Suppose that installing an overhead pedestrian walkway would cost a college town $150,000. The walkway is expected to reduce the risk of fatality by 3 percent, and the cost of a human life is estimated at $10 million. The town should
A)install the walkway because the estimated benefit is twice the cost.
B)install the walkway because the estimated benefit equals the cost.
C)not install the walkway, since the cost is twice the estimated benefit.
D)install the walkway, since the cost of even a single life is too great not to take action.

Question

Quizplus · Accepted Answer

The estimated benefit of installing the walkway is $300,000 ($10 million x 0.03). This is twice the cost of the installation, so it is a worthwhile investment for the town. Option B could also be argued, as the benefit does equal the cost, but option A is the safer choice. Option C is incorrect because the estimated benefit is actually greater than the cost, and option D is not a rational cost-benefit analysis.

Suppose That Installing an Overhead Pedestrian Walkway Would Cost a College