TY - GEN
T1 - Discounting procedures in large engineering projects
AU - Malik, Arif S.
PY - 2012
Y1 - 2012
N2 - In economic analysis of any engineering project discounting is a standard procedure used in cost-benefit analysis. With careful selection of the assumptions used in cost-benefit analysis it can be made to support, or oppose, almost anything. This is particularly so when the decision being studied involves some cost or benefit, for which there is no market price or which, because of an externality, is not fully reflected in the market price. Typical examples would be a project to build a hydroelectric dam in an area of outstanding natural beauty or a law to require factories to limit emissions of gases that may cause ill-health. Discounting tends to give less weight to future costs and benefits. The future environmental costs are either ignored or given less weight due to discounting in the economic analysis. This paper argues against using the practice of discounting and shows that both the time preference and the opportunity cost of capital arguments, used to justify discounting, are in conflict when we take the holistic approach to the environment.
AB - In economic analysis of any engineering project discounting is a standard procedure used in cost-benefit analysis. With careful selection of the assumptions used in cost-benefit analysis it can be made to support, or oppose, almost anything. This is particularly so when the decision being studied involves some cost or benefit, for which there is no market price or which, because of an externality, is not fully reflected in the market price. Typical examples would be a project to build a hydroelectric dam in an area of outstanding natural beauty or a law to require factories to limit emissions of gases that may cause ill-health. Discounting tends to give less weight to future costs and benefits. The future environmental costs are either ignored or given less weight due to discounting in the economic analysis. This paper argues against using the practice of discounting and shows that both the time preference and the opportunity cost of capital arguments, used to justify discounting, are in conflict when we take the holistic approach to the environment.
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U2 - 10.1109/SysCon.2012.6189495
DO - 10.1109/SysCon.2012.6189495
M3 - Conference contribution
AN - SCOPUS:84861312424
SN - 9781467307499
T3 - SysCon 2012 - 2012 IEEE International Systems Conference, Proceedings
SP - 677
EP - 682
BT - SysCon 2012 - 2012 IEEE International Systems Conference, Proceedings
T2 - 2012 6th IEEE International Systems Conference, SysCon 2012
Y2 - 19 March 2012 through 22 March 2012
ER -