Management now wants to conduct some what-if analysis with your help. Since the company does not have much prior experience with the pollution abatement methods under consideration, the cost estimates given in the third table are fairly rough, and each one could easily be off by as much as 10 percent in either direction. There also is some uncertainty about the values given in the second table, but less so than for the third table. By contrast, the values in the first table are policy standards and so are prescribed constants.
However, there still is considerable debate about where to set this policy standard on the required reductions in the emission rates of the various pollutants. The numbers in the first table actually are preliminary values tentatively agreed upon before learning what the total cost would be to meet these standards. Both the city and company officials agree that the final decision on these policy standards should be based on the trade-off between costs and benefits. With this in mind, the city has concluded that each 10 percent increase in the policy standards over the current value (all the numbers in the first table) would be worth $3.5 million to the city. Therefore, the city has agreed to reduce the company’s tax payments to the city by $3.5 million for each 10 percent increase in the policy standards (up to 50 percent) that is accepted by the company.
Finally, there has been some debate about the relative values of the policy standards for the three pollutants. As indicated in the first table, the required reduction for particulates now is less than half of that for either sulfur oxides or hydrocarbons. Some have argued for decreasing this disparity. Others contend that an ever greater disparity is justified because sulfur oxides and hydrocarbons cause considerably more damage than particulates. Agreement has been reached that this issue will be reexamined after information is obtained about which trade-offs in policy standards (increasing one while decreasing another) are available without increasing the total cost.
Management now wants to conduct some what-if analysis with your help. Since the company does not have much prior experience with the pollution abatement methods under consideration, the cost estimates given in the third table are fairly rough, and each one could easily be off by as much as 10 percent in either direction. There also is some uncertainty about the values given in the second table, but less so than for the third table. By contrast, the values in the first table are policy standards and so are prescribed constants. However, there still is considerable debate about where to set this policy standard on the required reductions in the emission rates of the various pollutants. The numbers in the first table actually are preliminary values tentatively agreed upon before learning what the total cost would be to meet these standards. Both the city and company officials agree that the final decision on these policy standards should be based on the trade-off between costs and benefits. With this in mind, the city has concluded that each 10 percent increase in the policy standards over the current value (all the numbers in the first table) would be worth $3.5 million to the city. Therefore, the city has agreed to reduce the company’s tax payments to the city by $3.5 million for each 10 percent increase in the policy standards (up to 50 percent) that is accepted by the company.Finally, there has been some debate about the relative values of the policy standards for the three pollutants. As indicated in the first table, the required reduction for particulates now is less than half of that for either sulfur oxides or hydrocarbons. Some have argued for decreasing this disparity. Others contend that an ever greater disparity is justified because sulfur oxides and hydrocarbons cause considerably more damage than particulates. Agreement has been reached that this issue will be reexamined after information is obtained about which trade-offs in policy standards (increasing one while decreasing another) are available without increasing the total cost.
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