a. What is the developer’s most profitable site? Suppose the developer
negotiates with a number of towns. At which site would you predict
the final agreement to be reached? Does this site generate maximum
net benefits?
b. Suppose only sites A, B, and D are feasible. Is a negotiated agreement
between the developer and the town possible? According to the
benefit-cost standard, where should the facility be located? How could
this outcome be implemented? Explain.- A state highway safety agency must allocate its budget for the next fiscal
year. A total funding of $32 million has been granted for reducing
fatalities and property damage due to automobile accidents. However,
detailed funding decisions concerning specific programs remain to be
made. The table lists pertinent data on four major programs.
492 Chapter 11 Regulation, Public Goods, and Benefit-Cost AnalysisExpected Fatalities Expected Reduction
Prevented per in Property Damage
Upper Limit Millions of per Millions of
Project on Expenditures Dollars Expended Dollars Expended
Seat-belt
advertising $14,000,000 1.0 $0
Research in
improved
highway safety 12,000,000 .2 3,200,000
Research in
improved auto
design 9,000,000 .5 1,500,000
Dollars spent
lobbying for
tougher drunk-
driving penalties 16,000,000 .75 200,000To solve its budget problem, the council still must formulate a trade-
off between lives saved and property damage prevented. The council is
aware that a certain government agency employed $4.8 million as the
value of a life saved. To make a start on its decision, members of the
council have agreed to use this figure, enabling it to put a dollar value
on the total benefits (from lives and property saved) of a given
expenditure on each program.
a. Find the budget allocation that generates the greatest total benefits.
(Hint:Where should the first dollars be spent, the next dollars, and
so on?)c11RegulationPublicGoodsandBenefitCostAnalysis.qxd 9/29/11 8:49 PM Page 492