Accession Number:

AD0641170

Title:

ON DISCOUNTING AND RISK IN MILITARY INVESTMENT DECISIONS,

Descriptive Note:

Corporate Author:

CENTER FOR NAVAL ANALYSES WASHINGTON D C SYSTEMS EVALUATION GROUP

Personal Author(s):

Report Date:

1966-08-18

Pagination or Media Count:

18.0

Abstract:

The term, discounting, is often applied indiscriminately to two distince operations. One operation, which attempts to simulate the capital markets evaluation of an investment, represents a conceptual exchange between current and future income resulting in a present value. The other refers to an essentially subjective revision, normally downward, of an expected future benefit or cost, for any of a number of reasons. It is pointed out that in the case of a military effectiveness stream a typical example of a non-marketable benefit stream, it is meaningless to discount in the first sense. On the other hand, whereas discounting in the second sense could be meaningfully applied, there is no single rate which the analyst acting on behalf of the decision-maker can apply. The practice of raising the discount rate by a premium to take care of risk and uncertainty may be appropriate when discounting in the first sense, but is likely to lead to erroneous results when discounting in the second sense. Author

Subject Categories:

  • Administration and Management
  • Economics and Cost Analysis
  • Operations Research

Distribution Statement:

APPROVED FOR PUBLIC RELEASE