chapter
Investment Criteria
Pages 20

The convention that voluntary changes in current saving entail equal changes in private investment is also fol lowed in the text .

Writing P Va(B), then, as a shorthand for the present value of the stream ofbenefits (some of which can be net outlays, or negative benefits) when discounted at rate a, the four type (a) criteria to be reviewed are as follows:

( I ) n;.(B) > K; (2 ) P V,(B) > K; (3) n;,(B) > K;

n s where p = I:

and I: w;+ I: W; = l; and t=l .J=I (4) P "(B) > K;

Criterion (1) , the staple of textbook instruction, is superficially plausible enough. If r is the common rate of time preference, the community is indifferent as between receiving the stream ofbenefits (B) = (80, • • • , Br) and receiving its present value, P V,(B). It is then convenient to rank the community's preference between any set of alternative investment streams, B 1 , 82, • • • , BK, each o f which results from an initial outlay K, according to the relative magnitudes of P V,(B1 ), P V,(B2), • • • , P V,(#. In particular, any project having a benefit stream that meets ( I ) tel ls us that the present value of that stream of benefits exceeds the present value of its costs and therefore represents a potential Pareto improvement for the community.