AREC365 Lecture Notes - Lecture 10: Pareto Efficiency, Tuesday Afternoon, Net Present Value

• School: University of Alberta
• Department: Agricultural and Resource Economics
• Course: AREC365
• Professor: Terence Veeman

Document Summary

Last q - property rights regimes think about true ocean sh, beyond the 200 mile limit gets messier for the sh within the 200 mile limit publicly owned, use rights given to users, then those rights inde nite. Determine whether or not a project/policy should go ahead. 3 decision rules (investment criteria): (1) npv > 0 (npv=net present value) present value of bene ts > present value of costs. You have to look and make sure that you have a better project than this (2) bcr = b/c > 1 (bene t cost ratio > 1) (3) irr (internal rate of return) Irr = that r where the present value of bene ts is exactly equal to the present value of cost, say 10% Go ahead with the project, if irr is > market r (r = market rate of interest) (somewhat arbitrary, but it is a common investment rule) Economists prefer npv as the key decision making tool.