Determination of Returns

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Last Updated on August 16, 2018 by Naeem Javid Muhammad Hassani

DETERMINATION OF RETURNS

RETURNS FROM RECREATION FACILITIES:

  • There are four methods by which return from recreational facilities can be calculated. These include:

Cost approach:

  • In this approach return from the recreational facilities or the value of recreation is considered equal to the cost of providing recreational facilities.
  • In this approach we only consider supply, and demand is not considered at all.

Opportunity cost method:

  • Opportunity cost is defined as best alternative foregone.
  • In the opportunity cost method, the recreational value is considered to the net reduction in timber and grazing value.
  • Suppose an area if we deduce timber and grazing and return from that timber and grazing was 15000/=. So the return or value of recreation facility from that particular site will be 15000 rupees.
  • This approach does not reflect the true value of facilities.

Gross expenditure method:

  • Value of recreation is the aggregate of expenditure incurred by a visit.
  • These include:
    • Traveling cost
    • Lodging and boarding cost
    • Cost of eatable commodity
    • Other costs
  • In this method, lodging and boarding do not reflect the true picture. It may overestimate recreational value facility.

Zoning method:

  • In this method, different zones are made according to the frequency of visitors coming from particular area zones.
  • Their total traveling cost is considered be equal to recreation provided.
  • The people coming from Karachi will spend more as compared to those coming from Khuzdar to Hazargangi Park.



RETURNS FROM NEW TECHNOLOGY:

  • Following are the points that should be kept in mind for determination of return from new technology:
    • A major factor is an economic growth with the introduction of new technology.
    • In USA 57% growth attributed to technological growth. It is because of the improved technique of production. New technology shifts production or production function upward which means same output can be produced with little or less input or with the same input larger output can be produced.
  • Suppose using the old technology we produce 20 units output and our input is 10 units. While using the new technology we can produce more from the same input which is known as Economic growth. As shown

Calculation of Return - Forestrypedia

  • Find out Net Discounted Return (NDR) before improving technology:

NDR = DR – DC

(Where; DR is discounted return and DC is discounted cost)

  • Similarly, find out net discount return (NDR) from old technology;
  • For example: From old technology, DR is 1000 and DC is 4000; whereas, from new technology, DR is 1200 and DC is 6200.
  • Now for old technology, the NDR is 4000 whereas for new technology the NDR is 5800/=.
  • Now we can deduct the return of old technology from new technology

Ie NDR (new) – NDR (old)

  • Thus, the returns from new technology is calculated as:

RNT = 5800 – 4000 -> 1800/-

  • So we can get 1800/= more if we use new technology.

RETURNS FROM OTHER NON-MARKET FORESTRY PRODUCTS:

  • The returns from non-market forestry products such as campgrounds, wildlife, wilderness, etc can be calculated by shadow pricing and by taking the average of willingness to pay and willingness to buy.
  • The shadow price is used to buy analysis for cost or benefit when the market price is felt to be poor or absent for estimating economic value. Technically shadow price is derived from a complex mathematical model eg linear programming model, etc.

For correction and improvements please use the comments section below.




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Naeem Javid Muhammad Hassani

NJMH is working as Deputy Conservator of Forests in Balochistan Forest & Wildlife Department (BFWD). He is the CEO of Tech Urdu (techurdu.net) Forestrypedia (forestrypedia.com), Majestic Pakistan (majesticpakistan.pk), All Pak Notifications (allpaknotifications.com), Essayspedia, etc & their YouTube Channels). He is an Environmentalist, Blogger, YouTuber, Developer & Vlogger.

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