Suppose that global warming might raise sea levels such that much of Bangladesh would be flooded soon after the year 2050. The government of Bangladesh is considering two options for addressing this issue. Option 1 is to pay $8 billion today (year 2016) to reduce emissions. Option 2 is to build up levies in 34 years (year 2050) which is estimated to cost $25 billion at that time. Should government act now or later if the discount rate is 3%?
What is the present value of reducing emissions in year 2016? (Express your answer as an integer.)
What is the present value of building up levies in 34 years? (Include two digits after the decimal point.)
Should government act now or later, under these assumptions, and based on economic grounds?