436 Final Exam SP16.pdf

# Ii a suppose that the government is considering doing

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II. A. Suppose that the government is considering doing some or all of four policies that would reduce mortality risks from pollution. The table below shows the data The cost per life saved for each of the policies is: Policy Cost per statistical life saved (\$millions) A 2.5 B 5.0 C 10.0 D 7.5 20 1. If the government decides to implement only the three most cost effective policies, what does this imply about the value of a statistical life used by the government? Why? 2. If the people affected by the pollution were each willing to pay \$7 for a reduction in mortality risk of one in a million, would the government’s decision of which policies to implement be correct? Why or why not? B. Risk-risk analysis evaluates the net effects on lives saved of policies intended to reduce risks to life. Discuss the following two reasons that the net effect on lives saved may be less than the direct effect of a policy that reduces some type of risk. 10 1. Substitution risks 10 2. Rebound effects C. Two occupations are identical in every respect except for the probability of being involved in a fatal accident at work. Occupation X has an annual fatality risk of .0002 and pays \$40,000, and occupation Y has an annual fatality risk of .0003 and pays \$40,800 per year.

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