Discounting theory and its application in the public sector
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Authors
Bonna, Ralph Anthony
Subjects
Discounting
Economic Analysis
Social Discount Rate
Net Present Value
Economic Analysis
Social Discount Rate
Net Present Value
Advisors
Ownes, J.F.
Date of Issue
1978-12
Date
Publisher
Monterey, California. Naval Postgraduate School
Language
en_US
Abstract
The purpose of this paper is to review the current policy established
by the Office of Management and Budget (OMB) concerning the use of discounting
in evaluating time-distributed costs and benefits of proposed
public investments. Although a widely accepted concept in the private
sector, the use of discounting in the public sector has been less clearly
defined and a subject of considerable debate. The mechanics of discounting
and the importance of the discount rate in investment decisions are
discussed. A brief history of discounting in the public sector is presented
including highlights of the Congressional Hearings in 1968 from
which the current policy resulted. Several issues relating to the OMB
policy such as the question of social versus economic goals, the effect of
budget constraints, and the potential misapplication or misuse of the
discounting methodology are addressed. Particular attention is given to
the problem of inflation and its impact on the established rate.
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Thesis
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Distribution Statement
Approved for public release; distribution is unlimited.