Share Your Tool
Individuals, corporations, and governments make important decisions every day. To make the best decisions, they need to accurately weigh the relative benefits and costs of various alternatives. For example, the decision to purchase a home involves a comparison of the positive and negative aspects of each potential site in order to choose the one that meets a household's needs at an affordable price.
In general, the term "full cost accounting" refers to the process of collecting and presenting information to decision makers on the tradeoffs inherent in each proposed alternative. The process can be especially important for government agencies that represent a variety of interests when deciding how to allocate public funds and/or natural resources.
The fundamental economic concept in FCA is opportunity cost. This definition of cost refers to the value of opportunities that are given up when a choice is made to use a limited resource for a specific purpose. Opportunity costs are typically measured in terms of direct or indirect changes in market values, but can also be measured as changes in nonmarket values (i.e., not reflected in market transactions). It can also be described according to legal responsibilities assigned for paying the costs. Costs for which each resource user is legally responsible for paying are private costs. The material used in filling the wetland is a private cost because payment of a fair market price is required to use the material. Opportunity costs that are not the private responsibility of the resource user are deemed external costs or (negative) externalities. Unfortunately, it is a tool which is not used widely in Asia-Pacific yet.
References:
David W. Carter, Larry Perruso, and Donna J. Lee. Full Cost Accounting in Environmental Decision-Making. University of Florida (IFAS Extension): http://edis.ifas.ufl.edu/pdffiles/FE/FE31000.pdf
For further study: Case studies from US EPA reporting
Full Cost Accounting in Action: Case Studies of Six Solid Waste Management Agencies: http://www.epa.gov/wastes/conserve/tools/fca/docs/fca-case.pdf