Questions and Answers of Cost Benefit Analysis Concepts And Practice

It may seem strange to partition in this way because one would normally think of existence as being a prerequisite for use. Some types of uses, however, could be provided without maintaining
Depending on the slopes of the indifference curves, the consumption of good Y could either increase or decrease. As shown in Figure 3A.1(a), it slightly decreases in this particular example.Figure
In calculus notation, this decomposition can be represented as follows:This equation is known as the Slutsky equation. The first term to the right of the equal sign is the substitution effect, where
One way of doing this first requires obtaining estimates of the relation between quantity purchased and prices and the relation between quantity purchased and income and then (as implied by the
For analyses of the size of the bias, see Ian J. Irvine and William A. Sims, “Measuring Consumer Surplus with Unknown Hicksian Demands.” American Economic Review, 88(1), 1998, 314–22; Robin W.
Specifically, using compensating variation is only theoretically correct if consumers have homothetic preferences (i.e., the slopes of all indifferent curves are constant along any ray from the
For a clear introduction to regression analysis, see Jeffrey M. Wooldridge, Introductory Econometrics: A Modern Approach (Boston, MA: South-Western Publishing, 2000).
See Greene, Econometric Analysis. For an application that presents both OLS and ridge regression estimates, see A. E. Boardman, S. Miller, and A. P. Schinnar, “Efficient Employment of Cohorts of
The OLS estimators are also efficient. Here, efficiency means that among all estimators whose formulas are linear in the dependent variable, the OLS estimator has the smallest variance. It therefore
Assuming all benefits arise at the end of each year. pv (B)= Σ. (1+1) B(1+g) Σ’ -Σ Setting i = (i - g)/(1 + g) = implies 1/(1 + i) = (1 + g)/(1 + i). Therefore, B₁ 1+g di=1(1+g){1+i " PV (B) =
The central limit theorem tells us that the distribution of the sum of independent random variables approaches the normal distribution as the number in the sum becomes large, The theorem applies for
Although we use compensating variation as a measure of the dollar value of utility here because we find it most intuitive (as discussed in the appendix to Chapter 3), equivalent variation, which
Student is the pseudonym of William Gosset, a quality control engineer at the Guinness Brewery in Dublin, who originally derived the t distribution.
The probability we choose puts an upward bound on the probability of falsely rejecting the null hypothesis. Falsely rejecting the null hypothesis is referred to as Type I error. Failing to reject the
A more formal treatment can be found in Alan Randall, “Total and Nonuse Values,” in John B. Braden and Charles D. Kolstad (editors), Measuring the Demand for Environmental Quality (New York, NY:
Of course, the value of TEV will depend on whether it is measured in terms of compensating variation or equivalent variation.
John P. Hoehn and Alan Randall, “Too Many Proposals Pass the Benefit Cost Test.” American Economic Review, 79(3), 1989, 544–51.
If E is a public good, then we would interpret pe as the tax per unit of E that the person pays. As everyone would have to consume the same quantity, the person would not be able to choose the value
The partial derivatives of L with respect to E, X, Z, and λ give four equations with four unknowns. Although these first-order conditions cannot be solved analytically, they can be rearranged so
If we assume that E is fixed at its initial level, the more realistic case in evaluating an existing wilderness area, then the existence value equals only $5.47. It is smaller than in the example