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  • Print publication year: 2014
  • Online publication date: July 2014

9 - Monetary valuation

Summary

Summary

The chapter on monetary valuation begins with a discussion of discounting, a tool that is necessary for the correct accounting of costs that occur at different times. A particularly important and controversial issue is the intergenerational discount rate, in Section 9.1.3. This is followed, in Section 9.2, by an overview of valuation methods, especially for non-market goods. Section 9.3 addresses the important case of the valuation of mortality, especially the loss of life expectancy due to air pollution. Morbidity valuation follows in Section 9.4, including a discussion of DALY and QALY scores. Section 9.5 addresses the valuation of neurotoxic impacts (value of an IQ point). Section 9.6 discusses the transfer of values to situations that are different from the original valuation studies.

Note that the valuation of some impact categories has been discussed in other chapters: Chapter 4 for buildings, Chapter 5 for agricultural losses and ecosystems, Chapter 6 for noise and traffic congestion (plus brief comments on visibility, non-renewable resources, accidents, employment, and security of energy supply), and Chapter 10 for global warming. A summary of the monetary values for health impacts will be provided in Table 12.3 of Chapter 12.

Comparing present and future costs

The effect of time on the value of money

It may be appropriate to begin this chapter with a tool that is needed whenever there are costs that occur at different times. Such a cost must be adjusted to a common time basis because a dollar (or any other currency) unit to be paid in the future does not have the same value as a dollar available today. This time dependence of money is due to two, totally different, causes. The first is inflation, the well-known and ever present erosion of the value of our currency. The second reflects the fact that a dollar today can buy goods to be enjoyed immediately or it can be invested to increase its value by profit or interest. Thus a dollar that becomes available in the future is less desirable than a dollar today; its value must be discounted. This is true even if there is no inflation. Both inflation and discounting are usually characterized in terms of annual rates.

References
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