THE ECONOMICS OF WATERSHED MANAGEMENT - PROBLEMS AND RECOMMENDATIONS FOR PROJECT ANALYSIS

Kenneth N. Brooks, Fellow, East-West Center (1983-84)
and Associate Professor
College of Forestry, University of Minnesota

and

Hans M. Gregersen, Professor
College of Forestry, University of Minnesota
St. Paul, MN 55108 USA

SUMMARY

The economic aspects of watershed management practices need to be quantified and better understood by decision makers if we are to see such practices become integral parts of resource development projects. Economic analysis of watershed management projects/ programs requires a comprehensive evaluation of many resources both at the site of implementation and at downstream sites as well. Quantifying the benefits derived from watershed practices requires that an array of technical relationships be developed. For example, vegetation management and erosion control practices should be related to upland productivity and downstream flows of water and sediment. In addition, the benefits derived from watershed practices must be valued in terms that are meaningful to decisionmakers. Some benefits from watershed management practices cannot be readily valued as marketed goods. This paper examines the problems and unique dimensions which place watershed analyses outside of the more conventional economic approaches.

INTRODUCTION

Well developed and comprehensive watershed management programs and projects are rarely found in the heavily populated mountains of the Asia/Pacific region. This is largely due to the low priority given to such activities by decision makers (FAO, 1982). A lack of awareness of potential impacts, the low visibility of watershed projects, and the long-term nature of such projects (Sfeir-Younis, 1983), may in part explain the low priority given to them. Our feeling is that watershed projects have not been clearly and convincingly shown to be economically sound, socially acceptable, and politically attractive.

The purpose of this paper is to examine the economic aspects of watershed management projects, illustrate and develop an understanding of the benefits derived, examine the problems and unique dimensions of watershed analyses, and consider ways in which such analyses can more effectively be performed and presented to decision makers. In accordance with the theme of this meeting, we also will point out the need for an integrated approach; decisions are usually based on a complement of economic, social/cultural and environmental/ecological factors. Developing projects that are economically sound is of great importance to decision makers, but it must be recognized that economics is but one dimension to consider in assessing alternatives.

THE PROBLEM

As a starting point for this discussion, we will initially consider the nature of watershed management projects and focus on the problems and unique aspects of evaluating them in economic terms. We intend to get at the heart of the question of why watershed management activities and projects are not generally incorporated into rural development projects. More specifically, why are watershed projects not viewed as economically sound parts of resource development in both upland and downstream areas?

Watershed management should be considered synonymous with multiple use or multiple resource management, but with the condition that such use and management be in harmony with sound soil and water conservation principles. Watershed projects involve one or more practices (Table 1) that are often spatially diffuse and take place over a long period of time. In the simplest case, watershed projects may entail a very specific set of well understood actions - - such as in the case of watershed rehabilitation. Rehabilitation may be undertaken to protect downstream, high investment projects such as reservoirs. Structures may be built to stabilize channels or to halt gully erosion. Reforestation and other vegetative measures, including agroforestry practices, should be integral parts of the project. However, without long-term land management commitments, the effective life of rehabilitation practices is generally short lived.

Table 1. Examples of practices that may be evaluated within watershed rehabilitation or management projects (modified from Gil, 1979).

^a/ Many practices such as agroforestry and cultivation techniques may be considered as either rehabilitation or management.

Some of the most important aspects of watershed management projects are often overlooked because they are less visible than structural measures such as dams and gully plugs. An array of non-structural practices are needed which complement structural measures but which promote sustained productivity as well (Table 1). The importance of non-structural practices in relation to watershed management benefits often is difficult to convey. If the connection is not made, then the result can be low priority given to these project elements.

Watershed projects affect upstream and downstream areas and usually affect more than one community, governmental body, institution and administrative level. There is rarely a single administrative unit that is solely responsible for watershed management in a given project area. Usually, resource management and development programs for forestry, water resources and agriculture are the responsibility of several independent agencies or institutions. In some cases, one group bears the costs and another reaps the benefits. For example, upland rehabilitation and reforestation may be the responsibility of-landowners and a forestry agency, but major beneficiaries of erosion control may be an energy (hydropower) agency and water resource (irrigation water) users downstream. The separation of those who pay from those who benefit results in difficult administrative problems and usually requires considerable cooperation, coordination, and in some cases compensation among institutions.

The above points indicate, in a general way, some of the reasons why watershed projects are not viewed as high priority projects in the eyes of decision makers. Several other pertinent considerations include:

i) Watershed projects require long-term commitments of resources in regions where resources are scarce; decision makers tend to favor projects that show more immediate and visible benefits.

ii) Watershed management and rehabilitation often occurs in remote areas, away from political and economic or financial centers, and do not, therefore, attract widespread support.

iii) Watershed projects may be geared toward preventing potential losses rather than increasing benefits. While losses prevented are also benefits, they are less attractive to decision-makers interested in more immediate stimulation of local or national economies.

iv) The economic and financial benefits and feasibility of watershed projects and management programs have not been effectively demonstrated.

The last item will be examined more closely. Certainly excuses that can be offered include lack of knowledge or inability to identify and quantify all pertinent inputs and outputs associated with projects. Likewise, the difficulty of assigning values to many of the benefits and the need for both economic and financial considerations place such analyses outside of the more conventional approaches and are problems that will be discussed further . To help understand the benefits of watershed management, a framework for analyzing the economics of watershed projects will be briefly reviewed.

FRAMEWORK FOR ECONOMIC ANALYSIS

Any analysis of watershed management projects must objectively examine and compare inputs needed and goods and services produced "with and without" the project/program. Using Dixon's (1984) framework (Figure 1) as a point of reference, all goods and services that are affected by the project should first be identified and then input-output relation ships quantified. The steps needed for such an analysis, discussed by Gregersen and Contreras (1979), have been applied to watershed management projects by Gregersen and Brooks (1980) and Brooks et al. (1982). Briefly these steps are:

Figure 1. Relationship between the goods and services associated with watershed management projects and location (adapted from Dixon, 1984, and Hamilton and Snedaker, 1984).

Quadrant I - Food crops, forage for livestock, animal products, fuelwood, pulpwood, lumber, other wood products, minerals, water, fisheries;

Quadrant II - Water for drinking, fisheries, irrigation, hydroelectric power generation, navigation, recreation, municipal & industrial supplies; flood control benefits; sediment control for avoiding losses of reservoir benefits, etc.

Quadrant III - Aesthetic values; wildlife habitat protection; health benefits of high quality water supplies; protection of aquatic ecosystems; landslide mudslide control (minimization); preservation of gene pools (natural vegetation);

Quadrant IV - Protection of downstream riparian and aquatic ecosystems; high quality water for recreation-aesthetic values.

i) Develop technical relationships and physical flow tables for the conditions "with and without" the project;

ii) Estimate the values and flow of values for the inputs and outputs determined from step 1;

iii) Calculate the measures of project worth, such as the benefit-cost ratio, economic rate of return and net present worth; and

iv) Test the sensitivity of the measures of project worth to changes in the assumptions.

We do not intend to delve into economic theory or reasons for the above steps. The reader is directed to the above references and to Gottinger (1983) and Hufschmidt et al. (1983) for a more complete discussion of approaches to economic analysis of resource development projects and programs. Our purpose is only to point out where the greatest deficiencies and bottlenecks exist in performing economic analyses of watershed management projects, to describe the unique aspects of watershed project evaluation, and to suggest ways of improving project analysis and evaluation.

QUANTIFYING TECHNICAL RELATIONSHIPS

Much has been written about the economic, social and environmental losses caused by watershed degradation. Deforestation, fire, overgrazing, and shifting cultivation are usually blamed for degradation and resulting downstream impacts such as flooding and reservoir sedimentation. Many of the reported impacts are real, but some impacts attributed to upland degradation have been exaggerated. Part of the problem before us is to identify and quantify real impacts and their causes. Technical relationships must be developed to relate system inputs and outputs for conditions "with and without" the project.

The With and Without Approach

The existing situation or "without project" condition must first be defined and evaluated for the watershed using available inventory, monitoring and survey data. Even in developed countries, the absence of data often constrains our analyses. Existing rates of erosion, levels of sedimentation, water yield, water quality and even crop, livestock and wood production can be difficult to quantify -- particularly under subsistence farming. At this point, the value of an experienced team of resource specialists cannot be overemphasized. Opinions and judgments of competent professionals are needed to fill in the voids created by the absence of data. Likewise, the judgment and experience of such professionals are needed to estimate the long-term implications on resource outputs if the watershed condition is permitted to continue to degrade, i.e., without the project.

The next step in the analysis requires that "with project" conditions be defined; the effectiveness of rehabilitation and management practices must be expressed in quantitative terms. But there is frequently a lack of quantitative relationships between forest alterations or land use changes and hydrologic or soil responses, particularly in the tropics (Hamilton with King, 1983). Even where functional models of watershed systems exist, the scarcity of data for model calibration and verification represents a serious constraint.

The types of technical relationships needed for watershed analyses vary, but in every instance the watershed condition or action should be related to physical outputs that have meaning in economic, social or environmental terms. Examples of technical relationships needed for "with and without" project conditions are listed in Table 2. An example of one form of such relationships is shown in Figure 2. In this illustration, the level of land use or perturbations (X) can have both positive and negative effects on some measure of productivity (Y). By developing such a production function approach to biophysical relationships, as suggested by Smathers et al., (1983), the relationships are easily understood and used in economic analysis. A hypothetical example might relate the level of nutrient export (X) in Kg/year associated with upland disturbance to fisheries production (Y) in Kg/year, of a downstream reservoir. The initial status of the reservoir determines the effects of increased levels of nutrient loading. If the reservoir is nutrient-poor (point X_A ), there may be an increase in fisheries production caused by increased nutrient loading (moving from point A to point B). Eventually, additional nutrient input (greater than X_B) will reduce fisheries production. If nutrient loading is allowed to proceed, a point may be reached (X_C) where irreversible effects occur; the reservior is so eutrophic that life can no longer exist and the system cannot recover without some major rehabilitation effort. In this example, the project effects on nutrient export would need to be known, along with the present status of the reservoir.

With all the research that has taken place over the years, one may ask why functional relationships like Figure 2 are not better known for the important watershed outputs and attributes. One problem is that many researchers have not been aware of, or sensitive to, the types of relationships and information needed by economists and decision makers. Research has often been isolated from the management and decision making environment. Multidisciplinary research must be coordinated and targeted for practical results usable in making decisions.

Although the precise shape and magnitude of production functions may not be known for variables such as those listed in Table 2, approximations can usually be developed from experience and from work done elsewhere. For our discussion, the kinds of technical relationships for upland watersheds will be considered separately from downstream areas. Such a separation serves another purpose as well; it helps identify possible inequities that arise from watershed projects because of the spatial distribution of costs and benefits. The distribution of costs and benefits must be dealt with in the final analysis even though the overall project may be economically feasible.

¹ See paper by Hamilton in these proceedings.

Table 2. Examples of technical relationships needed to perform economic analysis of watershed management projects; under with and without project conditions.

* Technical relationships for determining land use impacts on landslides and flood frequency and associated damages require involved and complex analyses. Methods of performing hazard analysis for such events are presented by Petak and Atkisson (1982).

Figure 2.

Example of a generalized technical relationship for watershed systems that is in the form of a production function as suggested by Smathers et al. (1983). "A" represents no land disturbance or zero perturbations, "B" is the maximum productivity of Y at some specified level of use or perturbation (X_C) and "C" is where the level of use or perturbations (X_C) results in irreversible impacts on productivity.

Upstream-Upland Relationships

Upland watersheds can be managed to provide multiple goods and services for local and downstream communities. People typically subsist in the uplands of developing countries, deriving much of their food, fuel and animal product needs from them.

In the past, losses in productivity due to land use were taken care of by traditional land use patterns such as shifting cultivation and nomadic grazing. Indigenous farmers and herdsmen understood the signs of reduced productivity and simply moved to new, more productive sites. Today, population pressures in many developing countries cause excessive and repeated use of watersheds without an adequate fallow period (as discussed earlier by several authors). Shortened burning and cultivation cycles in tropical forested watersheds are depleting the nutrient capital of many uplands to the extent that active rehabilitation measures are needed.

Upland Productivity

Production functions for variables listed in Table 2 could be theoretically developed to relate upland productivity, e.g., Kg/ha of food, cubic meters/ha of fuelwood, and Kg/ha of wool, to the percentage of the watershed cultivated or grazed. Again referring to Figure 2, if we started with a totally undisturbed watershed (point A), increased levels of land use could result in increased productivity (up to point B), at which time the level of land use begins to exceed the capacity of the watershed. Further use results in soil erosion and loss of productivity until, if use is not diminished, a point of irreversibility (X_C) is reached. The extreme situation would be that all soil is lost from the site. By adding fertilizers and implementing soil conservation practices on the watershed, productivity may eventually shift to the left. This new state may change the shape and magnitude of the relationship altogether. This is an example of where the soil specialist and resource economist need to work together to develop the appropriate technical relationship.

The loss of topsoil from farmlands can usually be related to either loss of crop productivity or costs of fertilizers needed to sustain productivity. Wildland watersheds present a more difficult problem. The levels of productivity, particularly for subsistence farming, may be difficult to determine. Also, because erosion in uplands does not occur uniformly the loss of soil nutrients may be difficult to assess. Gully erosion and mass soil movements leave portions of a watershed with essentially "zero" productivity for some time period.

Soil loss can have serious hydrologic consequences in addition to the loss of vegetative productivity. The amount of soil water available for plant growth on the site is reduced which may be more serious than loss of nutrients. The resulting increase in runoff to downstream areas can result in many other losses as well.

An example of the type of information needed to evaluate the economic impacts of soil erosion on productivity is given by Tejwani and Babu (1982). in an agricultural setting near Dehra Dun, India, the effects of topsoil removal on the yield of rain-fed maize were evaluated. For every one cm of topsoil removed, maize production dropped 100 Kg/ha the first year, 52 Kg/ha the second year, and 51 Kg/ha the third year. The value of protecting topsoil from erosion from an upland perspective can be readily determined from such data. However, the total value of protecting topsoil must include downstream benefits as discussed later.

Non-market Considerations

Several other types of benefits can be attributed to watershed management projects or programs in upland areas that are not related so closely to marketed products. For example, the amount and quality of drinking water can be enhanced for upland inhabitants. Benefits could include better health of people and livestock, which may indirectly be related to productivity, as well as improved fisheries production. The aesthetics of streams and rivers in the area may be enhanced and aquatic habitat maintained or improved as well. Such nonmarket, environmental benefits should be considered in an economic analysis, but are more difficult to quantify and value as pointed out by Gottinger (1983) and Hufschmidt et al. (1983).

The problem of irreversible consequences, in some cases a result of doing nothing, should be evaluated carefully by decision makers. An example of irreversibility, in the truest sense of the word, would be the destruction of habitat for an endangered species resulting in that species becoming extinct. identifying such possibilities in most developing countries is difficult, as is determining the cost of such impacts. In the instance of excessive soil erosion from upland watersheds, soil loss may not be absolutely irreversible, but in reality, hundreds of years may be required for the system to recover unless active rehabilitation measures are implemented. The level of degradation at which the ability to rehabilitate a watershed becomes physically and economically unrealistic is sometimes hard to define.

Nonmarket considerations for upland watersheds may include relationships among management actions and the occurrence of events such as landslides, mudflows, soil creep and flash floods. We know that mountainous regions are susceptible to such events no matter what the types of land use. We also know that, to some extent, the frequency of occurrence and/or the magnitude of damages caused by such events can be aggrevated by improper land use practices, improper location of roads, poor drainage systems, etc. The benefits of avoiding or minimizing losses can sometimes be related to the monetary value of such things as buildings, farm equipment, or farmland. However, risks to human life present another dimension which is beyond the scope of our discussion. The reader is referred to Gottinger (1983) for a detailed discussion of analyzing human life, human capital and hazard assessment.

Although catastrophic events such as landslides cannot be altogether prevented, management practices can be implemented that help reduce annual damages and losses and at the same time provide needed products. For example, planting deep-rooted trees and/or shrubs on steep slopes, as parts of fuelwood or agroforestry projects, can provide multiple benefits such as slope stabilization, fodder, fuelwood, and other wood products. Quantifying benefits in terms of losses avoided requires a site specific analysis on the watershed -and even then considerable uncertainty exists.

The preservation of natural ecosystems, scenic areas, and wildlife habitat can be important attributes of watershed projects. In some cases, preservation may be justified on the basis of multiple benefits, some economic and some not. For example, preserving natural forests on excessively steep slopes can also have value in stabilizing slopes and minimizing sediment delivery. Likewise, protecting riparian vegetation can protect valuable wildlife habitat while stabilizing stream banks and reducing sediment delivery to downstream areas. We cannot ignore, however, the fact that preservation of some ecosystems is in the best interest of society as a whole, and may not readily be evaluated solely on the basis of economics.

Downstream Relationships

Many watershed projects are implemented primarily to protect major downstream facilities such as reservoirs and irrigation systems. A combination of activities, as indicated in Table 2, may be initiated before, during and after the construction of large, high investment projects. Their primary function may be to reduce sedimentation at downstream reservoirs or channels.

Erosion and Sedimentation

The relationship between upland erosion (and erosion control practices) and downstream sedimentation is usually poorly understood. The reasons are many and include:

i) Data on rates of erosion are not available.

ii) Downstream sedimentation results not only from upland surface erosion, but also from channel erosion and mass movements (such as landslides) into the channel.

iii) Channel characteristics and distances between affected watersheds and downstream reservoirs determine the quantities and timing of sediment delivery (thus, adding complex time and space dimensions to the analysis).

iv) Sedimentation caused by natural, catastrophic floods and landslides can be excessive, but are probabilistic in nature and difficult to quantify under "with and without" project conditions.

Although precise models of upland erosion and downstream sedimentation are rare, several general methods are available, such as linking the Universal Soil Loss Equation (USLE) with delivery ratio or transport models. If some data on sedimentation rates (from pond or reservoir surveys) are available, rough approximations can be developed, as described in the following example.

The Loukkos example illustrates one of the most commonly cited justifications for developing major erosion control and watershed projects, that of protecting large multipurpose reservoirs. Even so, major water resource projects continue to be planned and constructed without full appreciation of the importance of upland watershed management to their economic feasibility. Gregersen and McGaughey (1983) estimated that over $US 800 million will be needed for non-structural watershed management activities in Latin America over the next 20 years just to protect anticipated new hydroelectric reservoir projects.

Example. Erosion control practices were implemented in the Loukkos Basin, northern Morocco, to extend the life of a large reservoir that was designed to supply irrigation water, hydroelectric power, municipal and industrial water supplies and provide flood control benefits (Brooks et al. 1982). Sedimentation rates for "without" project activities were estimated from sediment surveys in nearby reservoirs and ponds. These rates were then related to upland erosion rates by applying the USLE and a reasonable delivery ratio (.39). The existing upland erosion rates were considered to represent the "without" project condition. Values in the USLE were then modified to estimate changes in erosion rates caused by erosion control practices. Using the same delivery ratio, changes in downstream sedimentation at the reservoir site were quantified. It was assumed that 50 percent of reservoir sedimentation originated from upland erosion, the other 50 percent derived from the channel itself. Benefits and costs in both the upland watershed and the reservoir site were then determined for "with and without" project conditions. Benefits included upland increases in productivity of agricultural, livestock, and wood products, and downstream benefits of irrigated crop losses avoided (extending the reservoir life). Because these benefits far exceeded the costs, other benefits attributed to the project, e-g., hydropower losses avoided, and the sustaining of flood control capabilities -- components that are more difficult to quantity - were not evaluated.

To compensate for uncertainty in some of the assumptions, a sensitivity analysis was performed. Even with major shifts -- up to 25 percent higher costs and 25 percent lower benefits -- the project represented an economically efficient use of resources. If this simplified analysis had shown the project to be only marginally feasible, then a more detailed and complete assessment would have been made. This example illustrated that a simple economic analysis can be made of watershed projects in which data are scarce.

Flooding

Flooding represents a major economic loss to downstream communities and is said to increase as a result of upland deforestation and watershed degradation. The extent to which watershed condition affects flooding is somewhat controversial. Lack of a clear definition of terms and of cause and effect relationships has lead to much confusion. As pointed out by Hewlett (1982), forest cutting activities in the United States have not lead to increased flood flows in major streams. Most research has shown that forest clearcutting followed by regeneration has a short-lived effect on stormflow volumes and peaks, and this effect becomes less evident as the magnitude of the precipitation event increases. Further, the percentage of major watersheds that are clearcut at any point in time is usually small. In brief, commercial clearcutting may increase peak discharge and volumes from small watersheds for storms with moderate precipitation amounts, but has little effect on major flood events, i.e., those associated with a 50- to 100-year recurrence interval or greater.

Widespread and more permanent conversion from forest cover to croplands or pastures, particularly if accompanied by severe erosion, may have more serious implications than suggested by Hewlett (1982). For example, widespread conversion from forest cover to cultivated lands can result in: i) increased surface runoff and higher peak flows, ii) higher volumes of runoff, and iii) sedimentation of channels and, consequently, a reduction of channel capacity to convey runoff. If all three occur, the elevation (or stage) of streamflow events in channels will tend to be higher under conditions of denuded watersheds than forested watersheds. As channels fill with sediment, the frequency with which streamflow exceeds its banks will increase. Whether floods result in serious damages depends largely on development and human occupancy on the flood plain.

The question of interest for the economic analysis of flood flows is: are there truly flood control benefits that can be attributed to watershed management projects, particularly those involving re-afforestation? Being objective, we have to answer with a definite "sometimes" and "to a limited extent." As pointed out above, watershed condition can influence the magnitude of peak flows and corresponding streamflow stages associated with moderate sized storms. Large and devastating floods along major river systems, however, are principally caused by excessive rainfall and/or snowmelt; they will occur no matter what the watershed condition. Therefore, the development of technical relationships to evaluate flood damages with and without watershed management projects, requires a detailed hydrologic study of upland watersheds and their linkage to downstream flood plains. Changes in the flood frequency curve due to project activities must first be determined and then these changes equated to changes in annual flood damages.

Water Quality

Maintenance of high quality water to downstream communities is another benefit attributed to proper watershed management practices. High quality water is usually associated with forested watersheds that are well managed, have sparse human populations, few grazing animals, and minimal soil erosion. Extensive use of watersheds can lead to polluted drinking water supplies, reduced production of fisheries, reduced water-based recreational opportunities and adverse effects on aquatic ecosystems. Relating upland management activities to downstream water quality has similar, but even more difficult problems than previously discussed for erosion-sedimentation relationships.

DETERMINING VALUES FOR BENEFITS AND COSTS

Placing monetary values on watershed project inputs and outputs follows the step of quantifying technical input-output relationships discussed in the previous section. Methods for determining the value of watershed inputs and outputs are discussed by Gregersen and Contreras (1979), Brooks et al. (1982), Hufschmidt et al. (1983), and references cited therein. Here, we only intend to point out some of the important considerations and difficulties in this process.

Some watershed attributes and project benefits simply cannot be assigned acceptable monetary values. When such elements are identified, they should be discussed in qualitative terms such as social/cultural benefits or environmental/ecological benefits in project documentation. This does not imply that such benefits are not of value. All benefits should be considered in the decision-making process, but not always on the basis of conventional economic analysis.

Many of the outputs from upland watersheds (quadrant I in Figure 1) can readily be assigned monetary values (although for subsistence farming the process may not be straightforward). Outputs could include crops, forage, meat, wool, fuelwood and other wood products. Watershed projects should increase the monetary benefits of these outputs because incentives are then created for upland inhabitants, i.e., those who have to carry out the upland practices. Even though the main thrust of a project may be to protect downstream reservoirs, the success of the project in the long run may hinge on financial benefits acting as incentives for upland inhabitants.

Determining the value of goods and services in quadrants II, III and IV or Figure 1 is more difficult for the analyst than those in quadrant 1. In some cases, categorizing benefits is arbitrary; some benefits may reasonably be included in more than one quadrant and therefore, represent different types of values and may occur at different locations. For example, water quality benefits may be realized in both upland and downstream areas and can also be considered as market and non-market benefits. Drinking water has monetary benefit for both upland and downstream areas. Millions of dollars may be spent by governments and municipalities to remove impurities from water so that it may be used for drinking and other municipal and industrial purposes. The benefits of high quality water may be determined and valued in terms of treatment costs avoided, or in terms of the costs of developing alternative water supplies. On the other hand, improved drinking water may have value in terms of improved health (reduced health care costs) and welfare of people. Monetary values may be derived on the basis of lower health care costs, greater number of work hours or greater worker output. High quality water likewise may have non-market value in terms of maintenance or improvement of aquatic ecosystems and streamside (riparian) ecosystems in upland and downstream areas.

Some of the problems of "valuing" benefits of environmental projects presented by Gottinger (1983) and Hufschmidt, et al. (1983), but with special emphasis on watershed projects, are summarized below:

i) Irreversible consequences - societies may be willing to pay a premium that exceeds the expected value of such a loss to prevent that loss. From a general welfare perspective, Gottinger suggested that irreversible losses be considered losses of "future options available." Such losses may be deemed important enough to serve as a constraint to the project; for example, project objectives may explicitly state that an endangered species will be protected. The problem does not then have to be dealt with in the economic analysis, but certainly constrains the alternatives that are available. The "value" might then be examined in light of the project cost "with and without" the constraint imposed.

ii) Collective or public goods and services - non-market attributes of projects such as aesthetics or public health previously discussed.

iii) The preservation of ecosystems - environmental and multiple-use benefits associated with many natural ecosystems that are not readily evaluated with market approaches. Hufschmidt et al. (1983) devote one chapter to valuing such environmental benefits in monetary terms.

iv) Soil loss over time - the value of incremental soil losses over long periods of time represents a rather unique aspect of watershed project evaluation. Soil erosion on an upland watershed may be difficult to quantify and value. Even if quantified, the annual value of soil lost would likely be small. The accrued value over many years plus the "irreversible" nature of long term erosion suggest that the true value to society may not be considered with normal "farmland" analysis.

v) Human life - this represents a major consideration in many watershed projects, particularly in terms of the effects of better drinking water, sanitation considerations, and protection against the hazards of floods and landslides. Gottinger (1983) provides useful suggestions for approaching this sensitive subject.

EVALUATING THE PROJECT

The last two steps in the economic analysis are to calculate the measures of project worth and then test the sensitivity of such measures to changes in the assumptions used (i.e., testing for effects of uncertainty). Several important points concerning watershed projects need to be considered here.

A number of assumptions have been made up to this point in the analysis; uncertainty exists for many of the technical relationships and values calculated. A project planner can consider uncertainty by examining the consequences of using shifts in the relative values of benefits and costs and using different discount rates. For example, fuelwood prices may be relatively high compared to petroleum prices (or other alternatives) under present conditions, but what happens if petroleum prices double in the next ten years? A sensitivity analysis can be useful to examine different scenarios and anticipate changes that might occur in the future. By explicitly stating all assumptions throughout the analysis, those which appear weakest can be tested in such a manner. Further, sensitivity analysis can be used to calculate breakeven or switching values, i.e., those values of inputs and/or outputs which produce a zero net present worth.

Attributes of watershed management projects and programs that cannot be assigned monetary values should be clearly identified and separated from economic factors in the final evaluation. Social/cultural values and environmental/ecological values should be considered as separate entities. The evaluation of project alternatives is then based on all aspects and values of the project. As pointed out by Dixon in Hamilton and Snedaker (1984), the economic analysis does not give the answer, it provides information that should aid the decision maker in considering options available and should be treated as but one piece of information to be used in arriving at a decision.

CONCLUDING REMARKS

Watershed management programs and rehabilitation projects can be developed to provide monetary benefits as well as positive environmental/ecological and social/cultural impacts. Upland development, if carried out using sound watershed management principles, can offer an array of economic benefits to both upland watershed inhabitants and downstream communities. Sustained resource management may be achieved, benefiting upland rural poor and protecting high investment projects and livelihoods in downstream communities as well. Because of the multiple use nature of watershed management, the benefits and costs are many and varied and are usually widely dispersed spatially and temporally. Watershed projects require long-term commitments of resources and often take many years to generate significant, easily noticeable benefits. This makes economic analysis difficult.

The development of comprehensive and wide-ranging watershed management projects/ programs in developing countries has been severely hampered by a general lack of interest and awareness by decision-makers. In most instances, this lack of interest may be traced to the inability to convincingly demonstrate the economic, environmental and social values of such projects/programs. To some extent this inability may be attributed to sparse data and limited technical expertise and methods that are needed for comprehensive economic evaluation. A multidisciplinary team of experienced professionals can partially overcome data constraints by taking a systematic and integrated approach. Such an approach involves: clearly defining the economic input-output relationships, social benefits and environmental attributes under "with and without" watershed project conditions; calculating measures of project worth that are relevant to decision-makers; developing estimates of the impacts and nature of uncertainty and intangible benefits and costs; and presenting a clear and straightforward account of the watershed management costs, benefits and broader implications in a development context. With such information in hand, decision-makers should be better able to weigh the value of watershed management practices as integral parts of all rural development projects.

REFERENCES

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Gil, N. 1979. Watershed development with special reference to soil and water conservation. FAO Soils Bulletin 44. Rome. 257 pp.

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Gregersen, H. M. and A. H. Contreras. 1979. Economic analysis of forestry projects. FAO Forestry Paper 17. Food and Agricultural Organization of the United Nations, Rome. 193 pp.

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Hamilton, L. S. with P. N. King. 1983. Tropical forested watersheds - hydrologic and soils response to major uses or conversions. Westview Press, Boulder, Colorado. 168 pp.

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