Why agency perspective often does not correspond with the net social benefit outcomes? Briefly explain using the ‘guardian’ perspective. [2 marks]
Your local government is considering building a public swimming pool. Analysts have estimated the present values (million dollars) of the following effects over the expected useful life of the pool:
State Government grant: 4.2 Construction and maintenance costs: 10.5 Personnel costs: 7.2 Revenue from local government residents: 9.6 Revenue from non-residents: 2.2 Use value benefit to local government residents: 16.6 Use value benefit to non-residents: 4.1 Scrap value: 0.8 The state government grant is only available for this purpose. Also, the construction and maintenance will have to be done by a firm outside of the local government area.
i. Assuming state-level standing, what is the net social benefit of the project? Justify [2 marks]
ii. Assuming local government level standing, what is the net social benefit of the project? Justify [2 marks]
iii. How would a spender in the local government recreation department calculate the net benefit? Justify [2 marks]
B. Because of a recent wave of jewellery store robberies, a city increases police surveillance of jewellery stores. The increased surveillance costs the city an extra $600,000 per year, but as a result, the amount of jewellery that is stolen falls. Specifically, without the increase in surveillance, jewellery with a retail value of $1,200,000 would have been stolen with 80% probability. This stolen jewellery would have been fenced by the jewellery thieves for $550,000 with 60% probability . What is the net social benefit resulting from the police surveillance program? Justify [2 marks]
C. Why agency perspective often does not correspond with the net social benefit outcomes? Briefly explain using the ‘guardian’ perspective. [2 marks]