Unformatted text preview: ( 1+ g 1+ r ) and simplify. Ch. 6 #3 In the second paragraph of the problem, it says that the cost is $100 to install. Change this number to $130 . Now, how to use hyperbolic discounting: The problem gives us a discount rate in the form & (1+ t ) where & = 0 : 05 . The point of this is that if & = 0 : 05 is the market discount rate, then with hyperbolic discounting the discount rate is decreasing each period  i.e. it±s no longer constant. However, we don±t need the discount rates to solve the problem. In part a, we want to calculate the discount factors for each period. The hyperbolic discount factor in period t is 1 (1+ t ) & and again & = 0 : 05 . For example, in part b the discounted bene&ts in year 3 are 1 (1+3) & (30) . Now, just add up all the discounted bene&ts to get the PV Bene&ts. 1...
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 Spring '10
 KOLSTAD
 Environmental Economics, Multiplication, $100, $130

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