5.1
ECON 454 AU16
Lecture 5
Aggregation over Time
Basic principles
Rate of time preference
Opportunity cost rate
Dynamic efficiency
Aggregation over Time
Public projects often have effects that extend over many years. Other things
equal, effects that occu
12.1
ECON 454 SP16
Lecture 12
Rationales for using potential compensation formula, continued
Feldsteins constant elasticity formula
Harbergers alternative cost approach
Summary
Aggregation methods not using explicit distributional weights
Disaggregate by
8.1
ECON 454 SP16
Lecture 8
Internal rate of return, continued
Rationales for using the alternative rules
Implications of dynamic inefficiency
Sources of dynamic inefficiency
Social value of private investment
Internal rate of return
A second type of nonc
ECON 454 SP16
11.1
Lecture 11
Use of EMV as approximation of CE, continued
Size of outcomes relative to income
Outcomes correlated with income
Summary of EMV as approximation of CE
Methods used in practice
Aggregation over Individuals
Introduction
Methods
ECON 454 SP16
14.1
Lecture 14
Valuation of commodities for which there is no market data
Use of market data for related commodities
Effects on supply curves
Effects on demand curves
Travel cost method
Valuation of commodities for which there is no market
2.1
ECON 454 SP16
Lecture 2
Social welfare criterion
Pareto criterion
Potential compensation criterion
Summary
Social welfare criterion
As discussed in lecture 1, a proposed public project will change some of the Xijs
and therefore some of the Uis in the
6.1
ECON 454 SP16
Lecture 6
Dynamic efficiency, continued
Present value of consumption criterion
Capital markets and dynamic efficiency
Net present value formula
Accounting for inflation
Net present value decision rules
Numerical example
Continuous discou
ECON 454 SP16
10.1
Lecture 10
Applications of expected utility, continued
Use of EMV as approximation of CE
Outcomes not correlated with income
Degree of risk aversion
Degree of uncertainty
Applications of expected utility
In Lecture 9 we used the data fo
9.1
ECON 454 SP16
Lecture 9
Implications of dynamic inefficiency, continued
Net social benefit formula
Summary
Aggregation over States of the World
Introduction
Expected monetary value
Certainty equivalent
Risk aversion
Expected utility
Applications
Net s
ECONOMICS 454
ANSWERS TO SECOND EXAM
SUMMER 2015
I.
Suppose that a proposed project has benefits per person of $50,000 with probability 0.4
and $0 with probability 0.6.
10
A. What is the expected monetary value (EMV) of the benefits of this project to eac
9.1
ECON 454 AU16
Lecture 9
Risk aversion
Expected utility
Applications
Critiques of expected utility theory
Risk aversion
When the outcomes of projects are not correlated with other sources of income,
most individuals would prefer an amount of money rece
12.1
ECON 454 AU16
Lecture 12
Aggregation methods not using explicit distributional weights
Disaggregation by income level
Pareto approach
Quasi-Pareto approach
Social welfare dominance approach
Summary
Valuation of commodities with incomplete market data
13.1
ECON 454 AU16
Lecture 13
Valuation of commodities with incomplete market data
Use of market data for similar commodities
Hedonic technique
Cost of alternative supply
Valuation of commodities for which there is no market data
Use of market data for re
ECON 454 AU16
11.1
Lecture 11
Aggregation over Individuals
Introduction
Methods using explicit distributional weights
Potential compensation formula
Relation to social welfare formula
Rationales for using it
Feldsteins constant elasticity formula
Harberge
ECON 454 AU16
10.1
Lecture 10
Use of EMV as approximation of CE
Degree of risk aversion
Degree of uncertainty
Size of outcomes relative to income
Outcomes correlated with income
Summary of EMV as approximation of CE
Methods used in practice
Use of EMV as
16.1
ECON 454 AU16
Lecture 16
Stated preference method
Use vs non-use values
Theoretical foundation of stated preference
Potential biases
Applications
Stated preference method
Use vs non-use values
Up to this point we have mainly been discussing revealed
13.1
ECON 454 SP16
Lecture 13
Valuation of commodities with incomplete market data
Limited observations on price and quantity
Use of market data for similar commodities
Hedonic technique
Cost of alternative supply
Valuation of commodities when market data
ECON 454 SP16
1.1
Lecture 1
Syllabus
Background
Four-way aggregation
Standing
Social welfare
Syllabus
Page 1 reviews the course requirements. There will be two non-cumulative
exams and eight problem sets. The exams will count for 90% of the grade. The exa
7.1
ECON 454 SP16
Lecture 7
Special cases of discounting formulas
Annuity, continued
Annualized value
Alternative project decision rules
Benefit cost ratio
Internal rate of return
Annuity
An annuity is an equal amount of money, $A, paid at the end of each
Economics 454
Spring 2016
Answers to Fourth Problem Set
I. You are hired to calculate the benefit cost ratio, B/C, of a proposed hydroelectric project. The
present value data you are given are: value of the electricity, $150; cost of dam, $50; increase
in
Economics 454
Spring 2016
Answers to Third Problem Set
I.
A. What is the definition of dynamic efficiency? (A one-sentence answer is sufficient for this
part of the question.)
Dynamic efficiency is attained if no reallocation of consumption over time coul
4.1 l ECON 454 AU16
Lecture 4
Project's input affects market demand curve, continued
Valuation of inputs when demand is perfectly elastic or perfectly inelastic
Valuation of inputs and outputs in distorted markets
Mandatory acquisition of inputs: eminent
6.1
ECON 454 AU16
Lecture 6
Present value of consumption criterion
Capital markets and dynamic efficiency
Net present value formula
Accounting for inflation
Net present value decision rules
Numerical example
Continuous discounting
Special cases of discoun
ECON 454 SP16
1.1
Lecture 1
Syllabus
Introduction
Benefit-cost analysis as four-way aggregation
Standing
Social welfare
Syllabus
Page 1 reviews the course requirements. There will be two non-cumulative
exams and eight problem sets. The exams will count fo
7.1
ECON 454 AU16
Lecture 7
Special cases of discounting formulas
Annualized value
Alternative project decision rules
Benefit-cost ratio
Internal rate of return
Rationales for using the alternative rules
Annualized Value
If the annual values of benefits o
2.1
ECON 454 AU16
Lecture 2
Social welfare criterion, continued
Pareto criterion
Potential compensation criterion
Summary
Social welfare criterion
As discussed in Lecture 1, the social welfare criterion can be written as
dW =
dX > 0.
(2.1)
One obvious di
Economics 454
Answers to Second Problem Set
Spring 2016
I.
Suppose that the BPA is considering a project that would increase the supply of electricity in
the Pacific Northwest. Assume that the market for electricity is perfectly competitive, the
demand cu
ECON 454 AU16
15.1
Lecture 15
Estimation of the value of a statistical life, continued
Stated preference
Hedonic estimation
Compensating wage differentials
Factors affecting VSL
Attitude toward risk
Income
Age
Risk-risk analysis
Substitution risks
Rebound