A public project produces the following individual benefits for stakeholders stated in terms of present values when an appropriate social discount rate of 15% is used: Al = $16,000; Bev = $25,000; and Chris = $17,000. The present value of the total cost of completing and maintaining this project equals $54,000.
Explain the importance of Pareto Improvement.
Is this project economically feasible from the social point of view? Explain.
If stakeholders knew that each would be held responsible (through taxation) for 1/3 of the project costs, would this project be accepted under majority rule? Why or why not? Be very specific, using numbers in your answer.
In principle, could Bev, the major beneficiary, financially "cut deals" with Al and/or Chris so as to ENSURE that they would vote for the project? Using only the numbers given in the project statement as your starting data, specify how this could be done.