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Unformatted text preview: b) If the social discount rate is 10% per year, is the dam a good idea? 3. There is currently a proposal to remove four dams on the Snake River, to help restore severely-depleted salmon runs. This is costly in the short run to society because of adjustments in the electricity generation industry and agriculture. The annual benefits are improved whitewater recreation, better aquatic habitat, and in particular, improved runs of salmon for fishing and other uses. The best estimates of the costs of the proposal are: Year 1 2 3 Cost (in billions) 22 12 2 a) If the average annual benefits from improved aquatic habitat (which will last forever, starting in year 1) are $2 billion per year, would the proposal pass a benefit-cost analysis with a discount rate of 6%? b) Until recently a 10% discount rate was required for federal projects. Would the proposal pass a benefit-cost analysis using such discount rate?...
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- Fall '08