environment economic, Public Economics

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A dam is proposed on a stretch of wild river, a river that is currently used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years, after which the reservoir will be full of sediment and the dam will need to be removed. The following are the characteristics of the dam: Initial cost: $100,000,000 Electricity purchased: 100,000 Mwh per year, @ $100/Mwh. Cost of decommissioning dam: $10,000,000 Value of recreation lost: $5,000,000 per year. a. If the social discount rate is 3% per year, is the dam a good idea?

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