LESON13A

# LESON13A - Econ 275 - Public Finance - Fall 1992 - 10/15/92...

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Econ 275 - Public Finance - Fall 1992 - 10/15/92 - Lesson #13 - leson13a.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 usable. Thus a farmer can expect to have higher returns on his land. Also the land is worth more. Bureau of Reclamation used to have a rule that both of these effects were to be included as benefits of reclamation projects. However doing so is double counting since the land increased in value to to the higher expected returns. Distributional Issues

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## This note was uploaded on 07/08/2010 for the course ECON 275 taught by Professor Mcintyre during the Winter '05 term at BYU.

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LESON13A - Econ 275 - Public Finance - Fall 1992 - 10/15/92...

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