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The U.S. federal government is considering allocating $15 billion to local health departments this year and then an additional $5 billion dollars for each of
The U.S. federal government is considering allocating $15 billion to local health departments this year and then an additional $5 billion dollars for each of the next two years (that is, spending is $15 billion in t=0, $5 billion in t=l, and then another $5 billion in t=2). This spending will have no effect until period 2, at which point it will save 7,000 lives. There are no other time periods, costs, or benets to consider in this analysis. (12 points; 3 points each) a. Suppose the government assumes a value of a statistical life of 4 million and a discount rate of 0.03. What is the net present value of the federal spending, including costs and benets? According to a cost-benet analysis, should the government allocate the money to the health departments? b. Suppose the government assumes a value of a statistical life of 4 million and a discount rate of 0.10. What is the net present value of the federal spending, including costs and benets? According to a cost-benet analysis, should the government allocate the money to the health departments? c. Suppose the government assumes a value of a statistical life of 6 million and a discount rate of 0.10. What is the net present value of the federal spending, including costs and benets? According to a cost-benet analysis, should the government allocate the money to the health departments? d. Explain how the value of a statistical life and the discount rate used in this analysis matter for the U.S. federal government's decision
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