When would we not discount benefits?
In many instances, it is not necessary to discount the benefits estimates generated by BenMAP.
If the health effect and the monetized value of all the medical expenses, lost earnings, and
suffering occur entirely in the analysis year, then you may not need to discount your benefits. For
example, school loss days occur within the analysis year, and all monetized expenses occur within
Aggregation, Pooling, and Valuation
BenMAP User's Manual 167 October 2012
the analysis year. It is important that you understand the assumptions within the health and
valuation functions before you decide whether you need to discount. (If your analysis year for
your benefits estimates does not match the analysis year for your costs estimates, you may need
to discount in order to compare your benefits with your costs even if you meet the criteria listed
Which discount rate should I choose?
Selecting a discount rate is challenging and is one of the most contentious methodological issues
encountered in economic analyses of environmental policies. Because environmental regulations
frequently have differing streams of costs and benefits over time, the selected discount rate may
determine whether the benefits of a regulatory action exceed the costs. In addition, selecting a
higher discount rate may result in a smaller benefits estimate because the future benefits are worth
much less than they would be if a lower discount rate was selected. For benefits that occur well
into the future, the issue of intergenerational equity further complicates the selection of the
discount rate. (In the context of environmental policy, intergenerational equity refers to the
fairness of the distribution of the costs and benefits of a long-lived policy when those costs and
benefits are borne by different generations. Most criteria pollutants are not considered to have
intergenerational equity issues, but the issue frequently arises in analyses of climate and mercury.)
There are various economic arguments in support of and in opposition to various discount rates.
(For more details see EPA [1999; 2000] listed in the section onSources for More Information.)
To comply with OMB and EPA’s recommendations, EPA currently uses discount rates of 3%
and 7% for benefit analyses.
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