An economic team, of which you are a part, is determining the potential harm tha

Question

An economic team, of which you are a part, is determining the potential harm that global warming will cause in the future. Your task is to estimate the current value of the damage that global warming will cause in the year 2110. You know that the current interest rate is 4%. Your model indicates that if no action is taken to reduce CO2 emissions in the future, global warming will reduce global GNP by $450 billion in 2110. It is currently 2010. a) What is the current value of $450 billion received in 2110? Show your work. b) Explain the rationale behind your approach to solving the problem. Try to make sure that your explanation would be intuitive to a friend who wanted to understand what you are proposing? c) If you could spend $500 million now to reduce the damages experienced in 2110 by 10%, would it be an economically wise decision? Show your work and explain your answer. d) Provide arguments explaining why the government might want to spend more, or less than the amount shown in the economic calculation you make making use of terms like the social rate of time preference.

Explanation / Answer

A smart strategy would be to deal with Bolivia due to the fact that Bolivia is less likely to seize your corporate assets as compare to Venezuela. Hugo Chavez/ the president of Venezuela has seize numerous corporate assets without compensation (essentially robbing private investment). President Morales would be easier to deal with and less likely to pull BS.

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