HW 5q - AEM 250, Environmental and Resource Economics...

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Spring 2007: Benefit-Cost Analysis and Non-Market Valuation Homework #5 (Distributed March 26, due by beginning of class April 2, 2005) 10 Points. All graphs should be clearly labeled and all other work legible. If we are unable to interpret your work, you will receive a lower score. 1. Harris , Ch. 6 #1, p. 132. Hint: Pay close attention to the instructions for the question given in the book, especially noting that all costs and benefits will be expressed relative to year 4. In the past students have had a hard time translating Harrison’s formula C t (1+r) (4-t) , where C is cost, r is interest rate, and t is time. Let me try to help here. We know Present Value = PV= (Value at time t)/(1+r) t = V t /(1+r) t Using basic algebra, this implies that V t = PV*(1+r) t . Hence, to get the value in year 4 of construction costs of $500m incurred in each of periods 1-3, one could calculate the following for a specific interest rate, r. [$500m * (1+r) 3 ] + [$500m * (1+r) 2 ] + [$500m * (1+r) 1 ] For the infinite stream of benefits and costs extending from year 4 and beyond, use the equations provided by Harris. 2. Contingent Valuation Experiment Below you will find a case study taken from a website dedicated to ecosystem valuation: (note: unfortunately this site has disappeared. – but here is the original reference. http://cbl.umces.edu/~dkingweb/contingent_valuation.htm#case5 ). In this homework assignment, you will be using this example to conduct your own contingent valuation of the preservation of Elwha River salmon. (Refer to Loomis, John, 1996. “Measuring the Economic Benefits of Removing Dams and Restoring the Elwha River: Results of a Contingent Valuation Survey.” W ater Resources Research, 32(2):441-447.). In conducting your survey, you may choose one (1) of the three approaches to eliciting value that was discussed in class: 1. Direct Open-Ended Question 2. Payment Card 3. Discrete Choice The procedure is as follows: A. Determine which value elicitation approach you want to take and modify the question below accordingly. B. Ask 6 of your friends this question and record their responses.
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This homework help was uploaded on 11/17/2007 for the course AEM 2500 taught by Professor Poe,g. during the Spring '07 term at Cornell.

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HW 5q - AEM 250, Environmental and Resource Economics...

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