This article throws light upon the seven social measurement techniques for determining social costs. The techniques are: 1. Surrogate Valuation 2. Survey Method 3. Restoration or Avoidance Cost 4. Appraisals 5. Court Decisions 6. Analysis 7. Outlay Cost.
Social Measurement: Technique # 1. Surrogate Valuation:
When a direct determination of a desired value is not possible, the value is estimated by a surrogate—that is, a consideration is made of ‘some item or phenomenon that is logically expected to involve approximately the same utility or sacrifice as the item’ in which we are interested.
(i) The value provided to the purchasers of labour-saving equipment. As a surrogate, we might estimate the cost of labour that the customers would have to incur if this equipment were not available,
(ii) The valuation of free (company-provided) recreational facilities. As a surrogate, we might apply the commercial rates for equivalent recreational facilities.
The limitation of this method is that we might measure the wrong thing or select a surrogate that is not closely related to the item under consideration.
Social Measurement: Technique # 2. Survey Method:
This involves obtaining or collecting information from those affected—those elements of society who make the sacrifice or who receive the utility we want to value. The approach of this method is to ask individuals directly on something worth to them. So, questions and affected individuals are needed to be carefully selected and weights assigned to a set of items for greater precision depending on the chosen criteria.
Social Measurement: Technique # 3. Restoration or Avoidance Cost:
Certain social costs may be valued by estimating the monetary outlay necessary to prevent the damage. But some effects like pain and discomfort cannot be ruled out. In such cases the restoration cost estimate must consider the estimates of additional damage. In some other cases where damages are fully repairable or preventable, the restoration or prevention cost could represent the maximum amount that can be reasonably assigned to the effect.
“Restoration cost is a maximum value, not a minimum. If the aesthetic, recreational and economic loss summed is less than restoration cost, we would use this sum. Note also that strip-mining may cause other damage, such as pollution of streams. For these effects, we might use restoration cost plus a valuation for the interim effect on streams, reflected in dead fish and lost recreational opportunities.”
Social Measurement: Technique # 4. Appraisals:
Such approaches are appropriate for valuing donated goods. Property tax/valuation is often resorted to by this method but these are criticised for being unrealistic even if done by the outside certified professionals. So, it appears, the measurement of social costs and social benefits in social accounting is not highly responsive to this appraisal approach. Thus when appraisals are used, it should be ensured that we understand the basis for them and interpret the results accordingly.
Social Measurement: Technique # 5. Court Decisions:
Court’s awards for damages incurred are good indicators of social value, as they are quantified in amount and identified with specific social costs, and reflections of social attitudes concerning utility. But here also, the social attitudes and the awards are subject to reasoning of a judge or jury and not of the injured person. So, the amounts of awards in court decisions should be used, where applicable, with considerable caution.
Social Measurement: Technique # 6. Analysis:
An economic and statistical analysis of available data produces a valid and reliable measure of value. Estimates of the increased earnings value of education have relied on present value analysis of comparative earnings rates and life expectancies. Value (cost) of discrimination has been estimated by calculating the present value of expected lost earnings for affected individuals.
Social Measurement: Technique # 7. Outlay Cost:
It is rarely considered as a sound indicator of value to the affected individuals. Cost of production incurred by a manufacturer does not necessarily reflect the utility of the product to the buyer. It may be used when valuing public programmes, such as urban renewal, setting up hospitals, etc. in the argument that the collective decisions of society reflect society’s expected utility.