Edmonton Economics Assignment 1: CBA, Policy, and Projects Analysis

This economics assignment delves into the practical application of cost-benefit analysis (CBA) through a series of questions. The assignment begins by exploring the costs and benefits of a hypothetical city by-law mandating bicycle helmet use, examining perspectives of both individuals and society. It then presents a case study involving a proposed public swimming pool, requiring students to calculate social net benefits from both national and county perspectives and analyze how different stakeholders would assess the project. The assignment further challenges students to evaluate mutually exclusive projects, determining the optimal choice based on CBA principles. A scenario concerning antibiotic prescribing regulations is analyzed to assess net benefits from a national perspective and determine conditions for positive outcomes. Finally, the assignment concludes with a project analyzing the implementation of LED lights on a bridge, requiring students to identify physical and funding alternatives, and evaluate the costs and benefits from a local resident's perspective.

Assignment #1
Posted by: Thursday, September 21, 2017
Due date: Thursday, September 28, 2017
Please provide appropriate answers to the following exercise questions. Use your knowledge and
personal judgment for answering these questions. You are allowed to discuss with your classmates (or
anyone you choose) regarding solutions to these problems, but your answers and your presentation
should be your own. Exact presentations from two or more students, all will receive zero grades. Each
question will be graded out of 10 points. The total of 50 points will be converted to 5% toward your
final grade. Be adhered to the deadline as you’ll lose 10% for each day late. Your answers should:
 Be specific and to the point,
 Explicitly stateany assumption you make while answering a question
 Be clear, concise but with sufficient explanation
 Use Excel spreadsheet wherever recommended or necessary. You may use Excel for
calculation and then copy and paste into Word file.
[Note: Incorporate your answer after each question and save as MS
Word and submit through Blackboard. Start typing after ‘Answer:’]
Questions:
1. Imagine that Edmonton currently does not require bicycle riders to wear helmets. Furthermore,
imagine that you enjoy riding your bicycle without wearing a helmet.
a. From your perspective, what are the major costs and benefits of a proposed city by-law that
would require all bicycle riders to wear helmets? List costs and benefits. (5 points)
Answer: The sale of helmets would increase. Making with the economy. Less injured people in the
hospitals saving the government money.
Answer: The Following Cost Benefits would be useful
Costs : (Social costs as well as costs to consumers)
- Inconvenience Cost of Wearing Helmets to bike riders
- Cost and efforts of Purchasing Helmet and cost of modifying bike for attachment of helmet.
- Costs of administration of by-law
- The cost of substituting bike as a mode of transport due to by law. Consumers may avoid using
a bicycle due to the inconvenience costs of wearing a helmet permanently or until they acquire
a helmet. They may choose a less energy efficient mode of transport such as car. This will have
social and economic costs. Some of the indirect costs that may accrue from this are: increased
carbon footprint due to use of cars, increased demand for fossil fuel, increased burden on public
transport etc. (Gotschi, 2011)
Benefits: (Social benefits as well as benefits to consumers)
- The reduction of risk of head injury and the reduction of possible costs to healthcare system
associated with head injuries.
- Building an industry around production/ sale of helmets and bikes.
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b. What are the categories of costs and benefits from society’s perspective? Anything to add
or to delete from the list? (5 points)
Answer:
The following could be the categories for social costs or benefits:
- Burden on Healthcare: Will the by-law lead to significant increase in burden on healthcare
system.
- Costs/ Benefits to Bike and allied products industry: Will there be a net gain to bike industry or
will there be a net loss. Net gain could be from additional purchases of helmets while net loss
would be from reduced purchases of bikes. Additionally, net loss to society could be accrued if
all these products are imported.
- Burden on Public Transport: The by law may increase the revenues of public transport, if
cyclists prefer public transport system by giving up on bicycles or would the burden on public
transport be increased.
If the commuters substitute cars for bikes, then there will be more traffic etc.
- Environment: The Net Carbon Footprint of the city may increase if buses and cars are preferred
over bikes. (Asian Development Bank, 2010)
2. The City of Edmonton is considering building a public swimming pool in an open park.
Analysts have estimated the present values of the following effects over the expected useful life
of the pool. [Create a table underneath item d. and provide answers to all questions together
adding four additional columns on the right side of the table. You can do that in Excel and then
copy and paste.]
Provincial grant
Construction and maintenance cost
Personnel cost
Revenue from county residents
Revenue from non-residents
Use value benefit to county residents
Use value benefit to non-residents
Scrap value
PV (million dollars)
2.2
12.5
8.2
8.6
2.2
16.6
3.1
0.8
a. Assuming national level standing, what are the social net benefits of the project? ( 3 points)
b. Assuming county-level standing, what are the social net benefits of the project? (3 points)
c. How would a guardian in the county budget office calculate net benefit? (2 points)
d. How would a spender in the county recreation department calculate benefits? (2 points)
Answer:
Item Value (in CAD) Calculation
a) Social Benefits at National Level 8.4 million (Revenue from county
residents +
Revenue from non-residents
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+
Use value benefit to county
residents +
Use value benefit to non-
residents +Scrap value) –
Total Costs
b) Social net benefits of the project - 3.1 million (Revenue from county
residents + Use value
benefit to county residents
+Scrap value) – Total Costs
c) Calculation used by guardian in the county
budget office Net Benefits = Total Costs – Total
Benefits (in Million dollars)
Total Annual Cost
(Construction and maintenance
cost +
Personnel cost)
Revenue from county
residents +
Revenue from non-
residents+
Use value benefit to county
residents+
Scrap value
d) Calculation for spender in the county recreation
department
Provincial grant +
Construction and maintenance
cost+
Personnel cost
Revenue from county
residents +
Revenue from non-
residents+
Use value benefit to county
residents+
Scrap value
Assumptions Made
The provincial grant provided was extra of the costs the city. i.e Total costs – Provincial grant +
Construction and maintenance cost + Personnel cost
 Benefits of scrap value are assigned to county.
 Benefits at County level can be considered as a part of the aggregate benefit at
national level.
 No effects of Taxation is present here.
 Net Benefits = Total Costs – Total Benefits (in Million dollars)
3. Three mutually exclusive projects are being considered for a remote valley in British Columbia:
Project R, a recreation facility, has estimated benefits of $10 million and costs of $8 million;
project F, a forest preserve with some recreational facilities, has estimated benefits of $13
million and costs of $10 million; project W, a wilderness area with restricted public access, has
estimated benefits of $5 million and costs of $1 million. In addition, a road could be built for
acost of $4 million that would increase the benefits of project R by $8 million, increase the
benefits of project F by $5 million, and reduce the benefits of project W by $1 million. Even in
the absence of any of the other projects, the road has estimated benefits of $2 million.
a. Calculate the benefit-cost ratio and net benefits for each possible alternative to the status
quo. Note that there are seven possible alternatives to the status quo: R, F, and W, both with
and without the road, and the road alone. (6 points)
Answer:
Net Benefits = Total Benefits – Total Costs
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b. If only one of the seven alternatives can be selected, which should be selected according to
the CBA decision? Why? (4 points)
Answer:
The Following criteria have been used to understand the benefits provided:
 Number of social goods provided: There are two social goods provided if Project R were to be
built
 Net Benefit: The project with the highest net benefit could be selected. Net Benefit is highest
for Project R.
Since Project R along with the construction of Road maximizes net benefit, project R should be
selected.
4. Excessive and improper use of antibiotics is contributing to the resistance of many diseases to
existing antibiotics. Consider a regulatory program in Canada that would monitor antibiotic
prescribing by physicians. Analysts estimate the direct costs of enforcement to be $40 million,
the time costs to doctors and health professionals to be $220 million, and the convenience costs
to patients to be $180 million (all annually). The annual benefits of the program are estimated to
be $350 million in avoided resistance costs in Canada, $70 million in health benefits in Canada
from better compliance with prescriptions, and $280 million in avoided resistance costs in the
rest of the world. Does the program have positive net benefits from national perspective? If not,
what fraction of benefits accruing in the rest of the world would have to be counted for the
program to have positive net benefits? (10 points)
Answer:
The following are the cost benefit analysis
Costs (in CAD Million)
Admin Cost $40 million
Personnel Costs $220 million
Convenience Costs $180 million
Total Costs $440 Million
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Costs Benefits Net Benfits
Without Road
Project R 8 10 2
project F 10 13 3
project W 1 5 4
Road 4 2 - 2
Project R with
Road
12 18 6
Project F With
Road
14 18 4
Project W with
Road
5 4 - 1

Benefits (in CAD Million)
Avoidance of resistance costs $40 million
Personnel Costs $220 million
Convenience Costs $180 million
Total benefits $440 Million
There are no direct net benefits in a direct sense since Total Costs = Total Benefits. However, in
a global perspective, the knowledge gained from the process of monitoring will help the
pharmaceutical industry gain insights on the kind of drugs prescribed by physicians and help
them make more informed decision. The program may help improve the efficiency of global
pharmaceutical industry.
5. The City of Edmonton is examining the possibility putting LED lights on High Level Bridge.
Alberta Treasury Board Chair, Dave Mowat, said “It’s actually quite an imposing structure, but
when it gets dark it just completely disappears. By lighting it up, I am certain it will become the
signature shot of Edmonton.” Assume that you are given the task to conduct a comprehensive
cost-benefit analysis of this proposed project. As components of the entireCBA task, answer the
following:
a. List the set of possible physical and funding alternatives. (4 points)
Answer:
Physical Alternatives Costs Benefits
No LED Lights  No Costs  No Benefits
Solar Powered LED Lights  Possibility of higher
installation costs
 Higher Social Benefits
due to lower carbon
footprint.
 Higher Social Benefit
due to slightly reduced
electricity bills
Non LED Fluorescent Lights  Social Costs Higher
electricity costs than
LED lights
 Social Costs in the form
of higher carbon
footprint (Asian
Development Bank,
2010)
 No visible benefits.
Benefits would be
accrued to the extent of
the convenience costs of
obtaining Fluorescent
lights instead of LED
Lights
Funding Alternative
Alternative Costs Benefits
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Imposition of Commuter Toll on
the bridge
 Administration and
Maintenance costs of Toll
booth (including personnel
costs)
 A commuter toll
may help cover up the costs
of added repair and
maintenance and well as
investment in infrastructure.
Funding from Municipal Budget  Reduction of city
budget
 No benefits
b. List costs and benefits from the perspectives of residents (local perspective) in the City
of Edmonton. (3 points)
Answer: The following are the costs and benefits from the local perspectives
Costs
 Costs of Installation of LED Lights (Non Recurring Costs) : LED lights tend to have high
installation costs : These costs include the costs for administration of the process of lights,
ensuring the equipment to provide access to electricity to the bridge, costs of light. These will
be deducted from the municipal budget and hence, are indirectly transferred to consumers
 Personnel Costs of Maintaining the lights (Recurring Costs, in Million CAD Per Year):
Maintaining lights will require added efforts from the Department of Public works. These will
be deducted from the municipal budget. These are transferred to consumers.
 If a commuter toll is administered then the costs of the toll is a direct cost to consumers.
 Disutility to commuter during the process of installation.
Benefits
 Commuting during evening made easier: The use value of the bridge will commuting
during the evening will be made easier. Thus, there will be significant convenience costs.
This can have significant direct and indirect economic benefits to residents
 Developing the bridge as a tourist attraction may spur economic activities associated with
tourism around the bridge. These may include restaurants, street food, souvenir shops other
small businesses , riding streetcar in the evenings etc. (Travel Alberta, 2017)
c. How different do you expect the global perspective to be for this project? Will it be similar
for all projects? Explain using a few sentences. (3 points)
Answer:
 The Global Perspective would include Environmental Concerns regarding use of
LED Lights and the reduction of carbon footprint by use of more renewable energy
sources
 The global concerns will remain similar for all such projects since as a country,
Canada needs to reduce its Carbon Footprint. (Asian Development Bank, 2010)
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Bibliography
Asian Development Bank. (2010). Reducing Carbon Emissions from Transport Projects. Manila:
Asian development Bank.
Gotschi, T. (2011). Costs and Benefits of Bicycling Investments in Portland, Oregon. Journal of
Physical Activity and Health , S49-S58.
Travel Alberta. (2017). Explore Edmonton. Retrieved September 28, 2017, from Travel Alberta:
https://exploreedmonton.com/attractions/high-level-bridge
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