Glossary

• Author: CETMAR, COGEA, Executive Agency for Small and Medium-sized Enterprises (European Commission), POSEIDON, Seascape Belgium, Universidade de Vigo
• Pages: 9-10

Study on the Economic Impact of MSP

ix

Glossary

Cost-Benefit analysis: cost-benefit analysis is a framework used to determine the

desirability of an investment or a policy. It is an analysis of all costs and benefits

generated by an investment or a policy.

Hedonic pricesŚ hedonic prices ar e used to reveal individuals’ and businesses’

willingness to pay for ecosystem or environmental services, for which there is no

market, by looking at variations in the price of a surrogate good for which there i s a

market. The handbo ok example is the housing market: some individuals are wi lling to

pay a premium for a house that has a nice view of the ocean. To quantify the

economic value of “ocean view”, one may use regression analysis and determine how

much on average i ndividuals are willing to pay for a house with a view of the ocean,

compared with a house without it, all other things being equal.

Input-Output analysis: developed by the late economist Wassily Leontief, input-

output analysis is a t echnique used to measure the interdependencies between

different sectors of an economy. In the context of thi s study it is used to measure the

indirect and induced effects of MSP on the ‘non-blue economy’, by describing t he flows

between the activities directly affected by a plan with the rest of the econ omy.

Market and non-market goods and serv ices: some goods and services (and

resources) can be traded in markets. For instance, a house or a hai rcut are a good and

a service normal ly traded in markets. At the same time, there are goods and services

that cann ot possibly be traded in markets. Many natural resources – albeit not all of

them – are not traded in markets either. In the context of this study, non-market

goods and servi ces are of special relevance when it comes to ecosystem services. Not

all the benefits that individuals obtain from ecosystems can be traded. There is no

market for cl eaner air or healthier oceans, for instance. However, t hat does not imply

that such goods and services have no value. On the contrary, economists have

devised several methods to quantify their value in monetary terms, the most common

of which is ‘willingness to pay’ (see below).

Monetary value: monetary value is the valu e that an individual or a business attach

to a good, service or resource, expressed in units of currency. The monetary value of

goods, services, and resources for which there is a mar ket i s normally revealed by

prices; that is, for any quantity of goods, services or resources on the market, there

will be a price that “clears” the market. However, it is not as equal ly straightforward to

determine the monetary va lue of goods, services and resources for which there is no

market and, consequently, no price. What is the monetary value of clean(er) air? For

more details on how to determi ne the monetary value of non-market goods, services

and resources, please see “Market and non-market goods and services ” above.

Opportunity costs: opportunity costs are the benefits missed upon choosing an

alternative over the other. For instance, i n the context of MSP , assigning an area of

the ocean to, say, wind farms precludes fishers from fishing in the same area. The

revenue forgone by fishers is (one of) the opportunity cost(s) of siting wind farms in

that precise area.

Social discount rate: it is the discount rate used in computing the value of funds

spent on social projects. The discount rate is considered as a critical element in cost-

benefit anal ysis when the costs and the benefits di ffer in their distribution over time.

The proper discount rate should represent the opportunity cost of what else the

investor could accomplish with the same funds.