LESON12A

LESON12A - Econ 275 - Public Finance - Fall 1992 - 10/13/92...

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Econ 275 - Public Finance - Fall 1992 - 10/13/92 - Lesson #12 - leson12a.275-- Page -- Admin Cost-Benefit Analysis (Ch 10) First give the game plan. Ultimately we want to be able to evaluate different projects in dollar terms. This typically implies that we need to work with dollar amounts at different points in time. So we begin with present value. Present Value Do future value first to illustrate the tradeoff. Work up numerical example. Then do it backwards to illustrate present value. Need numerical example. Next introduce inflation. Same process as before: future value first, then present value. Point out the real rate is not nominal minus inflation but that there is an interaction term that is typically ignored. Present example of the effect of ignoring it. Costs Benefits Example Other points Valuing life, time, other intangibles. Discount rate Uncertainty certainty equivalent Pitfalls (Rosen) counting labor employed as a benefit double counting: ex: an irrigation project makes more land
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LESON12A - Econ 275 - Public Finance - Fall 1992 - 10/13/92...

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