Cost Benefit Analysis - You are working for the EPA to assess two recycling programs for urban areas. Let's assume we have only 3 periods (t = 0, 1, 2). Policy A would cost $1 million in the first year (t = 0) and provide $3 millions in benefits for each of the three years (t = 0, 1, 2). Policy B would cost $3 millions in the first year (in t = 0) and provide $4 millions in benefits for each of the three years (t = 0, 1, 2).
If the discount rate is 10 percent, what are the present net benefits for the two policies?
Which regulation should be passed based on a benefit-cost analysis, A or B?
Why choosing a discount rate matters?
Discuss benefits and possible shortcomings of Cost Benefit analysis in assessing the feasibility of environmental policies.