problem in the minds of participants. The exercise also produces statements concerning priorities for research to fill gaps of knowledge, institutional changes that are needed to cope more effectively with the problems, technological initiatives that are necessary, and monitoring and early warning systems that could ease some of the problems in the future. In recent years we have witnessed increasing use of the PE approach to address climate change at the national scale (see Klabbers et al., 1995, 1996) and at the global level.
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