When the federal government builds a project such as a dam, a road, or a bridge, it conducts a cost-benefit analysis in which the total costs of building the project are compared with the total benefits the project is supposed to bring. For example, in the aforementioned Tellico Dam, the costs of building the dam over the few years it took to build the dam and clear the land for the reservoir were approximately $100 million. The government (Tennessee Valley Authority) then estimated the total monetary benefits authorities believed would accrue over the next several decades, including tourism, planned residential developments and the like, comparing the estimated benefits to the costs of building the dam, and then said that the estimated benefits totaled more than $100 million, which meant the government would approve the project. (For example, if the government believed that in 20 years a developer would build a project that would cost $10 million to build, the government would put a total of $10 million in its up-front benefit tally.)

What we have covered in this class, is this (economically speaking) an accurate way to do a cost-benefit analysis? Why or why not? Explain in detail.

Answer rating: 100% (QA)

Under the assumption of discounting BC Ratio Present Worth of Benefits Present Worth of Cost... View the full answer