Public Finance-Economics paper |Business Finance
– Total of 12 pages. 3 pages of each question.
Answer ALL Questions
1. Government intervention to provide public goods is widely rationalized by the failure of the market mechanism to efficiently allocate resources. Discuss the above statement in the light of the different classes of market failure that arise in actual economies.
2. Some people prefer more risky projects than less risky projects. But some people prefer less risky projects to those that are more risky. What explains this behavior? Why is it that projects that have negative net present values are sometimes undertaken?
3. Why is the choice of social discount rate important in cost-benefit analysis? Critically examine when it is most appropriate to use the (1) Social Opportunity Cost of Capital, (2) Social Rate of Time Preference, and (3) Ramsey approach for discounting in Cost-Benefit Analysis.
4. Discuss the four major formats or approaches to Contingent Valuation Method (CVM) highlighting some of the inherent weaknesses in the approach. What are the various ways in which CVM data can be converted into a more informative Willingness-to-Pay Estimate?
