1

CHAPTER TWO
ECONOMIC TOOLS FOR DECISION MAKING IN
NATURAL RESOURCE MANAGEMENT
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• If you were asked to evaluate the desirability of

some proposed action, you would probably begin
by attempting to identify both the gains and the
losses from that action.
BENEFIT– • If the gains exceed the losses, then it seems
COST natural to support the action.
ANALYSIS • That simple framework provides the starting point
for the normative approach to evaluating policy
choices in economics.
 3

• Economists suggest that actions have both benefits and

costs.
• If the benefits exceed the costs, then the action is
desirable.
• On the other hand, if the costs exceed the benefits, then
the action is not desirable
BENEFIT– • We can formalize this in the following way.
COST • Let B be the benefits from a proposed action and C be
the costs.
ANALYSIS • Our decision rule would then be If B > C, support the
action.
Otherwise, oppose the action.
As long as B and C are positive, a mathematically
equivalent formulation would be If B/C > 1, support the
action.
Otherwise, oppose the action.
 4

Cost - benefit analysis also identifies and

places dollar values on the costs of
programs, but it goes further, weighing
those costs against the dollar value of
program benefits.
BENEFIT– Typically, analysts subtract costs from
COST benefits to obtain the net benefits of the
ANALYSIS policy (if the net benefits are negative, they
are referred to as net costs):
 Net Benefits = Total Benefits−Total Cost.

In economics the system of measurement of

B&C is anthropocentric, which simply means
human centered.
 5

• All benefits and costs are valued in

terms of their effects (broadly
defined) on humanity.
• In benefit–cost analysis, benefits are
BENEFIT– measured simply as the relevant area

COST under the demand curve since the

demand curve reflects consumers’
ANALYSIS willingness to pay.
• Total costs are measured by the
relevant area under the marginal cost
curve.
 6

• It is important to stress that environmental services

have costs even though they are produced without
any human input.
• All costs should be measured as opportunity costs.
• The opportunity cost for using resources in a new or
an alternative way is the net benefit lost when specific
BENEFIT– environmental services are foregone in the conversion

COST to the new use.

• The notion that it is costless to convert a forest to a
ANALYSIS new use is obviously wrong if valuable ecological or
human services are lost in the process.
• Suppose a particular stretch of river can be used
either for white-water canoeing or to generate electric
power.
 7

• One of the main threats to tropical forests is the

conversion of forested land to some other use (agriculture,
residences, and so on).
• Whether economic incentives favor conversion of the land
Valuing depends upon the magnitude of the value that would be
Ecological lost through conversion.
Services from • How large is that value? Is it large enough to support
Preserved preservation?
Tropical Forests
• A group of ecologists investigated this question for a
specific set of tropical forest fragments in Costa Rica.
 8

 They chose to value one specific ecological service

provided by the local forest: wild bees using the
nearby tropical forest as a habitat provided
pollination services to aid coffee production.
Valuing  While this coffee (C. Arabica) can self-pollinate,
Ecological pollination from wild bees has been shown to
Services from increase coffee productivity from 15 to 50 percent.
Preserved
Tropical Forests  These estimates only partially capture the value of
this forest because they consider only a single farm
and a single type of ecological service.
 9

• (This forest also provides carbon storage and water

purification services, for example, and these were
not included in the calculation.)
• Despite their partial nature, however, these
calculations already begin to demonstrate the
Valuing
economic value of preserving the forest, even when
Ecological considering only a limited number of specific
Services from instrumental values.
Preserved
• Since net benefit is defined as the excess of
Tropical Forests
benefits over costs, it follows that net benefit is
equal to that portion of the area under the demand
curve that lies above the supply curve.
 10

• The analysis we have covered so far is very useful for

thinking about actions where time is not an important
factor.
• Yet many of the decisions made now have consequences
that persist well into the future, time is a factor.
Comparing • Exhaustible energy resources, once used, are gone.
Benefits • Biological renewable resources (such as fisheries or forests) can be
overharvested, leaving smaller and possibly weaker populations for future

and Costs generations.

• Persistent pollutants can accumulate over time.

across Time • In order to incorporate timing, the decision rule must

provide a way to compare net benefits received in
different time periods.
• The concept that allows this comparison is called
present value.
 11

• Present value explicitly incorporates the time value of money.

• A dollar today invested at 10 percent interest yields $1.10 a

year from now (the return of the $1 principal plus $0.10
interest).

Comparing • We can find the present value of any amount of money (X)

Benefits received one year from now by computing X/(1 + r), where r is
the appropriate interest rate (10 percent in our above
and Costs example).

across Time • The present value of a one-time net benefit received n years
from now is
•

• The present value of a stream of net benefits {B0, . . . ,Bn}

received over a period of n years is computed as
•
 12

• The process of calculating the present

value is called discounting, and the rate
r is referred to as the discount rate.
Comparing • Suppose you were investigating an
Benefits allocation that would yield the following
and Costs pattern of net benefits on the last day of
across Time each of the next five years: $3,000,
$5,000, $6,000, $10,000, and $12,000.
 13

• If you use an interest rate of 6 percent (r =

0.06) and the above formula, you will discover
that this stream has a present value of
$29,205.92.

Comparing • It is now possible to show how this analysis can

Benefits be used to evaluate actions.

• Calculate the present value of net benefits from
and Costs the action.
across Time • If the present value is greater than zero, the
action should be supported, otherwise it should
not
 14

• What can be done to guide policy when the requisite

valuation for benefit–cost analysis is either unavailable or
not sufficiently reliable?
• Cost-effectiveness analysis is often employed when the
benefits of an investment or policy either cannot be
measured in monetary units or it is impractical to measure
Cost- benefits, e.g., alternatives may all have the same

Effectivene monetary benefits.

• In addition, policies will at times mandate the
ss Analysis achievement of an environmental goal, so that the cost
side of the ledger becomes a great deal more relevant
than the potential benefits.
• In these instances, the focus of the economic analysis is
entirely on costs
 15

• Cost - effectiveness analysis is a technique

that relates the costs of a program to its key
outcomes or benefit
• Cost - effectiveness analysis seeks to identify
and place dollars on the costs of a program.
Cost- • It then relates these costs to specific
Effectivene measures of program effectiveness.
ss Analysis • A CEA calculates cost-effectiveness ratios of
different alternative policy options and then
compares the resulting ratios so that the
most efficient option is chosen.
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 In a sense, a CEA ensures technical

efficiency in the process of achieving a
desired outcome.

Cost-  The pure cost-effectiveness of a policy

Effectivene option is calculated by dividing the total
costs of the option by the non-monetary
ss Analysis quantitative measure of the benefits it
generates.
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 The ratio is an estimate of the amount of costs

incurred to achieve a unit of the outcome from a
policy option
 For example, in a health and safety
scenario, what is the amount of costs

Cost- expressed in Canadian dollars incurred

in order to save a person’s life?
Effectivene  Presumably, there are alternative ways

ss Analysis to save a life and what are their costs?

 The analysis does not evaluate benefits
in monetized terms but is an attempt
to find the least-cost option to achieve
a desired quantitative outcome.
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• The formula for CER can be given by

Cost- • Units of effectiveness are simply a measure of any

quantifiable outcome central to the program’s
Effectivene objectives.

ss Analysis • For example, a dropout prevention program in a high school

would likely consider the number of dropouts prevented to
be the most important outcome.
• For a policy mandating air bags in cars, the number of lives
saved would be an obvious unit of effectiveness.
 19

• Using the formula just given and dividing costs by

the number of lives saved, you could calculate a
cost -effectiveness ratio, interpreted as “dollars per
life saved.”
• You could then compare this CE ratio to the CE
Cost- ratios of other transportation safety policies to
determine which policy costs less per unit of
Effectivene outcome (in this case lives saved).
ss Analysis • Although it is typical to focus on one primary
outcome in CEA, an analyst could compute cost -
effectiveness ratios for other outcomes of interest
as well
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• In cost-effectiveness analysis, the efficiency rule is either to

minimize costs for a given output level or to maximize some
measure of output for a given cost.

• For example, we might wish to use cost-

effectiveness analysis to minimize the costs
of meeting a given water quality goal,
Cost- expressed in units of dissolved oxygen, or
Effectivene alternately to maximize improvements in
ss Analysis dissolved oxygen given our budgetary limits .

• Either way, the cost-side emphasis implies a focus on technological

efficiency.
• Avoided altogether is the important prior question of how to select
the appropriate water quality goal or budgetary size.
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• One best example of cost effectiveness

analysis is pollution control.
• What level of pollution should be
established as the maximum acceptable
Cost- level?

Effectivene • In many countries, studies of the effects

ss Analysis of a particular pollutant on human health
have been used as the basis for
establishing that pollutant’s maximum
acceptable concentration.
 22

• Researchers attempt to find a threshold level

below which no damage seems to occur.
• That threshold is then further lowered to provide a

Cost- margin of safety and that becomes the pollution

target
Effectivene • In Cost-Effectiveness Equimarginal Principle: The
ss Analysis least-cost means of achieving an environmental
target will have been achieved when the marginal
costs of all possible means of achievement are
equal
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• Suppose we want to achieve a specific emissions

reduction across a region, and several possible
techniques exist for reducing emissions.
• How much of the control responsibility should each
Cost- technique bear?

Effectivene • The cost-effectiveness Equimarginal principle suggests

that the techniques should be used such that the desired
ss Analysis reduction is achieved and the cost of achieving the last
unit of emissions reduction (in other words, the marginal
control cost) should be the same for all sources.
 24

 To demonstrate why this principle is valid,

suppose that we have an allocation of control
responsibility where marginal control costs
are much higher for one set of techniques
Cost- than for another.

Effectivene  This cannot be the least-cost allocation since

ss Analysis we could lower cost while retaining the same

amount of emissions reduction.
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 Costs could be lowered by allocating more control to

the lower marginal cost sources and less to the high
marginal cost sources.
 Since it is possible to find a way to lower cost, then
clearly the initial allocation could not have
Cost- minimized cost.

Effectivene  Once marginal costs are equalized, it becomes

possible to find any lower-cost way of achieving the
ss Analysis same degree of emissions reduction; therefore, that
allocation must be the allocation that minimizes
costs.
 26

 In our pollution control example, cost-

effectiveness can be used to find the
least-cost means of meeting a
particular standard and its associated
Cost- cost.
Effectivene  Using this cost as a benchmark case,
ss Analysis we can estimate how much costs
could be expected to increase.
 27

• Shortcomings of cost-effectiveness approach are

• It is a poor measure of the consumers’ willingness
to pay principle because there is no monetary
value placed on the benefits.
• Furthermore, in the calculation of cost-
Cost- effectiveness, the numerator does not take into
Effectivene account the scale of alternative options.

ss Analysis • Nevertheless, the cost-effectiveness ratio is still a

very useful criterion for selection of alternative
regulatory options when the benefits cannot be
monetized.
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• What can be done when the information needed to

perform a benefit–cost analysis or a cost-
effectiveness analysis is not available?

ECONOMIC • The analytical technique designed to deal with this

IMPACT problem is called impact analysis.

ANALYSIS • An impact analysis, regardless of whether it focuses

on economic impact or environmental impact or
both, attempts to quantify the consequences of
various actions.
 29

 Like CB it does not makes attempt to convert all

these consequences into a one-dimensional
measure, such as dollars, to ensure comparability.
 And also like CEA it does not necessarily attempt to
ECONOMIC optimize.
IMPACT  Impact analysis places a large amount of relatively
ANALYSIS undigested information at the disposal of the policy-
maker.
 It is up to the policymaker to assess the importance
of the various consequences and act accordingly.
 30

• As the case studies in this volume demonstrate,

many important natural resource allocation
decisions are made by local governments or at
ECONOMIC least heavily involve local interests.
IMPACT • For example, a city or regional planning agency
ANALYSIS would likely want its analysis to focus on costs and
benefits accruing to people living in those areas,
rather than costs and benefits in general.
 31

• Economic impact analysis estimates how a change in

policy or market conditions affects income, output,
employment or expenditure in a region or economic
sector.
ECONOMIC • Impact analysis differs from cost-benefit analysis in that

IMPACT it does not account for social benefits or values; that is,
it does not account for opportunity costs
ANALYSIS • For instance, an impact analysis of recreational fishing
does not analyze what individuals would do with their
time and money if, as a result of a fishery closure or
moratorium, they couldn’t go fishing.
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• When a local economy experiences an increase in

spending residents of that locality benefit by more
than just the dollar amount of the goods and
ECONOMIC services that are purchased,
IMPACT  Businesses serving those who spend the money
ANALYSIS must increase the amount of labor, goods and
services they buy in order to produce the additional
goods and services.
 33

Thus, the businesses that have experienced

increased spending will have a ripple effect on the
other businesses that supply them; in turn, those
businesses affect others down through the supply

ECONOMIC chain.
Economists call the initial spending activity the
IMPACT “direct effect,” and subsequent ripples are
ANALYSIS “indirect” and “induced” effects.
The indirect and induced effects are also called
multiplier impacts.
 34

• In economic impact analysis, local growth results

through increased expenditures from outside the
region, which leads to increased demand for local
goods and services.
• Purchases of local goods by outsiders bring outside
ECONOMIC dollars into the local region.

IMPACT • Thus, impacts in an economy attributable to

recreation, for instance, are traceable to visitor
ANALYSIS spending for locally sold goods and services while
on recreational trips.
• In essence, food, lodging and similar items
purchased during a recreation trip are “exported”
to people living outside the local economy.
 35

• Direct Effects. The amount of the increased purchase of

inputs used to manufacture or produce the final goods
and services purchased by residents.
• Indirect Effects. The value of the inputs used by firms
that are called, upon to produce additional goods and
ECONOMIC services for those firms first impacted directly by
recreational spending.
IMPACT • Induced Effects Result from the direct and indirect
TECHNOLO effects of recreation spending.

GY
• Induced effects are related to persons and businesses that
receive added income as a result of local spending by
employees and managers of the firms and plants that are
impacted by the direct and indirect effects of recreational
spending.
• This added income results in increased demand for goods and
services and, in turn, increased production and sales of inputs.
 36

• Total Effect: - The sum of direct, indirect and induced

effects.
• Total Output: - The value of all goods and services
produced by the industries in a sector.
ECONOMIC • Value Added; Total output minus the value of inputs to
IMPACT a sectors’ production.
• As such, value added is the net benefit to income.
TECHNOLO • Total Income; The sum of property income and
GY employee compensation
• Employment; The number of full-time job equivalents
or the sum of full-time and part-time employees.
 37

• Socio-economic impact assessment (SEIA) is a

useful tool to help understand the potential range
of impacts of a proposed change, and the likely
responses of those impacted if the change occurs.
ECONOMIC • It can be used to assess impacts of a wide range of
IMPACT types of change, from a proposal to build a new
freeway to a proposal to change access to a natural
TECHNOLO resource such as a forest or the ocean.
GY • This understanding can help design impact
mitigation strategies to minimize negative and
maximize positive impacts of any change.
 38

 It is important to determine not only the full

range of impacts, such as changes to levels
of income and employment, access to
services, quality of life, but also the
ECONOMIC implications of each particular change.
IMPACT  Impacts of a certain proposal or policy are
TECHNOLO also distinct from, though influenced by,
GY other activities which may be occurring.
 It is important therefore to identify the key
source of impact and to separately identify
impacts arising from other sources.
 39

It is the process by which natural

resource trustees evaluate injury or harm
done to natural resources as a result of
hazardous substances discharged to the
NATURAL environ­ment.
RESOURCE Its aim is to estimate the value of
DAMAGE damages to an injured resource
ASSESSMENT Resources are said to be injured when
hazard­ous substances cause changes to
“the chemical or physical quality or the
viability to a natural resource
 40

 Natural resources can be injured when

hazardous materials, such as oil and
toxic chemicals, are released into the
environment.
NATURAL  It can be difficult to assess the value of
RESOURCE those natural resource damages (NRD)
DAMAGE because the lost benefits are often not
ASSESSMENT the subject of market trades, and thus
do not have prices that analysts can use
to evaluate the loss to society due to
degradation or destruction.
 41

 Economists have built up an extremely

large body of work which develops
sophisticated valuation methods, such
as contingent valuation, averting
NATURAL behavior analysis, hedonic analysis, and
RESOURCE travel cost analysis.
DAMAGE  While these methods may be used to
ASSESSMENT generate reasonably accurate case
specific estimates of NRDs, they have
drawbacks that make them difficult to
use.
 42

 They are time consuming, since a

study must be conducted to evaluate
the exact magnitude and nature of
NATURAL the injury to natural resources, and
RESOURCE then additional analysis must be
DAMAGE carried out in order to ascertain the
ASSESSMENT value of the injured resources to
society
 43

Valuation Methods: can be

separated into two broad
categories:

NATURAL Stated preference and

RESOURCE
DAMAGE Revealed preference methods.
ASSESSMENT
Each of these broad categories of
methods includes both indirect
and direct techniques.
 44

Stated Preference Methods

 Stated preference methods use

survey techniques to elicit willingness
NATURAL to pay for a marginal improvement or
RESOURCE for avoiding a marginal loss.
DAMAGE
ASSESSMENT  The most direct approach, called
contingent valuation, provides a
means of deriving values that cannot
be obtained in more traditional ways.
 45

 The simplest version of this approach

merely asks respondents what value
they would place on an environmental
change (such as the loss of a wetlands
NATURAL or increased exposure to pollution) or
RESOURCE on preserving the resource in its
DAMAGE current state.
ASSESSMENT  Alternative versions ask a “yes” or “no”
question such as whether or not the
respondent would pay $X to prevent
the change or preserve the species
 46

 The answers reveal either an upper bound

(in the case of a “no” answer) or a lower
bound (in the case of a “yes” answer).
 This survey approach creates a hypothetical
market and asks respondents to consider a
NATURAL
willingness-to-pay question contingent on
RESOURCE
the existence of this market.
DAMAGE
ASSESSMENT  The major concern with the use of the
contingent valuation method has been the
potential for survey respondents to give
biased answers.
 47

 Five types of potential bias have

been the focus of a large amount of
research:
a. Strategic bias,
NATURAL b. Information bias,
RESOURCE c. Starting-point bias,
DAMAGE
ASSESSMENT d. Hypothetical bias, and
e. The observed discrepancy
between willingness to pay (WTP)
and willingness to accept (WTA).
 48

 The main advantage of contingent

valuation is its flexibility, since unlike
other methods it does not rely on
observable economic behavior to
NATURAL deduce values.
RESOURCE  CV is also the only method that can
DAMAGE estimate existence values, namely
ASSESSMENT the values individuals place on simply
knowing the natural resource exists in
an improved state.
  Revealed Preference Methods 49

 Revealed preference methods are

“observable” because they involve actual
behavior and “indirect” because they
infer a value rather than estimate it
NATURAL directly.
RESOURCE  Suppose, for example, a particular sport
DAMAGE fishery is being threatened by pollution,
ASSESSMENT and one of the damages caused by that
pollution is a reduction in sport fishing.
 How is this loss to be valued when access
to the fishery is free?
 50

Travel Cost Method

 Travel cost methods have been used
extensively to estimate the value of
recreation.
NATURAL  Using these methods, researchers can
RESOURCE calculate the economic costs necessary
DAMAGE to reach a recreational site as an
ASSESSMENT estimate of user willingness to pay for
recreation.
 That economic cost may include entry
fees, monetary costs of travel, and
foregone earnings
 51

 In effect, these travel expenses

represent the “price” of the
recreational experience and are an
indirect but observable indicator of
NATURAL user value.
RESOURCE  By comparing the number of visits
DAMAGE that individuals make at different
ASSESSMENT
levels of travel cost, economists are
able to estimate economic value for
site attributes, such as improved
environmental quality.
 52

 Travel costs are linked to consumption in order

to estimate demand for recreational trips.
 Freeman (2003) identifies two variants of this
approach.
 In the first, analysts examine the number of
NATURAL trips visitors make to a site.
RESOURCE  In the second, the analysts examine
DAMAGE whether people decide to visit a site and, if
ASSESSMENT so, which site.
 This second variant includes using a
special class of models, known as
random utility models, to value quality
changes.
 53

 The first variant allows the construction

of a travel cost demand function.
 The value of the flow of services from
that site is the area under the
NATURAL estimated demand curve for those
RESOURCE services or for access to the site,
DAMAGE aggregated over all who visit the site.
ASSESSMENT  The second variant allows the analysis of
how specific site characteristics influence
choice and, therefore, indirectly how
valuable those characteristics are.
 54

 Knowledge of how the value of each site varies with

respect to its characteristics allows the analyst to value
how degradation of those characteristics (e.g., from
pollution) would lower the value of the site.
 In the random utility model, a person choosing a
NATURAL particular site takes into consideration site
RESOURCE characteristics and its price (trip cost).

DAMAGE  Characteristics affecting the site choice include ease of

ASSESSMENT access and environmental quality.

 Each site results in a unique level of utility and a person
is assumed to choose the site giving the highest level of
utility to that person.
 55

 One interesting paradox that arises with the travel-cost

model is that those who live closest to the site and may
actually visit frequently will have low travel costs.
 These users will appear to have a lower value for that site
NATURAL even if their (unmeasured) willingness to pay for the
RESOURCE experience is very high.

DAMAGE  Another challenge in this model is how to incorporate the

ASSESSMENT opportunity cost of time.

 Usually, this is represented by wages, but that approach
is not universally accepted.
 56

 The chief advantage of travel cost

approaches is their reliance on observable
market behavior.
 Individuals routinely spend their money and
NATURAL time to attend recreational sites, and easily
RESOURCE obtained visitation records offer much of the
DAMAGE data needed to deduce economic values.
ASSESSMENT  As for disadvantages, travel cost models
cannot be used to estimate option or passive
use values, which in some cases may be
important.
 57

 In addition, the estimates of travel

cost models are sometimes sensitive
to fairly arbitrary choices of the
functional form of the estimating
NATURAL equation and to the treatment of
RESOURCE time.
DAMAGE  Finally, while travel cost models can
ASSESSMENT estimate the number of trips made to
a given site, they are not designed to
evaluate the choices recreationists
make between alternative sites.
 58

Hedonic Property Value and Hedonic Wage

Methods

 With hedonic pricing, researchers compare

property prices (or wage rates) to assess

NATURAL values for attributes such as air quality or

noise (or with wages, the value of
RESOURCE workplace safety).
DAMAGE
ASSESSMENT  For example, if two houses are otherwise
similar, except that the first is located in
the vicinity of a hazardous waste site and
the second is several miles away, the lower
value of the first house will likely reflect the
disamenity of the waste site
 59

 The hedonic method can be used to estimate

these differences in value when a non-market
amenity or disamenity is implicit in the price
of a marketed good.
NATURAL  Thus, property prices may serve as indirect
RESOURCE indicators of user value
DAMAGE  The hedonic method identifies how much of a
ASSESSMENT property value differential between
alternatives is due to a particular
environmental quality difference and how
much people are willing to pay for that
environmental improvement.
 60

 The estimated values include both active

use and option use values.
 Recall that active use values include those
associated with aesthetic appreciation as
NATURAL well as recreational and commercial
RESOURCE navigation, and may be either direct (e.g.,
DAMAGE material inputs for production, such as fish
ASSESSMENT stocks for commercial fishing) or indirect
(e.g., water quality compatible with
recreational fishing).
 61

 Option values are those expressed for

preserving a resource use alternative.
 In other words, no use is currently made of
the resource, but the individual wishes to
NATURAL preserve the option of using it in the future.
RESOURCE  Hedonic wage approaches are similar
DAMAGE except that they attempt to isolate the
ASSESSMENT environmental risk component of wages,
which serves to isolate the amount of
compensation workers require in order to
work in risky occupations.
 62

 It is well known that workers in high-risk

occupations demand higher wages in
order to be induced to undertake the risks.
 When the risk is environmental (such as
NATURAL exposure to a toxic substance) the results
RESOURCE of the multiple regression analysis can be
DAMAGE used to construct a willingness to pay to
ASSESSMENT avoid this kind of environmental risk.
 Additionally, the compensating wage
differential can be used to calculate the
value of a statistical life.
 63

Averting Expenditures
 Averting expenditures are those designed to reduce the
damage caused by pollution by taking some kind of
averting or defensive action.
 An example would be to install indoor air purifiers in
NATURAL response to an influx of polluted air or to rely on bottled
RESOURCE water as a response to the pollution of local drinking
water supplies.
DAMAGE
 Since people would not normally spend more to
ASSESSMENT
prevent a problem than would be caused by the
problem itself, averting expenditures can provide a
lower-bound estimate of the damage caused by
pollution
 64

Example Valuing Damage from Groundwater

Contamination Using Averting Expenditures
How many resources should be allocated to the
prevention of groundwater contamination?
NATURAL In part, that depends on how serious a risk is posed
RESOURCE by the contamination.
DAMAGE How much damage would be caused? One way to
ASSESSMENT obtain a lower bound estimate on the damage
caused is to discover how much people are willing to
spend to defend themselves against the threat.