In June 1991, the EPA Announced a Maximum Contaminant Level $\quad$

question 30

Essay

In June 1991, the EPA announced a maximum contaminant level goal (MCLG) of zero for lead and a more stringent maximum contaminant level (MCL) of 0.015 mg/l. This new primary standard lowered the allowable lead level in drinking water from its former limit of 50 parts per billion (ppb) to 15 ppb. Because these regulations were expected to have a substantial financial impact on the regulated community — in excess of $100 million per year, they were subject to Executive Order 12291 and had to be accompanied by a Regulatory Impact Analysis (RIA). A summary of the estimated benefits and costs (stated as annualized values) from this RIA, is given below.
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { BENEFITS}$
Health (based on avoided medical costs)
$\begin{array}{ll}\text { From corrosion control and source water treatment: } & \$ 2.8-\$ 4.3 \text { billion per year } \\\text { From replacement of lead service lines } & \$ 70-\$ 240 \text { million per year } \\\text { Material } & \\\text { Accruing to households and water systems } & \$ 500 \text { million per year } \\\text { Incremental Benefits } & \$ 3.4-\$ 5.0 \text { billion per year }\end{array}$

$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { COSTS }$
$\begin{array}{cl}\text { Treatment, implementation, education costs }\\\text { Treatment costs: } & \$ 390-\$ 680 \text { million } \\\text { Monitoring costs: } & \$ 40 \text { million } \\\text { Education costs: } & \$ 30 \text { million } \\\text { State implementation costs: } & \$ 40 \text { million } \\\text { Incremental Costs } & \$ 500-\$ 790 \text { million per year }\end{array}$


$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\text { NET BENEFITS }$
$\begin{array}{lrr}&&&&\text { Net Benefits: } &&&&&&& \text {\( \$ 2.9-\$ 4.2 \) billion per year } &\\\end{array}$

-Find the PVB and PVC in real terms over a 3-year period, assuming a discount rate of 7 percent and an inflation rate of 3 percent. Use the midpoint benefit value, or $4.2 billion, and the midpoint cost value, or $645 million, for each year. Round to two decimal values for each year.
2.Based on your findings, show that the new lead standard passed the feasibility test for this three-year period.

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Definitions:

First-Mover Advantage

Comes from being first to exploit a niche or enter a market.

Oligopolistic Industry

An industry structure marked by a small number of firms that dominate the market, often resulting in strategic interactions among these firms.

Strategic Behavior

Actions taken by firms or individuals that consider the anticipated reactions or responses of other firms or individuals.

Collusive Oligopoly

A market situation where a small number of firms agree, explicitly or implicitly, to control prices, market share, or other competitive dimensions, reducing or eliminating competition.