ECON 370 NOTES - Calculating Net Social Bene ts s Key...

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Unformatted text preview: Calculating Net Social Bene ts s Key question in CBA: Does the project increase or decrease net social bene ts? Consider a project to build a new road inputs: labour and concrete outputs: reduced commuting times and higher levels of air pollution labour concrete Project more air pollution lower commuting times A project's overall e ect on net social bene ts (NSB) is computed by summing the NSB in the labour market the NSB in the concrete market the NSB associated with the reduced commuting times the NSB associated with the increased pollution levels More generally NSB Project = n X i = 1 NSB Output i + m X i = 1 NSB Input i for a project that has n outputs and m inputs s Remark: For a speci c output NSB Output can be positive or negative. Similarly, for a speci c input NSB Input can be positive or negative Econ 370 Lecture 4: page 1 Two Methods of Calculating NSB We can determine the NSB associated with a project input or output in two ways 1. calculate sum of the changes in CS, PS, government revenues (GR) and external costs/bene ts (EE) NSB = CS + PS + GR + EE 2. calculate quantity changes and weight them by their social values If applied correctly, methods 1 and 2 produce the same NSB s Remark: We will primarily use the second method because it's typically easier and more intuitive To illustrate the equivalence of the two methods, consider a simple project with just one...
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This note was uploaded on 07/09/2011 for the course ECON 370 taught by Professor Clive during the Summer '10 term at The University of British Columbia.

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ECON 370 NOTES - Calculating Net Social Bene ts s Key...

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