Please answer all Parts! Three options are under review for controlling neighborhood flooding during heavy rainstorms. All options are expected to be in place for 50 years. The options differ both in cost and damage averted when a heavy rain event occurs. A promise has been made to build one option so 'doing nothing' is not a political acceptable alternative. When considering weather driven damage the usual method is to list the level of damage in currency terms and to state the likelihood that the damage will occur in terms of frequency that the weather event will occur. For example, a damage estimate of 500, 000 for a twenty year event is interpreted that the event will occur on average once every 20 years or has a probability of 0.05 occurring this year so the expected damage this year is 0.05 times 500,000 which equals 25,000. If an intervention prevented all damage from such an event the benefit would be shown as 25,000 every year. Apply incremental benefit cost analysis to this situation using an interest rate of 7.0% and answer the questions that follow. a. What is the for option A ? b. What is the for option B ? c. Complete the analysis for all C options and based on the analysis, which option is the best public investment?
Please answer all Parts! Three options are under review for controlling neighborhood flooding during heavy rainstorms. All options are expected to be in place for 50 years. The options differ both in cost and damage averted when a heavy rain event occurs. A promise has been made to build one option so 'doing nothing' is not a political acceptable alternative. When considering weather driven damage the usual method is to list the level of damage in currency terms and to state the likelihood that the damage will occur in terms of frequency that the weather event will occur. For example, a damage estimate of 500, 000 for a twenty year event is interpreted that the event will occur on average once every 20 years or has a probability of 0.05 occurring this year so the expected damage this year is 0.05 times 500,000 which equals 25,000. If an intervention prevented all damage from such an event the benefit would be shown as 25,000 every year. Apply incremental benefit cost analysis to this situation using an interest rate of 7.0% and answer the questions that follow. a. What is the for option A ? b. What is the for option B ? c. Complete the analysis for all C options and based on the analysis, which option is the best public investment?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Please answer all Parts! Three options are under review for controlling neighborhood flooding during heavy rainstorms.
All options are expected to be in place for 50 years. The options differ both in cost and damage averted when a heavy
rain event occurs. A promise has been made to build one option so 'doing nothing' is not a political acceptable
alternative. When considering weather driven damage the usual method is to list the level of damage in currency terms
and to state the likelihood that the damage will occur in terms of frequency that the weather event will occur. For
example, a damage estimate of 500, 000 for a twenty year event is interpreted that the event will occur on average once
every 20 years or has a probability of 0.05 occurring this year so the expected damage this year is 0.05 times 500,000
which equals 25,000. If an intervention prevented all damage from such an event the benefit would be shown as
25,000 every year. Apply incremental benefit cost analysis to this situation using an interest rate of 7.0% and answer the
questions that follow. a. What is the for option A ? b. What is the for option B ? c. Complete the analysis for all
C
options and based on the analysis, which option is the best public investment?
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