**Social Cost–Benefit Analysis—Supporting Urban Planning and Governance for Enhancing Social Integration**

**Andrea Ricci, Riccardo Enei and Enpu Ma**

#### **1. Introduction**

This article addresses the following question: how can social cost–benefit analysis (SCBA) methodologies and techniques support the transition towards socially integrative cities in the EU and China? As outlined in TRANS-URBAN EU-CHINA (2018), a city is socially integrative when it meets a variety of requirements, notably including an efficient and affordable transport system that ensures smooth mobility and significant reduction of congestion episodes. An easily accessible and performant transport system is in fact a fundamental prerequisite of social integration, as it provides the basic infrastructure for citizens to reach and interact with one another, whether for work, family-related or leisure needs. Furthermore, in a socially integrative city the quality of life and urban environment are conducive to citizens increasing wellness, reducing air pollution, accidents and noise nuisance. Many of the benefits enjoyed by socially integrative cities are not directly amenable to monetary valuation, and as a result they are usually excluded from traditional CBA, leading to distortions and suboptimal—if not outright wrong—decisions. To provide a more reliable basis for policy and decision making, SCBA is designed to incorporate the monetary valuation of the widest possible range of externalities (environmental, social and economic). Externalities may be defined as those costs (and benefits) that are not (exclusively) borne (enjoyed) by those who generate them, leading to inequalities and unfair playing fields. Policy and decisions that incorporate externality valuation (i.e., SCBA) allow us to reduce inequalities and increase fairness, which are inherent features of a socially integrative city.

This article firstly provides a comparative EU/China assessment of the state-of-the-art knowledge in the field of social cost–benefit analysis (SCBA) applied to the evaluation of urbanisation activities, i.e., urban expansion and renewal, shedding light on analytical tools and instruments that serve the endeavours towards better socially integrative cities in China and EU. The state-of-the-art assessment is based on an extensive literature review from academia, national agencies for environment and spatial planning and research institutes, in addition to case studies from Chinese urban areas. It notably includes the relevant set of indicators and evaluation methods commonly adopted in the Organisation for Economic Cooperation and Development (OECD) area along with examples of case studies dealing with negative externalities in China.

Building on the above, the article then highlights possible approaches, tools and techniques that can support the transition towards socially integrative cities in China. It concludes that the application of SCBA in urban planning and management offers great potential to support urban planners and local administrators in improving urban environment and quality of life. More importantly, the contribution of the EU knowledge base, when conveyed through guidelines and analytical tools, may be of interest to Chinese stakeholders, providing quantitative evidence for policy making in the field of urban planning and governance.

#### **2. Material and Methods for the Application of SCBA in Urban Planning and Governance in Europe**

In Europe, as well as in the US and more in general in the countries of the OECD area, the application of social cost–benefit analysis (SCBA) to urbanisation activities requires the analysis of a series of interlinked and complex areas of research, ranging from the evaluation of social externalities arising from transportation activities to the impacts of urbanisation such as, e.g., land take, and addressing domains like quality of life, public health, well-being, loss of amenities and eco-system services. The analysis of these impact dimensions allows us to understand how they relate to the objective of building socially integrative cities.

For example, externalities caused by the interaction between transportation activities and the environment, human capital and other non-renewable resources represent a key factor that affects living conditions in urban areas. The application of SCBA in the assessment of the social costs of accidents, noise and air pollution emissions, congestion and greenhouse effects can provide a direct contribution to the design of sustainable transport policies, mitigating their undesired side-effects through a better knowledge of their order of magnitude, which allows to better understand their social and technical determinants and causal factors, e.g., types of pollutant vehicles.

The proposed classification has no pretence of being exhaustive; it broadly reflects the key components in which the SCBA techniques have been applied. It features five broad categories:


For each category, the next sections show the key insights that emerged from the literature review, which can orient the building of more socially integrative cities, including caveats on data availability and data interpretation.

#### *2.1. Externalities from Transport Activities*

This area of SCBA deals with a broad range of transport externalities originated by urbanisation activities, specifically those arising from the use of transport infrastructure. Transport externalities, which include air pollution, accidents, noise emissions, climate change and congestion, are in some cases examined and quantified in the form of handbooks, which present possible methods of calculation, reference values and evaluation guidelines.

These sources provide the knowledge base for setting up tools for the internalisation of external costs arising from urbanisation as well as reference values that can be transferred to different contexts when context-specific information is not available, i.e., the so-called "benefit-transfer method" (NEEDS 2009).

Milestones in this field of research are the European handbooks on the evaluation of external costs of transport (Ricardo-AEA 2014; CE Delft 2019). The handbooks show calculation methods and methodological assumptions behind the assessment of the key external costs categories: air pollution, climate change, accident, noise and congestion, providing a useful guideline for policy makers and researchers. In Europe, in 2016, the order of magnitude of the key external costs is about EUR 900 billion, corresponding roughly to about 6% of EU GDP.

In general, the main methodological approaches used to evaluate social factors that cannot be measured through market prices—e.g., effects on the environment and health, landscape, nature and spatial quality—include: (a) damage cost approaches, (b) avoidance cost approaches and (c) replacement cost approaches.

The damage cost approach evaluates the damage generated by a given externality (e.g., a gram of pollutant emitted by a vehicle) considering the entire impact pathway from the cause to the final effect on human beings and the environment. Unit damage costs, i.e., the social costs that one gram of pollutant imposes on, e.g., human health, are multiplied by the causal factors (total emissions by type of vehicle) to provide the monetary valuation of the externality. Health impacts often account for a large share of the overall social costs, and damage cost values then rely on epidemiological studies, which allow us to estimate the damage to human life in terms of reduction of life expectancy and morbidity. If damage costs are not available from literature or field studies, proxy values may be derived through contingent valuation studies (stated preference surveys) that investigate people's willingness to pay for avoiding the damage (WTP) or to accept the damage (WTA).

The avoidance cost approach, on the other hand, can be adopted to derive cost values when the full w impact pathway cannot be documented due to lack of evidence. In such cases, a proxy of the damage cost is taken to be the cost necessary to avoid the damage itself, as for example taxes paid to reach environmental targets for damages of transport CO<sup>2</sup> emissions to ecosystems.

Finally, the replacement cost approach, applied in general to transport infrastructure, estimates the external costs based on the costs necessary to replace the asset damaged by the infrastructure, e.g., land damaged by the construction of an airport.

All these methodologies directly support the formulation of urban development policies that (i) help reduce negative externalities, therefore improving the environment and living conditions in urban areas and (ii) foster the internalisation of externalities, therefore increasing fairness in accordance with the "user pays" principle. Ultimately, they thus contribute directly to the attainment of socially integrative cities, by, e.g., relieving congestion and improving accessibility to urban services and functions.

#### *2.2. Externalities from the Built Environment*

Built environment, e.g., the design of cities, their compactness and distribution of working places and amenities, exerts multi-faced impacts which may trigger externalities. Air pollution and CO<sup>2</sup> emissions, for example, are side-effects of urban sprawl and urbanisation activities (e.g., urban expansion, land take, infrastructure provision). In the USA, a meta-analysis from 100 metropolitan regions showed that compact development cities could reduce U.S. transportation CO<sup>2</sup> emissions by 7–10%. A study of 45 metro regions also showed that the least compact regions had 60% more high ozone days than most compact regions (Kramer 2013).

In some cases, built environment as resulting from urbanisation can also affect water pollution (Ando and Netusil 2013). For example, a proper design of infrastructure for stormwater management (e.g., sewage, low-impact or green infrastructure, etc.) can reduce water pollution, turning investment costs in benefits.

When it comes to externality valuation, evidence is often made available from contingent valuation surveys that investigate the willingness to pay of citizens to, e.g., live in urban areas as green areas, urban forest, parks, etc. (Latinopoulos et al. 2016).

However, in a cross-comparison perspective, the outcomes from contingent valuation surveys must be validated in the local context, since contingent valuation outcomes are in general strongly dependent on local conditions and therefore transferability in other contexts may be problematic.

The valuation of externalities arising from the built environment, e.g., urban sprawl, would ultimately lead to a more efficient use of land, e.g., raising its price and compensations to farmers. The increased values of land could limit conversion from "rural" to "urban", reducing urban sprawl and improving the quality of life in urban areas.

#### *2.3. Ecosystem Services and Biodiversity*

The literature on the assessment of impacts on human well-being from land degradation and loss of biodiversity—a side effect of urbanisation activities—has been flourishing over the past years. It is acknowledged that "this imbalance in information likely contributes to the distortion in land-use policies, giving preference to maximizing provisioning services in agricultural production and forestry, while neglecting the societal relevance of regulating and cultural services." (Förster et al. 2019).

These contributions are relevant insofar as they can provide reference values (monetary values) for social and cultural services, e.g., recreation, for which the quantification in monetary terms is complex, uncertain and generally lacking.

However, the insights from literature point to a series of caveats against the use of monetary evaluations in contexts different from the original case study, without proper specifications and adaptations.

The monetary evaluation of ecosystem services and biodiversity is indeed highly site specific, depending on cultural and socio-economic conditions related to the context. The conclusion is that the direct transferability to a different context must be carried out with caution, avoiding direct transposition and generalisations.

Considering the limitations and drawbacks in the use of monetary valuations, decision makers and urban planners can however use the insights from literature review as a starting point, integrating them with site-specific variables.

Against this backdrop, a possible approach is the adoption of multi-criteria decision analysis (MCDA), combining quantitative and qualitative information concerning biodiversity and ecosystems, and taking into account the views and values of multiple stakeholders, as "preferences, needs or demands expressed by people towards nature" (Pandeya et al. 2016).

In conclusion, an adequate monetary valuation of eco-systems entails the use of different and heterogenous techniques.

Despite the complexity of this study area, the application of SCBA methodologies and tools to the valuation of eco-systems can directly contribute to the formulation of policies and measures that contain land degradation and the loss of biodiversity, thus improving the quality of life of urban environment, one of the pillars of socially integrative cities.

#### *2.4. Economic Externalities from the Management of Public Services and Infrastructure*

Specific forms of urbanisation, i.e., urban sprawl, are known to generate economic externalities affecting the performance of urban public services and infrastructure, in the form of higher management costs not paid by all city users.

In the United States (Ford 2010) two case studies carried out for the EPA (Environmental Protection Agency) compared CSD (Conventional Suburban

Development, characterised by the typical sprawled suburban models) and TND Traditional Neighbourhood Development (Smart Growth "compact" Development Model) infrastructure costs. The results showed an average reduction of management of public services and infrastructure costs by 32–47% in more "compact" cities.

Along the same research pathway, Litman (2015), with reference to a panel of OECD countries, estimated the impacts of urban sprawl on public infrastructure management and services cost-efficiency. As for the US study, evidence suggested a more efficient public service management in less sprawled cities. For example, the adoption of more compact cities in US "would reduce annual public service costs about 10% and housing costs about 8%, saving on average \$13,000 per dwelling unit, or 7.8% of total development costs" (Burchell et al. 2002).

In general, the insights of these contributions are important, for they address the issue of how agglomeration economies can capture the benefits/costs arising from proximity between households and firms.

The methodology for the assessment of social costs entails the development of engineering approaches that compare cost variability with structural urban variables such as lengths, density, etc. The resulting estimation of the variability of infrastructure quantities and costs according to different urban forms is compiled for different urban development scenarios. The statistical analysis of correlations between the incremental costs of public services and sprawled urban development may also be used for deriving elasticities.

Urban forms affect the provision (in quality and quantity) of public services; a case in point are those services for which density represents an important factor influencing service costs and performances (e.g., waste management). SCBA applied to the analysis of the performance of public services in different urban areas then provides an indirect contribution to improving accessibility, assuring equal access to municipal services, another pillar of socially integrative cities.

#### *2.5. Quality of Life, Health and Cultural Values*

The focus is on the relationships between quality of life/well-being and urban forms. Available studies rely on statistical analysis of samples of cities at worldwide level (with a particular focus on EU cities), aiming at the identification of factors that can explain the insurgency of distress and social inequalities in large cities (Nabielek et al. 2016).

Along this line of research, contributions investigating the relationships between population health and land use policies are particularly relevant.

These studies mostly rely on modelling exercises to estimate how urban design interventions, e.g., planning a compact city, can reduce transport activities and promote healthier lifestyles. Examples of this literature are mainly related to European urban areas (Stevenson 2016).

The relevance of these contributions to the attainment of socially integrative cities is mainly methodological, i.e., providing models that correlate urbanisation forms with drivers that may influence social well-being and more in general quality of life. However, the quantification of these impacts suffers of a limited potential in terms of the generalisation of results from one context to another.

#### **3. Material and Methods for the Application of SCBA in Urban Planning and Governance in China**

In China, concerns are growing about the negative externalities that represent the side-effects of recent decades characterised by rising economic development and intensive urbanisation. "The social costs associated with the country's rapid transformation—the costs of increasing inefficiency, social division, and unsustainable resource use" are well acknowledged (World Bank, and The Development Research Center of the State Council, P. R. China 2014).

Urban areas are deemed to play a fundamental role in whatever strategy will be designed to tackle externalities. With more than 700 million people, urban areas are expected in the next two decades to accommodate 250 million additional migrants from rural areas.

Some of the externalities caused by the recent urban and social developments are emerging as relevant priorities for policymakers and urban planners, stressing the need to move forward towards socially integrative cities in China. As underlined in the New Urbanisation Plan (CCCC 2014), it is time to move from the *urbanisation of land* to the *urbanisation of people.*

#### *3.1. Tourism Growth and Overloading of Public Services*

Tourism development is taking new forms in China's aging society. As population gets older, the volume and patterns of tourism activities are changing. For example, the Hainan Province—an international tourist island with favourable climate conditions—attracts about 450,000 elderly people to spend the winter every year, which creates opportunities for local tourist-driven economic growth (Liu et al. 2018). However, such an increasing seasonal migration also exerts enormous pressure on local municipalities and public services, generating negative externalities: the city's public transport operates in seasonal overload, the household garbage disposal system is overwhelmed, medical services are in short supply, and public space is more crowded. Altogether, the welfare of local people is negatively affected, while the corresponding social costs are not (fully) borne by seasonal tourists.

#### *3.2. Outdoor Sports Development and Ecological Environment Damage*

In recent years, China's outdoor sports and recreation industry has been developing rapidly. Although it has positively contributed to the economic transformation, this largely unregulated development has also generated negative externalities. In particular, green areas are taken for granted as a common national resource, but they can be easily damaged by excessive and unregulated outdoor activities. Damages include the compaction of soil, accelerated soil erosion, vegetation destruction (trampling and breaking), invasion of alien species, habitat loss or transfer, change of animal behaviour, water damage, etc. In the development of outdoor sports and recreation industry, neither enterprises nor tourists are paying for these negative effects.

#### *3.3. Waste Incineration and Increased Environmental and Health Risks*

With the rapid growth of municipal solid waste, incineration (as an alternative to landfills) has become an effective treatment option. However, as a typical NIMBY (Not In My Backyard) effect, the operation of waste incinerators significantly increases environmental and health risks in the surrounding areas. In China, due to the lack of public participation in the planning process and the lack of foresight in the planning itself, the pre-location of NIMBY facilities soon became part of the urban expansion area, which brought serious negative impacts to the surrounding residents. These serious effects include the generation of toxic gases such as dioxin, harm to the health of residents, property devaluation, and the generation of fear and disgust, etc. Though incinerators result in a city-wide benefit, social costs are borne primarily by those who live in their proximity.

#### *3.4. Tra*ffi*c Congestion and Pollution*

The biggest urban areas (e.g., Beijing) have been facing significant traffic problems due to the rapid growth of private cars and the comparatively low density of the city's road network. However, despite the overwhelming evidence, only a very limited number of case studies that measure the key externalities are available, e.g., traffic accident, noise pollution, air pollution, greenhouse effect and traffic congestion. In an attempt to fill such knowledge gaps, selected contributions (Zong and Li 2014) quantified negative road externalities according to the calculation method of Di Jing and Wu Wei, by using relevant parameters from the European knowledge base (the German Institute of Transport Policy and Swiss INFRAS Research Institute). Among other striking results, it is found that the externality value of road traffic in Beijing is equivalent to 4.17% of its GDP. The Chinese approaches to the evaluation of transport externalities have shown that there is a potential room for cross-fertilisation with EU methodologies, moving together towards socially integrative cities.

#### *3.5. The Chinese Approach to the Application of SCBA*

The prevailing Chinese approach in dealing with externalities, and, consequently, with SCBA, is to focus on the design of appropriate governance strategies. Externalities arising from rapid urbanisation are deemed to be the result of shortcomings in planning and, accordingly, the need of better governance is advocated as the first priority.

Concerning externalities that affect quality of life and environmental protection in urban areas, with the exception of limited examples in the transport sector (see above, Zong and Li 2014), the Chinese methodology of evaluation is mainly characterised by a pronounced focus on policy prescriptions rather than quantification of impacts, such as the provision of handbooks and guidelines.

In other fields of application, for example (Jin 2008), which deals with land management issues, describes the mechanisms of negative externalities from the perspective of property rights, and supports a mixed property rights mechanism that facilitates the internalisation of external costs.

With reference to the externalities arising from the management of public services and infrastructure provision as a consequence of different patterns of urbanisation, e.g., compact vs. sprawled cities, the focus in China is on overcoming the side-effects of massive rural–urban migration, encouraging migration to small and medium cities.

The same approach is found with reference to the externalities affecting social well-being and quality of life. They are generally addressed in the light of the negative impacts from urbanisation processes involving migrant workers. For example, Houkai (2011) points at negative externalities of China's urbanisation such as the idle farmland in development zones, the reduction of social equity, urban poverty, and the rights and interests of migrant workers. Other contributions (Mingfei 2012) focus on the negative externalities of the current policy of village relocation, for it leads to the increase of construction costs, the extension of the construction period, the loss of rural farmers' land and jobs, and the shortage of affordable housing.

In such a context, a cooperative adjustment of land is proposed as an innovative way forward. Such policy-oriented methods are usually accompanied by proposals of ways and means to introduce the necessary changes in the approaches established during the past urbanisation processes, suggesting strategic priorities and new agendas for policymakers and planners.

#### **4. Results: Possible Tools and Techniques Supporting the Transition to Socially Integrative Cities in China**

Based on the review presented in Sections 2 and 3, Table 1 provides a comparative summary of methods and tools commonly adopted in OECD countries and in China to deal with SCBA topics applied to urbanisation activities.


**Table 1.** Summary of social cost–benefit analysis (SCBA) methods and tools in Europe and China. Source: Authors' own elaboration.

From a comparative perspective, looking at the potential of cross-fertilisation of SCBA in Europe and China, the promising contributions to the application of SCBA in urban planning are likely to come—first and foremost—from the methodologies developed in OECD countries, whose adoption entails the set-up of calculation tools and guidelines. In such cases, methodologies, indicators and quantifiable impacts are amenable to be used from one context to another, e.g., from European to Chinese cities, although with the necessary caveats. In particular, forthcoming research should take stock of the "benefit transfer" techniques, e.g., transfer units (monetary values) and procedures, as a potentially powerful tool for transferring knowledge. Benefit transfer techniques are of the essence when considering the wide range of variation in unitary external costs. For example, in transportation, the unitary external costs (excluding congestion) from the use of cars in EU range between EUR cent /pkm 12.8 in Austria and EUR cent/pkm 5.4 in Slovenia (CE Delft 2019).

### **5. Discussion: SCBA in Perspective**

In a decreasing order of potential contribution to the generalisation and mutual understanding of results between EU and China, three different approaches can be identified:


### **6. Conclusions**

As previously mentioned, the 12 main features of a socially integrative city are identified and discussed in (TRANS-URBAN EU-CHINA 2018). Accordingly, answering the initial question asked: "how can social cost–benefit analysis (SCBA) techniques and methodologies support the transition towards socially integrative cities in EU and China?" is best done by gauging the extent to which SCBA and its different approaches can contribute to the achievement of, or progress towards, each of these 12 features.

Table 2, therefore, summarises these contributions and provides a rough indication of their actual relevance to social integration, distinguishing between (i) high relevance, (ii) medium relevance, and (iii) limited or indirect relevance.


**Table 2.** Characteristics of a socially integrative city and potential contributions from SCBA guidelines and tools. Source: own elaboration


#### **Table 2.** *Cont.*

**Author Contributions:** Conceptualization and Introduction, R.A.R.; Material and Methods for the Application of SCBA in Urban Planning and Governance in Europe, R.E.; Material and Methods for the Application of SCBA in Urban Planning and Governance in China, E.M.

**Conflicts of Interest:** The authors declare no conflict of interest.

#### **References**

Ando, Amy Whritenour, and Noelwah R. Netusil. 2013. A Tale of Many Cities: Using Low-Impact Development to Reduce Urban Water Pollution. *Choices* 28: 1–6.


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