Value of recreation lost: $20,000,000 per year a. If the social discount rate is a constant 2% per year, is the dam a good idea? Show your work and explain your rationale.
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A community is looking to build a dam over a stretch of river that is currently being used for recreation. The dam will generate electricity. The dam will have a useful life of 50 years after which its reservoir will be full of sediment and the dam will need to be removed.
The following are the characteristics of the dam:
Initial cost: $350,000,000
Electricity produced: 200,000 MWh per year at $150/MWh Value of recreation lost: $20,000,000 per year
a. If the social discount rate is a constant 2% per year, is the dam a good idea? Show your work and explain your rationale.
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