Department of Investment and Real Estate

The problem of long term public investment appraisal, especially those affecting future generations is a complex issue consisting of the questions of the valuation of inputs and outputs, uncertainty and the problem of dealing with effects emerging in different moments of time. The last problem is usually solved by using discounting procedure.The paper aims at analyzing the definition of the discount rate in project appraisal procedure in the light of effectiveness and justice of inter-generational investment decision making. The analysis includes answering the question of the rationale for discounting in short perspective in certain appraisal procedures concerning efficient and just decision criteria. Then, selected ethical approaches to future generations rights are presented as the basis for establishing the connection between the discount rate and inter-generational justice. Finally, various levels of discount rate are analyzed assuming different rights assignment to present and ...

Intergenerational public investments are difficult to appraise due to discounting process, which affects immensely present value of project's effects. The paper identifies the concepts of long-term discounting and evaluates the impact of constant and declining discount rates in the long-term project appraisal. The results indicate that application of declining discount rate leads to a significant change in present value of project's remote effects.

The paper analyses the issue of the place of public goods changes in investment project appraisal in the light of efficiency criteria used in Cost Benefit Analysis. Four efficiency tests: Pareto, Kaldor-Hicks, Scitovsky and Kaldor-Hicks Moral are analysed from the perspective of their influence on the scope of public good value inclusion into economic analysis of the project. Kaldor-Hicks Moral test was found as the most comprehensive criterion on the ground of counting moral sentiments. KHM assumptions explicitly expand economic appraisal to cover non-use value, and eive distributional issues (both intra-and intergenerational) as a public good.

ANNOTATION The problem of estimating the discount rate level is a crucial issue in investment project appraisal procedure. The discount rate is strongly determined by the type of investment that sets the scope of decision criteria. The need to apply financial efficiency, economic efficiency or justice criterion impose the frames for theoretically correct measure of the discount rate.

PRIVATE GOODS VS. PUBLIC GOODS IN INTERGENERATIONAL INVESTMENT DECISIONS The paper presents theoretical analysis of changes in private and public goods characteristics along with extending the time frame from intra- to intergenerational. The research objective is also to identify the influence of those changes on intergenerational investment appraisal process. W artykule dokonana została teoretyczna analiza zmian cech decydujących o definiowaniu dóbr jako prywatnych lub publicznych przy wydłużaniu perspektywy czasowej z jednopokoleniowej na wielopokoleniową. Celem badawczym jest również określenie wpływu tych zmian na ocenę efektywności międzygeneracyjnych przedsięwzięć inwestycyjnych.

Appraising projects with intergenerational effects is a complex task, incorporating the issue of bringing future impacts to present value. This is usually achieved by applying the discount factor. However, the choice of discount rate to intergenerational context faces multiple technical and moral problems. The paper analyses a theoretical rationale behind the concept of intergenerational discount rate and preliminary assessment of intergenerational discount rate level in Poland based on survey done in 2012 among Finance & Insurance Faculty students at University of Economics in Katowice showing the decline in the value of discount rates with time.

The transition of the energy system in Poland has a long time horizon and demands a substantial investment effort supported by proper economic evaluation. It requires a precise Social Discount Rate (SDR) estimation as discounting makes the present value of long-term effects extremely sensitive to the discount rate level. However, Polish policymakers have little information on SDR: the predominant practice applies a priori fixed 5% discount rate, while studies devoted only to Poland are quite rare. To eliminate this research gap, our paper aims at estimating SDR for Poland, applicable in energy transition policies. We derive SDR for three datasets varying in length, twofold: using market rates via Consumption Rate of Interest (CRI) and Social Opportunity Cost (SOC) of capital, and prescriptive Ramsey and Gollier approaches based on Social Welfare Function (SWF). The results indicate that the rates based on CRI and SOC deviate substantially with changing data timeframes and market con...

Research background: An investment appraisal applies a single discount rate across all effects. However, this may be insufficient for heterogenous environmental impacts, mixing private and public goods as well as use and non-use values, where individuals may have multiple intertemporal preferences due to their duality to act as consumer or citizen. Purpose: The paper aims at identifying the scope of discrepancies in the level of discount rate for public and private as well as use-and non-use investment gains. Research methodology: The contingent valuation method is used to elicit stated discount rates for 2 hypothetical investments: environmental or financial gains to distinguish between public and private domain accompanied by two time-frames: short (use values) and long (non-use values). Results: The discount rate for the environment is lower than for money. It is also lower for the long-term horizon in comparison with the short-term perspective. The discrepancies are observed als...

In the appraisal of intergenerational public investments due to their extraordinary long life-cycle special attention must be given to the value of discount rate that influences greatly the net present value of a project in appraisal procedures. Of tremendous importance is the issue of including uncertainty via discounting due to the fact that intergenerational investments face high uncertainty which is coupled with the lack of unambivalent theoretical foundations and variety of empirical estimations of discount rates. The paper contributes to the discussion of social discount rate based on the Ramsey formula in the context of intergenerational allocations as well as discrepancies in treatment of costs and benefits from individual and social perspective. The reconstructed social discount rate formula that is proposed in the paper differentiates: firstly, between intra- and intergenerational frame due to discontinuity between generations, and secondly, between project’s costs and ben...

In economic policy-making, the broadly utilitarian framework of cost-benefit analysis (CBA) is used to measure welfare changes via opportunity cost and willingness to pay. For intergenerational valuation, CBA is usually supplemented with declining discount rates (DDR). At the same time, philosophical research that concentrates on intergenerational justice proceeds within framework of many approaches (cf. Tremmel (2006), Page (2006), Gosseries and Meyer (2009)). That raises the question of how ethical concepts on the one hand and decision criteria relate. Intergenerational projects evaluation via CBA can be conducted by calculating the Economic Net Present Value (ENPV). When DDR are used in ENPV, a more favourable valuation of future benefits is achieved, in comparison with applying the constant social discount rate (SDR). However, such an approach still does not explicitly incorporate deontological considerations concerning, for instance, value one may attach to unborn generations, ...

Small enterprises are special kind of economic entities. Decisions made there usually depend largely on preferences of the owner: his plans toward himself and toward the company, the vision of the company, and investment plans. Small business management, due to restricted financial resources at firm’s disposal, can be limited to a short-term perspective. Single investments are generally not significant, and their life cycle is counted in years rather than decades. However, looking at company as a whole, it can be treated as long term investment. Moreover, this investment can be inherited by the children, which extends the time horizon beyond the life of the current owner, changing the time frame into intergenerational perspective. The key issue considered in the paper is the perception of long-term perspective in small enterprise business decisions. A survey was used as a research tool. A sample of small enterprises (under 100 employees) located in Silesian voivodeship was surveyed....