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Basic Cost Benefit Analysis for Assessing Local Public Projects, Second Edition by Maryann O. Keating, Barry P. Keating

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CHAPTER 3

Time Preference and the Discount Rate

The supreme value is not the future but the present. The future is a deceitful time that always says to us, “Not yet,” and thus denies us.

—Octavio Paz

Chapter 3 Preview

When you have completed reading this chapter you will:

know how to calculate and interpret the present value of net benefits by using a procedure that discounts future costs and benefits;

understand the reason behind discounting and the importance of choosing the appropriate discount rate;

differentiate between ordinary observable market interest rates available to finance projects and the concept of a social discount rate;

be attentive to assumptions associated with using different discount rates and how they can bias ...

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