Discounting in military cost-effectiveness studies
Stone, Donald R.
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Discounting is a means of assigning different weights to costs expected to be incurred in different future time periods. Such costs are a vital element of cost-effectiveness studies, which under present Department of Defense policy provide the primary basis for military procurement and force structure decision making. The discounting process is reviewed, and an attempt is made to identify qualitatively the factors which should determine the discount rate to be used in Department of Defense cost-effectiveness studies. These factors are separated into two groups: those which apply to costeffectiveness studies of all types of weapons systems, and those which depend upon the type of system being considered. Finally the manner of presenting the results of the discounting process to the decisionmaker is discussed.
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