Long-term impacts of mega-projects: the discount rate

In social cost-benefit analysis (SCBA), discount rates are used to convert costs and benefits that occur at different points in time, to present values that can be added and subtracted. Especially if important costs and benefits occur in the long term (more than say 30 years), the discount rate may have a large impact on the SCBA outcomes. As an example, Figure 14.1 shows that applying a 4 per cent discount rate strongly reduces the weight of long-term benefits and costs. A 1 per cent discount rate leads to much higher weights for long-term impacts. Mega-projects are often aimed at the long term. After they have been built, their existence is usually taken for granted over a very long period. New roads and railroads often remain in place for 100 years or more. Flood barriers continue to protect the land behind them over very long periods.