Question 1

The advantage of a CBA is that it carries no subjectivity.

Accepted Answer

While a CBA tries to be objective by quantifying the costs and benefits of a particular decision or project, it is still subject to subjective judgments about which costs and benefits to prioritize and how to measure them. Therefore, it is not completely free from subjectivity.

Question 2

Any Pareto improvement implies that no one is made worse off.

Accepted Answer

A Pareto improvement means that at least one person is made better off without anyone else being made worse off, so by definition, no one is made worse off in a Pareto improvement.

Question 3

The fundamental welfare criterion of CBA is based on "potential" Pareto
 improvement.

Accepted Answer

The fundamental welfare criterion of CBA is based on "potential" Pareto improvement, meaning that the project should increase overall social welfare and potentially make some individuals better off without making anyone else worse off.

Question 4

In evaluating the social cost of a project, double counting can become a serious
 issue.

Accepted Answer

Double counting occurs when the same impact is counted more than once in the assessment of the social cost of a project, leading to an overestimation of the cost. This can lead to incorrect decision-making and resource allocation. Therefore, double counting is a serious issue that needs to be avoided in cost-benefit analysis or any other evaluation of the social cost of a project.

Question 5

If a decrease in the price of natural gas leads to a decline in coal use for electricity
 generation, one would refer to this as secondary effect.

Accepted Answer

This is a primary effect, as it directly results from the change in the price of natural gas affecting the demand for coal.

Question 6

In general, the social discount rate is lower than the private discount rate.

Accepted Answer

The social discount rate takes into account the impact of a decision or investment on society as a whole, including future generations, and therefore tends to be lower than the private discount rate, which only considers the financial benefits and costs for the individual or organization making the decision.

Question 7

The use of a very high positive discount rate indicates that the project under
 consideration is very important.

Accepted Answer

The use of a very high positive discount rate indicates that the project is not considered to be a good investment since the higher discount rate means that the future cash flows are being discounted at a higher rate, hence leading to a smaller present value of those cash flows.

Question 8

Despite scientific uncertainty about the outcomes of future damages, the
 precautionary principles can and should be the optimal course of action.

Accepted Answer

The precautionary principle suggests taking precautionary action in the face of uncertain outcomes, even if the scientific evidence isn't conclusive. Therefore, it is the optimal course of action.

Question 9

Given that cost-effectiveness analysis (CEA) deals with least-cost method of
 achieving a stated environmental goal, it is assumed that the benefits are not
 important.

Accepted Answer

This statement is false. Cost-effectiveness analysis (CEA) considers both costs and benefits of achieving a stated environmental goal, but aims to find the least expensive method to achieve the desired benefits.

Question 10

Rawlsian justice argues for a zero discount rate on environmental assets.

Accepted Answer

Rawlsian justice emphasizes intergenerational equity and the importance of ensuring that future generations have access to the same basic rights and opportunities as the present generation. A zero discount rate on environmental assets means that their value is not diminished over time and future generations are given the same consideration as the present generation. This is consistent with Rawlsian principles of justice.

Question 11

When noting the location of waste sites and other noxious facilities, one can
 clearly see that they are randomly located.

Accepted Answer

Waste sites and other noxious facilities tend to be located in areas with lower property values and less political influence, which often coincides with marginalized communities. This pattern of environmental injustice has been extensively documented and discussed in the literature.

Question 12

Waste facilities are often located in communities that have high percentages of
 poor, elderly, young and minority residents.

Accepted Answer

This is true. This phenomenon is known as environmental injustice or environmental racism, where marginalized communities bear a disproportionate burden of environmental hazards including waste facilities.

Question 13

Economic theory and environmental justice theory are in agreement as to the
 reason waste facilities are located in poor neighborhoods.

Accepted Answer

Economic theory often explains the location of waste facilities in poor neighborhoods through the lens of market dynamics, such as lower land values and less political resistance. In contrast, environmental justice theory argues that this pattern is due to systemic inequalities and environmental racism, suggesting that these communities are targeted because they have fewer resources to oppose such developments.

Question 14

There seems to be a reverse in the trend of companies from developed nations
 preferring to locate parts of their industrial operations in pollution havens.

Accepted Answer

The trend of companies from developed nations locating operations in pollution havens continues, driven by cost savings and less stringent environmental regulations, although there is increasing pressure for sustainable practices.

Question 15

When the time horizon of a project under consideration is fairly long, the
 difference between private and social discount rates that are within the range of 3 to 5 percent makes an important different.

Accepted Answer

The answer of When the time horizon of a project...

Question 16

The procedure of converting future benefits to their present values is called…

Accepted Answer

The procedure of converting future benefits to their present values is called discounting. It involves calculating the value of future cash flows in today's dollars, taking into account the time value of money. This is different from compounding, which involves calculating the future value of an investment, and contingent valuation procedure, which is a method used to estimate the economic value of a non-market good or service. Externality refers to the impact of an economic activity on parties outside the transaction.

Question 17

If a CBA has a cost-to-benefit ratio of 1.5, then…

Accepted Answer

A cost-to-benefit ratio of 1.5 means that the costs outweigh the benefits, suggesting the project should not be implemented.

Question 18

A new pollution regulation allows for an interest subsidy to firms that borrow funds to
Install pollution control devices. Thus, borrowing costs are zero for the firms. In addition, the new regulation also allows for a waiver in the sales tax to firms that purchase
Pollution control devices. In his calculation, should an economist include sales tax and interest cost in the cost of the regulation?

Accepted Answer

The answer of A new pollution regulation allows for an...

Question 19

Which best describes the decision criterion for implementing either a private or public
Project?

Accepted Answer

The decision criterion for implementing either a private or public project involves ensuring that the benefits outweigh the costs, which is encapsulated by all the given options. Costs not exceeding benefits, a cost-to-benefit ratio being less than unity, and benefits exceeding costs are all different ways of stating that the benefits of a project should outweigh its costs for it to be considered viable.

Question 20

Which of the following does not represent a potential issue when using the contingent valuation method?

Accepted Answer

The contingent valuation method is appropriate for estimating non-use value of resources. The other options listed are potential issues when using the method. Option A highlights the importance of a precise explanation of the environmental attribute being valued. Option B notes the possibility of respondents ignoring income constraint and availability of substitutes. Option C highlights the possibility of respondents misstating their willingness to pay.

Quiz 8: Frameworks for Assessing the Worthiness of Environmental Projects

The advantage of a CBA is that it carries no subjectivity.

Any Pareto improvement implies that no one is made worse off.

The fundamental welfare criterion of CBA is based on "potential" Pareto improvement.

In evaluating the social cost of a project, double counting can become a serious issue.

If a decrease in the price of natural gas leads to a decline in coal use for electricity generation, one would refer to this as secondary effect.

In general, the social discount rate is lower than the private discount rate.

The use of a very high positive discount rate indicates that the project under consideration is very important.

Despite scientific uncertainty about the outcomes of future damages, the precautionary principles can and should be the optimal course of action.

Given that cost-effectiveness analysis (CEA) deals with least-cost method of achieving a stated environmental goal, it is assumed that the benefits are not important.

Rawlsian justice argues for a zero discount rate on environmental assets.

When noting the location of waste sites and other noxious facilities, one can clearly see that they are randomly located.

Waste facilities are often located in communities that have high percentages of poor, elderly, young and minority residents.

Economic theory and environmental justice theory are in agreement as to the reason waste facilities are located in poor neighborhoods.

There seems to be a reverse in the trend of companies from developed nations preferring to locate parts of their industrial operations in pollution havens.

When the time horizon of a project under consideration is fairly long, the difference between private and social discount rates that are within the range of 3 to 5 percent makes an important different.

The procedure of converting future benefits to their present values is called…

If a CBA has a cost-to-benefit ratio of 1.5, then…

Which best describes the decision criterion for implementing either a private or public Project?

Which of the following does not represent a potential issue when using the contingent valuation method?