Conversion Factors

See also: slides and this one

Relevant to economic analysis process must:

• explicitly incorporated into NVF by giving it conversion factor
• included as a hard constraints

conversion factor: convert benefit and costs into common units

Determinants:

• time, cost of labour, opportunity cost
• marginal NV and quantity-dependent conversion Factors

cost of labours.

• wages
• materials
• overhead: HR, tools/equipment

cost of time.

• overtime shifts, extra works or outsourcing?
• additional factor: happiness, time already spent (context: not all time is equal)

opportunity cost.

negative impact from having to give up the best alternatives

Important

Should always consider this when going forward with a project.

• cost of those forgone alternatives in conversion units
• costs for not solving other problems
• compare NV for solving the other one.

Double counting: mutually exclusive alternatives that is considered as double-counting in calculating NVF.

conversion function.

• quantity-dependent conversion Factors

$$NV_{\text{oranges}}(x) = B_{\text{oranges}}(x) - C_{\text{oranges}}(x)$$

marginal value change.

extra net value obtained for one more item

$$\Delta NV = NV(x+1) - NV(x)$$

environmental impact conversion.

externalities: of a decision is an impact (benefit or cost) for people other than decision makers.

externalities doesn’t have the same weight to benefits and costs. (failure of incentives)

Correct this failure with policies:

• taxes: carbon emission
• subsidies

economic of GHG emission.

• changes overtime and relatively hard to calculate accurately.
• 2022 study in Nature estimates at \\frac{185}{\text{tonne}}$

health costs.

• difficult to answer this, but most common pollutants: $PM_{2.5}$ (fine particulate matter) and $NO$ (Nitrogen oxides)

ethical consideration

ethical

• What is the cost of negative societal/ethical/equality impact?
• Can you put the price on safety?

F-N graph

Emission for $PM_{2.5}$ per year is

$$\begin{align*} & = \frac{\text{Health cost per year}}{\text{total emission }} \cdot \text{emission off power generation} \cdot \frac{1}{\text{total annual}} \\\ & = \frac{\$166e9}{3.5e6\space \text{tonne}} * 6000 \text{ tones} * \frac{1}{640e9 \text{ kWh}} \\\ &= \$0.0004446429 \text{ per kWh} \\\ \end{align*}$$