Mini Research Paper Benefit-Cost Analysis Continuing with your environmental problem: Destruction of Our Rainforests, follow steps to conduct a benefit-cost analysis for a defined policy initiative to reduce this environmental concern. Suppose that a proposal to solve Rainforest Deforestation, is expected to generate $400,000 (or any amount you see fit to use) in benefits every year starting next year for the next 5 years. Calculate the present value of this project using a social discount rate of 3% and assuming inflation is 2% (thus a nominal social discount rate of 5%). Next calculate the present value using the same inflation rate but a social discount rate of 1%. Show your calculations in a table such as the one below. If the cost of improving Rainforest Deforestation is $1,800,000 (or any amount you see fit to use) in the present, would the project be feasible? Use the present value of net benefits to support your decisions. Explain how this differs from the benefit-cost ratio. Discuss the importance of choosing the social discount rate and how society may be inappropriately discounting the benefits of environmental sustainability. Discuss the limitations of benefit-cost analysis that are of concern to this particular situation. Answers must include the following:
1) Clear identification of an environmental concern.
2) State clearly if it relates to air, water, or land.
3) Cause of market failure.
4) Source of the problem.
5) Is it local, regional, or global in scope?
6) A graphical illustration of the problem.
7) Public goods/externalities/property rights.
8) Policy recommendation.
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