Imagine that you have been hired to help conduct a CBA for the construction of a rapid transit system parallel to a major city street. The city is motivated by the negative externalities of cars and the social benefits of rapid transit. Describe the following problems associated with the calculation of a CBA for rapid transit investments: (1) Choice of the discount rate, (2) Shadow prices, (3) Double-counting of costs or benefits, (4) Salvage values, and (5) Price distortions.

One of the risks in CBA is that forecasted events may not occur. Explain how the response of commuters could end up reducing the benefits of the investment in rapid transit envisioned by the study.