Chapter 16 7_12_07 - Chapter 17 Benefit-Cost Analysis When...

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Chapter 17. Benefit-Cost Analysis When the private sector considers what to produce and how much capital to invest, it makes its decisions based upon the expected profits. These profits, the benefits from the investment and production, go to the owners of the firm, the ones who invested the money at the start. Like private-sector projects, projects in the public sector can involve significant costs and produce benefits. For public projects, the benefits accrue to members of the public. How does the public sector assess the benefits and costs of their activities? What use does this assessment have for public policy? This chapter will examine Benefit-cost analysis as a way of understanding the efficiency of public activities The elements of a benefit-cost analysis The use of benefit-cost analysis in practice Tellico Dam and the Snail Darter TITLE 33--NAVIGATION AND NAVIGABLE WATERS CHAPTER 15--FLOOD CONTROL Sec. 701a. Declaration of policy of 1936 act It is recognized that destructive floods upon the rivers of the United States … constitute a menace to national welfare;… that the Federal Government should improve or participate in the improvement of navigable waters or their tributaries, including watersheds thereof, for flood-control purposes if the benefits to whomsoever they may accrue are in excess of the estimated costs, and if the lives and social security of people are otherwise adversely affected. (June 22, 1936, ch. 688, Sec. 1, 49 Stat. 1570; emphasis added.) Dating back to this law from 1936, federal projects for flood control in the U.S. have been required to undergo a comparison of their benefits and costs before the project could be built. The benefits do not need to come only from flood control; many projects,
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for instance, also provide benefits to navigation, irrigation, or electricity generation. These developments can also have huge social and environmental consequences, though. A dam turns a river into a lake, which leads to major changes in the water temperature, species mixes, and recreational opportunities. Large areas of land will go under water, while new areas will become shoreline property. Because of the potentially enormous ecological effects, many of the largest environmental battles of the 20 th century involved opposition to dams. The Tennessee Valley Authority (TVA) proposed the Tellico Dam in 1936 for the Little Tennessee River, a tributary of the Tennessee River. TVA’s purposes, from its origins in the Great Depression, included shoreline and other economic development. According to the Tennessee Valley Authority, which built the dam, Tellico Reservoir was planned as an extension of nearby Fort Loudoun Reservoir. Tellico Dam serves to divert water through a short canal into Fort Loudoun, linking the two reservoirs in their joint functions of flood control, power production, and improved navigation. They help regulate flooding downstream, especially at Chattanooga. The canal also allows barges to enter the Little
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Chapter 16 7_12_07 - Chapter 17 Benefit-Cost Analysis When...

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