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
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.