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Purpose of Pareto Improvement: Is Project Economically Feasible?

What is the purpose of Pareto improvement? A public project produces the following individual benefits for stakeholders state in terms of present values when an appropriate social discount of 15% is used:

Individual PV Benefits
Al $8,000
Bev $20,000
Chris $11,000

The present value of the total cost of completing and maintaining this project equals $36,000

1) Purpose of Pareto improvement

2) Is the project economically feasible from the social point of view?

3) If stakeholders knew that each would be held responsible for 1/3 of the project costs, would this project be accepted under majority rule? Why or why not? Use numbers in answer.

4) In principle, could Bev, the major beneficiary, financially cut deals with Al or Chris so as to INSURE that they would vote for the project? Use only the numbers given in the project statement as the starting data. Specify how this could be done.

Solution Preview

1) The purpose of pareto improvement is to change the economic management in a community so that it makes someone better off without making anybody worse off.

2) The total benefit of the project is 8,000+20,000+11,000 = 39,000 and the ...

Solution Summary

The solution discusses the purpose of Pareto improvement, and if the project is economically feasible.