Assessing Costs a project to construct a dam in your local area for hydroelectri

Question

Assessing Costs

a project to construct a dam in your local area for hydroelectric power generation;

a policy to regulate emissions from sport utility vehicles; or

a policy to ban offshore drilling in the Gulf of Mexico.

There are several environmental implications involved. Identify as many of the costs of these proposed policies or projects as you can. Classify the costs as either explicit or implicit. What cost estimation technique would you use to estimate the costs identified? Which costs would be difficult to estimate?

There is no information on costs, please utilize your best judgement for it.

Explanation / Answer

To study the cost involved in an environmental project or an environmental policy. A basic understanding of the underlying cost are needed.

Implicit Cost: Implicit cost also known as notional cost is the opportunity cost equal to what a firm must give up in order to use a factor of production for which it already owns.

Explicit Cost: An explicit cost is a direct payment made by the firm to others in the course of running a business, such as wage, rent and materials etc.

While formulating an Environmental Policy the underlying cost are to be taken into consideration:

Implicit Environmental Cost: They are non-monetary in nature and has a negative impact on society

Examples are:

Due to the Non-Monetary nature of implicit cost, they are difficult to measure as compared to the explicit cost.

Explicit Environmental Cost: Explicit Environmental Cost are monetary in nature and are easy to identify. Examples of these cost are

Environmental Cost deals with incremental cost due to a change in the implicit or explicit cost incurred as a result of a change in the policy of the government. The Implicit cost are Opportunity cost hence there are no standard method to use for their calculation and are generally derived from the explicit expenditures on a project.

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