Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/312057 
Year of Publication: 
2024
Series/Report no.: 
CESifo Working Paper No. 11547
Publisher: 
CESifo GmbH, Munich
Abstract: 
We critically assess an almost universal Benefit-Cost Analysis (BCA) practice. In addition to the central Net Present Value (NPV), analysts frequently also report multiple additional values in what is commonly referred to as 'NPV sensitivity analysis'. This practice is generally justified with reference to the future net benefits to the asset being risky, or because the correct discounting model is difficult to identify. We explain why, despite the fact that this is recommended as best practice across multiple prestigious and influential sources, the reporting of more than one NPV either lacks sufficient theoretical support or reflects decisions taken at an inappropriate level within the organizational hierarchy. As a consequence, this practice may confuse decision-makers more than help them. We illustrate this point in relation to a number of current guidelines across the public and private sectors and with particular focus on the US Environmental Protection Agency's latest estimates of the Social Cost of Carbon.
Subjects: 
benefit-cost analysis
net present value
sensitivity analysis
social cost of carbon
regulatory analysis
JEL: 
H43
G31
L51
Q51
Q54
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.