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Economic tools

Economic tools (or tools of economic analysis) facilitate the preparation of a robust decision. An economic assessment basically deals with the following: benefits and costs, usually measured in monetary terms, and with efficiency and effectiveness serving as a sort of a quotient or ratio of both cost and benefits. The following main techniques to be applied in the economic assessment of climate change adaptation options can be distinguished:

  • Cost-effectiveness analysis (CEA) is a tool that compares the relative costs and outcomes (effects) of different courses of action. Cost-effectiveness analysis is distinct from cost–benefit analysis, which assigns a monetary value to the measure of effect (see below)
  • Cost-benefit analysis (CBA); A CBA has two main purposes: i) To determine if an investment/decision is sound (justification/feasibility) – verifying whether its benefits outweigh the costs, and by how much and ii) To provide a basis for comparing projects – which involves comparing the total expected cost of each option against its total expected benefits.
  • Multi-criteria analysis (MCA), is a decision-making tool developed for complex problems. The main advantage of MCA methods is their capability to integrate a diversity of criteria in a multidimensional way, and to be adapted to a large variety of contexts
  • Economic models. are simplified, often mathematical, framework designed to illustrate complex processes. A model establishes an argumentative framework for applying logic and mathematics that can be independently discussed and tested and that can be applied in various instances. Policies and arguments that rely on economic models have a clear basis for soundness, namely the validity of the supporting model.

Economic tools can help in assessing adaptation option (see step 4 of the adaptation support tool or the urban adaptation support tool).

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