puja:

1. (TCO 3) If the production of a good generates an external benefit to the producer and producer does not factor these costs into his decision making, then _____. (Points : 5)       
      
      
      

      
      
      

1. (TCO 5) Environmental eonomics is unique from standard economic analysis in that risks and benefits may be very difficult to assess, there may be incremental benefits, unknown linkages, and sometimes devastating unforeseen consequences. Given this uncertainty, suppose that you are part of a research team evaluating a proposal to clean up a hazardous waste site. How would you assess the benefits? What would be the primary variables of interest, the data requirements, and potential pitfalls? (Points : 40)       

i)  Calculate the present value of this project using a social discount rate of 3% and assuming that inflation is 2% (thus a nominal social discount rate of 5%).
ii) Next, calculate the present value using the same inflation rate but a social discount rate of 1%. Show your calculations in a table.

If the cost of preserving the wetlands is $10,000 in the present, would the project be feasible? Use the present value of net benefits to support your decisions and explain how this differs from the benefit-cost ratio.

Discuss the importance of choosing the social discount rate and how society may be inappropriately evaluating the benefits of environmental projects.