Suppose a firm's CFO thinks that an externality is present in a project, but that it cannot be quantified with any precision¾estimates of its effect would really just be guesses.In this case, the externality should be ignored¾i.e., not considered at all¾because if it were considered it would make the analysis appear more precise than it really is.

Question

Quizplus · Accepted Answer

If the externality is potentially important, it should not be ignored, because then a large error might be made.At the very least, it should be discussed, and possibly the analysis should be done using several scenarios of the possible effects of the externality.

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