Name:______ _____________________________

Non-Credit Exam, PLS 505, Cost Benefit Analysis

1. How would you use the counterfactual to do a CBA on a beach re-nourishment project?

Answer: What if beach re-nourishment had never happened. What would things be like ? Find another comparable area without a project and compare to one that has used the beach re-nourishment approach. The more comparable the areas are, the better.

2. How would you go about estimating lost business opportunities when a transportation project displaces a number of businesses? Over what time horizon would you look at this question?

Answer: Lost gross sales for businesses displaced over 20 years are based on last year for which retail sales are available for existing businesses. Then take the base year and project for 20 years adjusting for inflation. This would be lost gross sales. You could calculate lost taxes in same way, both sales and property. If current businesses have different estimated growth rates from Census information then use it.

3. I am trying to replace one expensive piece of technology with another piece. What time period would you establish for comparison? Why? And would NPV be appropriate? Yes or no and Why?

Answer: Usually expensive technology like computers, faxes, digital cameras, etc. have a life span of 3-5 years. Because technology changes so rapidly we need to replace them quicker. This makes it difficult to project benefits over say 10 years since you have to replace the technology within a shorter time frame. NPV is more useful for comparisons of 10 years or more where you have make opportunity cost comparisons to make.

4. When looking at a cost benefit analysis of a program, which attempts to establish the advantage of legalizing all undocumented immigrants, over what time horizon would you establish the analysis? Why?

Answer: At least two generations (30-50 years) since it is important to see the benefits generated by the children of the immigrants who usually are upwardly mobile. Looking at only the immigrant generation would minimize benefits (ie., wages, taxes paid) and maximize costs (use of government services for poor and indigent).

5. Tell me how you could use the WTP (willingness to pay) approach to decide whether to make major improvements to the North Carolina Battleship exhibit in downtown Wilmington.

Answer: Interview people who have just seen exhibit and ask them, would they come back again, how many times, and if further improvements were made how many more times (than now) would they come or how much more in dollar value would they pay for admissions ? Some may say keep fee at the same level and they will come same number of times. Others would say with improvements, they will come and they will be willing to pay more in fees.

6. Why is the concept of NPV so critical to the use of opportunity costs in decision making?

Answer: So that you can look at potential benefits and costs 10 years from now and discount them back to the present so present value can be compared and a decision made on opportunity costs.

7. Why is the property valuation approach so valuable to the real estate industry?

Answer: Simply stated, it allows comparisons of the relative value of the neighborhood, the environment, or the surrounding habitat. Thus, a 2000 square foot house on an acre in the suburbs is worth considerably less then the same house on the ocean. House on busy street ? House next to a jail ? Factory ?

8. When people are stuck in traffic for long periods of time when they are doing their everyday commuting, what travel cost method would you use to estimate the costs of congestion?

Answer: 2/3 s would be lost wages and 1/3 leisure substitute.

9. Indicate briefly 3 or 4 ways to place a monetary value on the value of a human life. Which method do you value the most and why?

Answer: Value of life insurance, Value of purchases which have the highest safety ratings (ie., cars), and value of overtime pay for risky job.

10. Is there empirical evidence in the U.S. that there can be an end to sprawl and that communities can revitalize themselves and live according to the principles of the new urbanism? If yes, give examples. If no, why hasn’t sprawl stopped?

Answer: When certain areas are built out (no land left for development) there is evidence that these communities begin to fill in, re-develop their core, and otherwise increase the density of the area. Examples---L.A., Miami, Portland, San Francisco,. However, most are still sprawling because there is land to do so.

Exercise—set up the cost/benefit streams for the following examples. Tell how you would measure each cost and benefit of each program.

1. Homeless Outreach and Rehabilitation Program for Street People. Your ultimate goal is to re-integrate the homeless back into the mainstream of the local community.
2. Economic Development program for a City. This program spends all of its money currently on advertising on the media, in magazines, and at professional trade conferences.
3. Quality Control Program for an Environmental Agency whose main function is permitting connected to land adjacent to protected land. The goal is to protect the environment without delaying development unnecessarily.
4. Tutoring/mentoring program for poor readers, grades 1-3. The main goal for this program is to have all students be reading at a third grade level by the time they are 8 and that those with attention deficit problems are able to manage so that they can also read at third grade level.
5. Employee suggestion program which attempts to improve worker productivity and morale. Program cost $150,000 a year (all costs) Just quantify the benefits.