The decade after tomorrow: Estimation of discount rates from realistic temporal decisions over long time horizons

Lloyd‐Smith, Patrick; Adamowicz, Wiktor L.; Entem, Alicia; Fenichel, Eli P.; Rad, Mani Rouhi

doi:10.1016/j.jebo.2020.12.009

Cited by 4 publications

(3 citation statements)

References 54 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…These studies could also be designed to elicit a risk-adjusted rate accounting for the default risk of a PRP. While some researchers have used stated preference surveys to estimate social discount rates (Kovacs & Larson, 2008; Viscusi et al, 2008; Meyer, 2013; Lloyd-Smith et al, 2021), the cost of implementing such a survey for an NRDA (or set of cases once a decade for example) could increase assessment costs significantly, prolong resolution of claims, or both. As a result, we are not aware of any stated preference studies that have estimated the discount rate in an NRDA context.…”

Section: Discussionmentioning

confidence: 99%

Discounting in Natural Resource Damage Assessment

Horsch¹,

Phaneuf

Giguere

et al. 2022

J. Benefit Cost Anal.

View full text Add to dashboard Cite

The goal of natural resource damage assessment (NRDA) is to compensate the public for losses to natural resources from past or ongoing hazardous releases, including losses that may persist into the future. Compensation is delivered in the form of restoration projects. Resolving NRDA liability requires balancing losses and restoration benefits over multiple decades and converting them into a present value for calculating appropriate damages. For the past two decades, NRDA practitioners have used a real discount rate of 3 % to convert losses and benefits to a present value equivalent. That rate was based, in part, on real historical yields on risk-free debt (e.g., the real rate of return on 3-month Treasury bills). Declining interest rates on risk-free debt in recent years has led to suggestions to reexamine the historical consensus discount rate. This paper reviews two alternative conceptual paradigms for selecting a discount rate in NRDA cases: the social rate of time preference and discount rates for tort cases. We summarize historical data for empirically implementing the two paradigms and discuss the ramifications of the different options. Based on our review, we suggest maintaining the 3 % consensus as a practical solution to a range of empirical candidates within the two conceptual paradigms.

show abstract

Section: Discussionmentioning

confidence: 99%

Discounting in Natural Resource Damage Assessment

Horsch¹,

Phaneuf

Giguere

et al. 2022

J. Benefit Cost Anal.

View full text Add to dashboard Cite

show abstract

“…Discounting is necessary considering the diminishing value of money and is especially important for the oil and gas industry, where enterprises have a long investment cycle and the time horizon for projects reaches 20-30 years. The importance of accurate determination of the discount rate over long planning horizons is confirmed in academic works [4][5][6]. The article discusses the impact of information-based decisions made by managers on the strategic value of megaprojects in the oil and gas industry [7].…”

Section: Introductionmentioning

confidence: 93%

The Problem of Determining Discount Rate for Integrated Investment Projects in the Oil and Gas Industry

et al. 2021

View full text Add to dashboard Cite

The main aim of this paper was to examine specific approaches to determining the discount rate for comprehensive computation of investment projects efficiency in the oil and gas industry. The objective of the study was to develop a scientific approach for determining the discount rate for integrated oil and gas projects. The authors analyze dynamic methods for determining the efficiency of investment projects in the oil and gas industry and conclude that they are advisable for oil and gas projects due to the high capital intensity of the projects and their long payback period. Regarding the need to implement dynamic indicators of efficiency, the authors set the task of deter-mining the proper discount rate as a factor having a significant impact on effectiveness evaluation. The discount rate is proposed to be evaluated by solving the equation and finding the break-even point where the NPV (net present value) of the integrated project will be equal to 0 (taking into account the revenue of the subprojects included in the complex). The practical implementation of methodological approaches to assessing the discount rate for integrated projects is relevant due to the execution of large, systemically important and integrated projects. As a result of the study, the authors put forward a methodological algorithm for determining the discount rate of an integrated project which assumes an assessment of cash flows for the subprojects included in the complex; determination of the target rate of return for subprojects; and calculation of prices for products at which a complex project become break-even. The practical implementation of methodological approaches to assessing the discount rate for integrated projects is relevant due to the execution of large systemically important integrated projects.

show abstract

“…Ими предложена оценка ставок дисконтирования на основе реалистичных временных решений в долгосрочной перспективе. Причем основная исследовательская задача при измерении ставок дисконтирования, по мнению авторов, заключается в том, чтобы отделить индивидуальные временные предпочтения от множества других факторов, определяющих выбор в контексте принятия надежных решений [20].…”

Section: обзор литературыunclassified

Assessment of the Discount Rate and Determination of the Fair Value of the Company in Strategic Investment Analysis

Левин¹

2023

I.I.I

View full text Add to dashboard Cite

In the conditions of global uncertainty, the conditions of the external and internal environment of the functioning of companies and sectors of the economy are significantly changing. The emergence of new challenges and threats requires the adjustment of existing development strategies, makes relevant methods and models for assessing the fair value of enterprises in the real sector of the economy. The purpose of this study is to investigate and systematize modern approaches to estimating the discount rate when using them in strategic investment analysis based on the concept of company value management. At the first stage of the study, the following models were used for evaluation: weighted average cost of capital, valuation of financial assets, Gordon’s dividend model, return on equity, the multiplier method and the expert method. The advantages and disadvantages of the methods and models used are revealed. The most preferred option is the discount rate equal to 8.55% and calculated according to the financial asset valuation model. At the second stage, the fair value of shares and capital of PJSC Severstal was assessed in the following sequence: calculating the value of shares based on the Gordon dividend model; using free cash flow indicators, weighted average cost of capital and the cash flow discounting method; analyzing the sensitivity of the company’s share price depending on the growth rate of free cash flow and weighted average cost of capital; comparison of the results of the evaluation of the fair value of the shares of the analyzed company obtained by various methods; preparation of conclusions on the fair value of shares and the investment attractiveness of the company. The main results of the study are the author’s methodology for assessing the discount rate and fair value of public companies, including the identification of advantages, disadvantages and further improvement of the tools used for strategic investment analysis. Unlike the works of other authors, the study established the causal conditionality of the discount rate and the results of the fair value assessment of a public joint-stock company, based on the subjective opinion of a specialist making decisions in the field of investment analysis. The practical significance of the work is represented by the methodological approaches developed by the author to assess the discount rate and fair value of companies in the real sector of the economy. Further research of the author is aimed at improving the methods of modern strategic analysis, developing recommendations for the identification, assessment and analysis of investment risks.

show abstract

The decade after tomorrow: Estimation of discount rates from realistic temporal decisions over long time horizons

Cited by 4 publications

References 54 publications

Discounting in Natural Resource Damage Assessment

Discounting in Natural Resource Damage Assessment

The Problem of Determining Discount Rate for Integrated Investment Projects in the Oil and Gas Industry

Assessment of the Discount Rate and Determination of the Fair Value of the Company in Strategic Investment Analysis

Contact Info

Product

Resources

About