Deciding between development and preservation of a natural asset: a way out of the impasse?

Many environmental policy issues involve conflicts between nature conservation and economic development. The economic rationale behind deciding among alternative options is predicated on some form of benefit-cost analysis (BCA). Key issues to date have been non-market valuation, the effectiveness of the precautionary principle or safe minimum standard, discounting, uncertainty, and how the decision making process implements BCA results. To date, no satisfactory mechanism seems to have been found that reconciles conflicting interests with social welfare, the Hicks-Kaldor criterion falling short. This is because BCA has been conceived of and implemented within a technocratic process, which impinges on all aspects of benefit-cost definition and BCA results, leading to economically arbitrary and socially indeterminate outcomes. An alternative model is proposed, applied to discrete, partly excludable, non-rival but congestible public goods. It is based on mechanism design theory, leading to a democratic, rather than technocratic, social choice mechanism. BCA and optimal mechanism design are combined in a way that renews provision and distribution of information and revelation of social preferences. The role of stated preference techniques, such as contingent valuation, is radically redefined. The model is referred to an Australian case of mining in a National Park.