6. Suppose a government agency improves well quality from wo to wi at a cost of C, and observes an improvement in health from ho to h1, and it places a value V on this health improvement. (Don't worry about how one could come up with a valuation V, let's just assume that this value is correct.) Is it correct to think that the net benefit from this program is V - C? When might this be an overstatement of the utility gains? When might it be an understatement? When might it be approximately correct? Hint:
6. Suppose a government agency improves well quality from wo to wi at a cost of C, and observes an improvement in health from ho to h1, and it places a value V on this health improvement. (Don't worry about how one could come up with a valuation V, let's just assume that this value is correct.) Is it correct to think that the net benefit from this program is V - C? When might this be an overstatement of the utility gains? When might it be an understatement? When might it be approximately correct? Hint:
Chapter8: Market Failure
Section: Chapter Questions
Problem 10P
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