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Suppose a small hydro dam is planned for the Trinity River in northern California. Up front construction costs (initial costs in year 0) are $20 million. After that (beginning in year 1), electricity benefits of $2 million/yr, and operating costs of $0.2 million/yr, are expected into perpetuity (the dam is very durable). Also, construction of the dam implies the loss of wilderness and recreation values known to be $1 million/yr, (starting in year 1) into perpetuity. At what interest rate are we - as economists indifferent between constructing the dam and leaving the river wild?

Microeconomics, Economics

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