Economics 454
Spring 2014
Answers to Fourth Problem Set
I. Suppose that you have been hired to analyze electric power projects and have been
ordered to use the benefit-cost ratio in choosing between mutually exclusive
investments. You are asked to determi

Economics 454
Answers to Problem Set 6
I. Suppose that your town is considering building a public swimming pool. The
annualized cost of the pool would be $360,000. Yourjob is to estimate the dollar
value of the benefits. lfthe pool is built, admission wil

16.1
ECON 454 SP15
Lecture 16
VSL continued
Relation of VSL to age
Hedonic techniques
Stated preference method
Use vs non-use values
Theoretical foundation of stated preference
Potential biases
Applications
Relation of VSL to age
Shortly after the politic

15.1
ECON 454 SP15
Lecture 15
Cost effectiveness analysis
Valuation of risks to life
Value of a statistical life (VSL)
Estimation of VSL using wage equations
Relation of the value of a statistical life to:
Risk aversion
Wealth
Cost effectiveness analysis

Economics 454
Spring 2014
Answers to Fifth Problem Set
I.
Suppose your only asset is a car worth $12,000. While you are at the University you
park your car in the Montlake lot, where the probability of having your car stolen at some point
during the year

14.1
ECON 454 SP15
Lecture 14
Use of market data for related commodities
Use of data on supply curves (continued)
Use of data on demand curves
Travel cost technique
Hedonic technique
Use of data on supply curves
The information problems in inferring value

12.1
ECON 454 SP15
Lecture 12
Methods not using explicit distributional weights
Disaggregate by income level
Pareto approach
Quasi-Pareto approach
Social welfare dominance approach
Summary
Methods not using explicit distributional weights
The methods of a

11.1
ECON 454 SP15
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

10.1
ECON 454 SP15
Lecture 10
Critiques of expected utility theory
Implications for project analysis
Use of EMV as approximation of CE
Outcomes not correlated with income
Degree of risk aversion
Degree of uncertainty
Size of outcomes relative to income
Ou

13.1
ECON 454 SP15
Lecture 13
Valuation of commodities when market data are incomplete
Limited observations on price and quantity
Use of market data for similar commodities
Cost of alternative supply
Valuation of commodities for which there is no market d

8.1
ECON 454 SP15
Lecture 8
Sources of dynamic inefficiency
Social value of private investment
Net social benefit formula
Sensitivity tests
Summary
Midterm exam covers through here
Sources of dynamic inefficiency
The project-decision rules based on the co

9.1
ECON 454 SP15
Lecture 9
Aggregation over States of the World
Introduction
Numeric example
Expected monetary value
Certainty equivalent
Risk aversion
Expected utility
Utility Function
Applications
Introduction
The benefits and costs of public projects