Saratoga County is considering opening a large

public fitness and recreation center, open twenty hours per

day and free to all citizens. The center would provide a

large swimming pool and several indoor jogging tracks, as

well as weight machines and other equipment. It would

also conduct aerobic exercise classes. Virtually all of the

clientele is expected to be more than $21$ years old, with a

large group over $50.$

$1.(9$ points$)$ What are at least nine outcomes of this program that the county should

consider?

$2.(12$ points$)$ In what ways can the county gather information on how much of each of

these outcomes will be produced by program? Discuss in detail.

Are some of these ways more accurate or more practical? Discuss why, using examples

from this program.

NOTE: For questions $2$ and $3,$ it is usually easier to build the answers around

each technique $($and then tie the outcomes to the techniques$)$ rather than building the answer by

proceeding outcome$-$by$-$outcome. However, any way of organizing the answer is equally

correct.

$3.(19$ points$)$ Discuss and illustrate all the approaches that Saratoga County could use

to express these specific outcomes in monetary terms. Include a discussion of the strengths and

weaknesses of each tool you use. $($Be sure to keep the focus on this program.$)$

$4.(10$ points$)$ Because some of the benefits of this program occur in different years,

they have to be discounted. How do we decide the correct discount rate to use $-$ whether it

should be $6\%,$ or $9\%$ or whatever$--$ and why is it so often difficult to determine? Discuss, using

this program as an example.

$($In your discussion, assume that the discount rate chooser is a neutral umpire who is

neither for nor against this program. In other words, ignore political considerations.$)$

$5.(9$ points$)$ A city is considering building a crafts center. After expressing outcomes

in monetary terms, the city determines that the initial cost of the crafts center will be $$800,000.$

Annual operating costs $($incurred at the end of years $1,2,3)$ will be $$300,000$ each year. Annual

benefits will be $$600,000$ at the end of years $1,2$ and $3.$ All costs and benefits will end after

year $3.$

At a discount rate of $8\%$ what is the value of this center? In one sentence: Should it be

built, and why?

$6.(10$ points$)$ What do we mean when we refer to potential pareto efficiency? How does

this concept relate to pareto efficiency? Most important: How does this concept relate to cost

benefit analysis? Be sure to define all terms you use in your explanation, and illustrate your

discussion with an example.

$7.(6$ points$)$ Briefly discuss some strengths and weaknesses of federal use of cost$-$benefit

analysis, drawing specific points and examples from the article by Hahn and Tetlock, $("$Has

Economic Analysis Improved Regulatory Decisions?"$).$

$8.(9$ points$)$ A city is considering two projects. Their pattern of benefits is shown in the

tables below. $($As in the homework $--$and usually in real life$--$earlier stages must be completed

before later stages are implemented.$)$

For both $x$ and $Z,$ give total cost, total benefit, marginal cost, marginal benefit, net

marginal benefit and net total benefit for each stage.

$($Note that $x$ is in terms of marginals, and $Z$ is in terms of totals.$)$

$9.(8$ points$)$ Based on the table above, which stages of $x$ and $Z$ should be chosen if

$$12,000$ is available; if $$20,000$ is available?

$10.(4$ points$)$ Five years ago, the county bought a computer system for $$5$ million.

However, it has failed to work, and has accordingly returned no benefits. To get it up and working

will require $$5$ million more, bringing total cost to $$10$ million. If it worked, the computer system

would return total benefits of $$6$ million. Should the county spend the additional money? Most

importantly: in a sentence or two, indicate why.

$11.(4$ points$)$ Only one of these four projects can be chosen. Which should it be$?$

Importantly: in a sentence or two, indicate why.