The government is considering building a bridge to connect Havelock Island with the main- land. 50,000 citizens live on the island and the government will hire the 25,000 employees it needs for the construction entirely from the population of the island; it will pay them an hourly wage rate of $25. The project will require 1 million sacks of asphalt, 0.5 million bars of steel, and 250,000 labor hours. In the future, the bridge will have to undergo annual maintenance at $10 million per annum. The bridge will provide a better, safer alternative to the ferry system that is currently being used by the inhabitants of Havelock Island. It will save them 250,000 hours of commuting time every year, and result in 3 lives saved every year. Reduced usage of the ferry will also help conserve marine life in the area. The government has the following information at its disposal: the market price of a sack of asphalt is $5, the market price of a bar of steel is also $5. The citizens of Havelock Island have two employment options: working on the construction project or working some other job at a minimum wage of $10. Studies have found that the value of one hour saved is $22.70. Other studies have used the concept of compensating differentials to find that the value of a human life is $9.6 million. Government revealed preferences show that the value of statistical life is $9.93 million. Using the above information, showing all steps of your calculations, and listing any assump- tions that you make [Hint: you will have to make at least two], conduct cost-benefit analysis for this project. Then, provide your recommendation: should the government build the bridge or not?

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Solution Absolutely lets do a costbenefit analysis CBA of the bridge project Assumptions We need to make a few assumptions to proceed with the CBA 1 E... View the full answer