490 Chapter 11 Regulation, Public Goods, and Benefit-Cost AnalysisNumber of Facilities Total Benefit
in Program to RWE
1 $500,000
2 $975,000
3 $1,375,000
4 $1,600,000
5 $1,700,000
6 $1,800,000
7 $1,850,000
8 $1,875,000a. At how many facilities (if any) should RWE offer the health and safety
program? What is the net gain for the company given this investment
in the program?
b. A study by the Occupational Safety and Health Administration (OSHA)
finds that health and safety programs like that contemplated by RWE
also benefit society beyond RWE and its workers (e.g., the programs also
benefit the families of injured workers). In the case of RWE, these
additionalbenefits to society would add about $75,000 in benefit for each
facility in the program. What does the OSHA study imply about the
optimal number of RW facilities that should receive the health and
safety program relative to your answer in part (a)? Explain.
c. One group in OSHA wants to require that a universal health and
safety program requirement be implemented for allworkplaces (in
RWE’s case, all eight facilities would be required to adopt the health
and safety program). What would be the social welfare impact of this
requirement in RWE’s case?
d. How might OSHA provide an effective and direct incentive system to
induce RWE to implement programs in the optimal number of
facilities as in part (b)? Explain.- a. A commonly used benefit-cost rule is to undertake a program if and
only if its ratio of benefits to cost (both in present-value terms) is
greater than 1 (B/C 1). Does this rule make sense?
b. A city is deliberating what to do with a downtown vacant lot that it
owns. Should it build a parking garage or a public library? According
to its studies, the benefit-cost ratio for the garage is 2 and the ratio for
the library is 1.5. Accordingly, the city decides to build the garage. Is
this conclusion justified, or is additional information needed? Explain
carefully.
c. A state must decide which of its deteriorating bridges to repair within
its limited budget. The total number of such bridges (some currently
closed for safety reasons) is between 450 and 500. The state has
gathered estimates of repair costs and projected traffic benefits for
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