COMPUTER CONSULTANCY COMPANY.

computer consultancy company.

Computer consultancy company.

Infrastructure, Computer Consultancy Company, environmental protection, and health care are examples of goods and services that in many circumstances are not produced by competitive private companies. Instead, decision making regarding investments and regulations is often made by politicians or public sector officials. For these decisions to be consistent, rational, and increase welfare, a systematic approach to evaluating policy proposals is necessary. Cost-benefit analysis is such a tool to guide decision making in evaluation of public projects and regulations. Cost-benefit analysis is a procedure where all the relevant consequences associated with a policy are converted into a monetary metric.

A common difficulty with a cost-benefit analysis is the fact that the policy to be evaluated includes a nonmarket good that is publicly provided. This implies that there are no market data to use. Examples of nonmarket goods that are common in cost-benefit analyses of public policy are values of safety, time, environmental goods, and pollution. Generally, there are two main approaches available for estimating monetary values of nonmarket goods: (1) revealed preference (RP) methods and (2) stated preference (SP) methods. RP methods use actual behavior and try to estimate implicit values of WTP or WTA. SP methods use surveys and experiments where individuals are asked to make hypothetical choices between different policy alternatives. Based on these choices, the researcher can estimate WTP or WTA.

Table 27.1 Present Value of $1 Million Under Different Time Horizons and Discount Rates

Discount Percentage Rate 10 Years 30 Years 50 Years 100 Years

1 $905,287 $741,922 $608,038 $369,711

3 $744,093 $411,987 $228,107 $52,032

5 $613,913 $231,377 $87,204 $7,604

10 $385,543 $57,309 $8,519 $73

There really exists no consensus regarding the correct discount rate, and there probably never will. Different government authorities around the world propose different social discount rates. The European Union demands that cost-benefit analyses be conducted for projects that imply important budget consumption, and the European Commission proposes a social discount rate of 5%. In the so-called Green Book in the United Kingdom, a social discount rate of 3.5% is proposed. In France, the Commisariat Général du Plan proposes a discount rate of 4%. In the United States, there are somewhat different proposals for different sectors, but the Office of Management and Budget recommends a social discount rate of 7% (Rambaud & Torrecillas, 2006). Several of the recommendations are also indicating that the social discount rate should be dependent on the time horizon of the project; in the United Kingdom, the social discount rate is proposed to be 3.5% for year 0 to 30, 3% for year 31 to 75, and decreasing down to 1% for policies with a life span of more than

1. The first step involves defining the relevant population. The Stockholm congestion charging policy is mainly relevant for the population in the region of Stockholm, but because the cost-benefit analysis is based on actual behavior and data, it will therefore include benefits and costs of users of the roads in Stockholm, which will include various types of visitors as ...