There’s a plan to increase the speed limit from 50 mph to 60 mph on a 100-mile stretch of highway for in perpetuity. Some specifics include – and you can assume these hold in perpetuity:
4000 vehicles per day use this stretch of road
50% are business travelers, 50% are leisure travelers
Vehicles carry an average of 1.2 people
Average hourly wage is $20 for users of the roadEngineers estimate that the change will lead to 1.5 increased fatalities among leisure drivers each year, and no additional fatalities for business travelers.
Assume the value of leisure time is 50% of the wage rate
The VSL is $10 million
Traffic ticket fines paid by leisure drivers are expected to drop by $50,000 per year.
The consumption rate of discount is 3% and the opportunity cost of capital is 5%.
a) Assuming that the average driver drives the speed limit both before and after the change what is the present value of net benefits associated this change?