Question: Policymakers are considering two potential projects that are mutually exclusive. They hire two consultants, Kurt and Courtney, to help evaluate the alternatives. The policymakers' objective

Policymakers are considering two potential projects that are mutually exclusive. They hire two consultants, Kurt and Courtney, to help evaluate the alternatives. The policymakers' objective is to choose the policy that has the largest total benefit, measured in dollars. Kurt recommends calculating the total compensating variation (CV) for implementing each, and picking the one for which that number, times negative one, is largest. (Remember, a negative compensating variation means that the policy is beneficial.) Courtney disagrees. She recommends calculating the total compensating variation for reversing each (equivalently, the equivalent variation, a concept we mentioned in footnote 1), and picking the one for which that number is largest. Do you agree with Kurt or Courtney? Why?

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Courtney is correct Suppose there are three policies A B and C Using her method one ... View full answer

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