Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision--estimates of its effect would really just be guesses. In this case, the externality should be ignored--i.e., not considered at all--because if it were considered it would make the analysis appear more precise than it really is.

Question

Quizplus · Accepted Answer

Externalities should not be ignored even if they cannot be precisely quantified, as they can still have significant impacts on the project's outcomes and should be considered qualitatively in decision-making.

Suppose a Firm's CFO Thinks That an Externality Is Present