COST-BENEFIT ANALYSIS ECON CLASS

Reference - Boardman et al., Cost-benefit Analysis: Concepts and Practice. 4th Ed.

Exercise 1: Long Term Discounting Assume a project will result in benefits of $1 trillion in 500 years by avoiding an environ- mental disaster that otherwise would occur at that time. (a) Compute the present value of these benefits using a time-constant discount rate of 3.5. (b) Compute the present value of these benefits using the following time-declining discount rate schedule: 3.5 percent for years 1-50; 2.5 percent for years, 51-100; 1.5 percent for years 101-200; 0.5 percent for years 201-300; and 0 percent thereafter. (c) Compute the present value of these benefits using the following time-declining discount rate schedule: 3.5 percent for years 1-50; 2.5 percent for years, 51-100; 1.5 percent for years 101-200; 0.5 percent for years 201-300; and 0.2 percent thereafter. How does your answer compares to (b)? is the difference significant enough as to be important