2Even though the government is paying out $20,000,000 in cash, the opportunity cost is $15,000,000.The cash cost of the labor cost has two parts:- opportunity cost- transfer of rentsRents are payments to resource acquisition that exceed those necessary to employ the resource.In this case the rents are a transfer from the government to previously unemployed workers.II. Measuring Future CostsUse the Present Discounted Value.The PDV of a
stream of payments is:PDV = payment amountinterest rateUse 7% as the interest rate.III. Measuring Current Benefits
aluing Driving Time Saved:
- wages (2009 average wage $19.29)- overstate if value of leisure < wage (can¶t work overtime)- understate if there are non-monetary aspects of the job- Contingent Valuation (ask individuals to value an option that they are not currently doing)- reveled preference (let individual¶s actions reveal their value)- gas station natural experimentLet¶s use $19.00 as the value of an hour of time.
aluing a life saved:
:- wages- a worker under age 50 will spend 10-20% of all future hours working- value of life is 5-10 times future lifetime earnings