Cultural Heritage Cultural Heritage and Sustainable Developmentand Sustainable Development

E-Learning ProgramE-Learning ProgramSecond VideoconferenceSecond Videoconference

Prof. P.L. ScandizzoUniversity of Rome “Tor Vergata”

2

Heritage and ProjectsHeritage and Projects

Investments in cultural heritage are intended to promote sustainable and endogenous growth using the key natural and cultural resources of local communities.

Given the peculiar nature of such resources and the oftenhidden dimensions of projects involving cultural heritage, investments analysis,planning and project design are not a smooth exercise.

Programs call for integration among public entities as well as for collaboration with the private sector.

3

Heritage and Options A New Way of Thinking – opportunities and

flexibility How to evaluate when to start a project When to stop a project Valuing flexibility Valuing the option for expansion Valuing learning by doing

4

Policy and projectsPolicy and projects

How Should Decisions Be Made?

• Two Kinds of Decisions– Policy Decisions

• Whether to privatize management ofheritage goods, subsidize urbandevelopment, create new institutions.

– Investment Decisions• Whether to restore a monument, to develop

a cultural site, invest in place marketing.

5

Decision Making and HeritageDecision Making and Heritage

Other More Analytic Approachesto Decision-making

• Cost-Effectiveness– Assume benefits are nearly equal and

choose least cost method or investment

• Cost Benefit Evaluation– Calculate costs and benefits over

time, discount to present andcompare Net Present Values (NPVs)

6

How should culture affect people?How should culture affect people?

What About the People?

• Perhaps the most vocal and powerfulwill win their ways

• What about the powerless?• Do the people always make the best

decisions?• How to choose between different

people’s wishes?

7

How should heritage goods be evaluated?How should heritage goods be evaluated?

What about results based?

• How do we choose between differentresults?

• What are important results and whatare not so important?

• What about the costs, don’t we careabout costs?

8

What are the main challenges to evaluate What are the main challenges to evaluate heritage goods as instruments for heritage goods as instruments for economic development?economic development?

What About Cost Effectiveness?

• How do we choose between differentprojects with different benefits?– Restoring versus development– infrastructure versus new structures– value creation versus conservation

• How do we take into accountuncertainty in costs and benefits?

9

What is extended cost benefit analysis?What is extended cost benefit analysis?

Advantages

• Builds on traditional cost-benefitanalysis

• Deals with and values uncertainty• Allows ongoing decision-making• Counters the high discount rate• Can take into account stakeholders,

intangibles and contingent values

10

Extended Cost Benefit Analysis

Disadvantages

• Requires data on variability ofparameters

• Can be a black box so not easilyunderstood

• Analysis is more complex– Needs computer programs to evaluate– But can be built using excel spreadsheets

11

Real Option Analysis

What is an option?

• Is the right but not the obligation to take anaction in the future

• Takes on value because of uncertainty andirreversibility

If we knew now what the future held wecould take the decision today

If we could go back on our decisions andactions then options would not have value

12

Option alternatives

Kinds of options

• Financial Options – embedded in acontract e.g. calls, puts, etc.

2. Real Options – embedded in aninvestment decision, cash flow andseries of options

13

Option Types

Two Types of Options

• European Option– Can be exercised only at the expiration

date

• American Option– Can be exercised anytime up to the

expiration date

Which is more valuable?

14

Sustainable Development As a Sequence of CreativeDestruction of Options

C rea ted O p tito n 3 C re a te d O p tio n 2

L ia b ility O p tion

C re ate d O p tio n 3

In it ia l O p tion'W a itin g to b e E xe rcise d '

15

Policy Options on Exchange RateManagement

C a p ita l F lig h t

C re ate d O p tio n 1F ix ed E xch an g e R a te

S ub o p tion 1 su b o ption 2 su bo p tion 3 su bo p tion 4

C re a te d O p tio n 2D o lla rize E co n o m y

M a cro -In s ta b ility

C re a te d O p tio n 3F re e F lo at E xch an g e R a te

In it ia l O p tionM a na g ed F lo a tin g E x ch a ng e R a te

16

Investment Option

C h a rt T it le

L ia b ility O p tion

F o re st D ev e lo pm e nt

L ia b ility O p tion

T o u ris t D eve lo pm e n t

L ia b ility O p tion

In d u stria l D e ve lo pm e n t

In it ia l O p tionR e s to re a m on u m e nt

17

Culture as an option The elusive nature of cultural

experience Uncertainty and risk in site

development Culture as a byproduct of civil virtues Culture as expansion and flexibility

options

18

Some Examples The Walls of Ferrara

The Festival of Strasbourg

The Ceramics District in Vietri