Can process accountability mitigate myopic biases? An experimental analysis

This paper examines the impact of process accountability on two biases causing myopic or short-sighted decision making. These biases are strong preferences for immediate and certain outcomes known as delay and risk aversion. We hypothesize that accountability alone is insufficient to undo the biases, but if coupled with a cue on subjective discount rates, it will attenuate biases. To analyze our research question, we used a within- and between-subjects experimental design (two accountability conditions compared with a non-accountability condition and with each other) with delay and probability discounting choice tasks involving 118 students of accounting, finance and management in an online experiment. In line with our hypotheses, we find that process accountability successfully reduces excessive delay and risk aversion only if it provides a cue about the subjective discount rate. We discuss the implications of our findings for management control.

Analysis of different impact rates on the forecasts cost of building project using sensitivity analysis techniques

Over the years, Life Cycle Costing (LCC) has been recognized and used as an important technique for evaluating, forecasting and discounting the future costs of building to the present day value, from conception, design to completion, operation, maintenance, down to decommissioning. This work presents a study of Analysis on different discount rate of the forecasts cost of building project using sensitivity analysis techniques, the case study being Calabar International Conference Center (CICC) building project. Life cycle cost analysis was conducted and forecast for 51 years using Net present value (NPV) with the following discount rates 4%, 5%, 6%, 8%, 10%, 12% and 13% respectively. Results showed that the lower the discount rates, the higher the cost value and via vasa. The building had a positive value >0 indicating a significant benefit at the end of the study period. The percentage contribution of the discount rate on the initial cost, salvage value and the life cycle cost indicates that at 4% the initial cost accounted for 85% of the discounted cost, life cycle cost 13% and salvage value 2%. The salvage value recorded 0% at 12% and 13% discount rate The higher the discount rates the higher the discounted initial cost and the lower the life cycle cost.

The Optimum Allocation of Consumption of the Fisherian Shipwrecked Sailors

The theory of interest of Irving Fisher was designed to explain positive, zero, and negative interest rate. One of the intertemporal equilibria with the zero interest is an economy with a given supply of hardtacks for shipwrecked sailors. Hardtacks can be fully saved for the future, but their stock cannot be enlarged by production. Fisher presented several streams of consumption of hardtacks over time. This paper shows that the Fisherian paths are not consistent with the dynamic optimization model. Different trajectories of the optimum consumption are calculated and sketched. Their shape depends on the value of the subjective discount rate, the intertemporal elasticity of substitution in consumption, and the lifetime horizon of the shipwrecked sailors. None of them resemble the original Fisher examples.

The Problem of Determining Discount Rate for Integrated Investment Projects in the Oil and Gas Industry

The main aim of this paper was to examine specific approaches to determining the discount rate for comprehensive computation of investment projects efficiency in the oil and gas industry. The objective of the study was to develop a scientific approach for determining the discount rate for integrated oil and gas projects. The authors analyze dynamic methods for determining the efficiency of investment projects in the oil and gas industry and conclude that they are advisable for oil and gas projects due to the high capital intensity of the projects and their long payback period. Regarding the need to implement dynamic indicators of efficiency, the authors set the task of deter-mining the proper discount rate as a factor having a significant impact on effectiveness evaluation. The discount rate is proposed to be evaluated by solving the equation and finding the break-even point where the NPV (net present value) of the integrated project will be equal to 0 (taking into account the revenue of the subprojects included in the complex). The practical implementation of methodological approaches to assessing the discount rate for integrated projects is relevant due to the execution of large, systemically important and integrated projects. As a result of the study, the authors put forward a methodological algorithm for determining the discount rate of an integrated project which assumes an assessment of cash flows for the subprojects included in the complex; determination of the target rate of return for subprojects; and calculation of prices for products at which a complex project become break-even. The practical implementation of methodological approaches to assessing the discount rate for integrated projects is relevant due to the execution of large systemically important integrated projects.

Study of Intertemporal Discounting According to Age Groups

The paper focuses on the topic of intertemporal discounting of individuals according to age groups. Using the sample of examined individuals, it aims to verify the hypothesis that the patience of individuals decreases with their increasing age. The study included a total of 599 individuals with an average age of 38.3 years (min. 16 and max. 82 years) who answered classical questions focused on time discounting and impulsive behaviour. In total, four possible scenarios were analysed: a small reward (CZK 100) with a delay of 1 day, a small reward with a delay of 1 month, a large reward (CZK 100,000) with a delay of 1 day and a large reward with a delay of 1 month. The delayed reward was always increased by 10% (i.e., CZK 110 or CZK 110,000). The basic hypothesis was that with increasing age, the subjective discount rate increases i.e., patience decreases. The above-mentioned 4 scenarios were evaluated for the hypotheses, while only three of the four scenarios were confirmed for all hypotheses. The results in the examined individuals suggest that with increasing age, there is a decrease in patience and at the same time a decrease in impulsive behaviour. These findings may have an overlap in consumption or savings in relation to the aging population.

Methodology for calculating the criteria of economic efficiency of investments in nuclear icebreakers

An economic and analytical model for evaluating the criteria of efficiency (profitability) of investments in the projects of innovative nuclear icebreakers of the Northern Sea Route is suggested. The model is based on the new analytical representation of the methodology for forecasting the investment project efficiency that is widely used in international practice. The mathematical expression for the net discounted income provides convenient formulas for calculating several investment efficiency criteria for nuclear icebreakers: internal rate of return, minimum annual revenues from icebreaker convoys, discounted payback period, and the volume of delivered cargo. The paper gives estimates of the criteria for the efficiency of investments in “Leader” class icebreakers that depend on the discount rate of cash flows, capital, and operating costs. It is shown that at high capital costs, typical for construction of “Leader” class nuclear icebreakers, the minimum required revenue of an icebreaker, representing a financial burden for ships transporting cargo along the NSR, rapidly increases with the growth of discount rate and the reduction of investment payback period. This means that the profitability of such icebreakers is only possible at low discount rates of 2–3% per year, which is an extremely low-interest credit. Even with low interest and impressive technical characteristics of the icebreaker (high speed of navigation, large number of ships in the caravan and their maximum capacity) the payback period would exceed 25 years.

Cost-Utility Analysis of the Integrated Care Models for the Management of Hypertension Patients: A Quasi-Experiment in Southwest Rural China

Background: Hypertension has become the second-leading risk factor for death worldwide. However, the fragmented three-level “county–township–village” medical and healthcare system in rural China cannot provide continuous, coordinated, and comprehensive health care for patients with hypertension, as a result of which rural China has a low rate of hypertension control. This study aimed to explore the costs and benefits of an integrated care model using three intervention modes—multidisciplinary teams (MDT), multi-institutional pathway (MIP), and system global budget and performance-based payments (SGB-P4P)—for hypertension management in rural China.Methods: A Markov model with 1-year per cycle was adopted to simulate the lifetime medical costs and quality-adjusted life-years (QALYs) for patients. The interventions included Option 1 (MDT + MIP), Option 2 (MDT + MIP + SGB–P4P), and the Usual practice (usual care). We used the incremental cost-effectiveness ratio (ICER), net monetary benefit (NMB), and net health benefit (NHB) to make economic decisions and a 5% discount rate. One-way and probability sensitivity analyses were performed to test model robustness. Data on the blood pressure control rate, transition probability, utility, annual treatment costs, and project costs were from the community intervention trial (CMB-OC) project.Results: Compared with the Usual practice, Option 1 yielded an additional 0.068 QALYs and an additional cost of $229.99, resulting in an ICER of $3,373.75/QALY, the NMB was –$120.97, and the NHB was −0.076 QALYs. Compared with the Usual practice, Option 2 yielded an additional 0.545 QALYs, and the cost decreased by $2,007.31, yielding an ICER of –$3,680.72/QALY. The NMB was $2,879.42, and the NHB was 1.801 QALYs. Compared with Option 1, Option 2 yielded an additional 0.477 QALYs, and the cost decreased by $2,237.30, so the ICER was –$4,688.50/QALY, the NMB was $3,000.40, and the NHB was 1.876 QALYs. The one-way sensitivity analysis showed that the most sensitive factors in the model were treatment cost of ESRD, human cost, and discount rate. The probability sensitivity analysis showed that when willingness to pay was $1,599.16/QALY, the cost-effectiveness probability of Option 1, Option 2, and the Usual practice was 0.008, 0.813, and 0.179, respectively.Conclusions: The integrated care model with performance-based prepaid payments was the most beneficial intervention, whereas the general integrated care model (MDT + MIP) was not cost-effective. The integrated care model (MDT + MIP + SGB-P4P) was suggested for use in the community management of hypertension in rural China as a continuous, patient-centered care system to improve the efficiency of hypertension management.

Future-Generation Perception: Equal or Not Equal? Long-Term Individual Discount Rates for Poland

Energy-related investments gain increasing attention nowadays, particularly in Poland due to clean-energy investment needed to limit greenhouse gas emissions (GHG) and counteract climate change. However, economic appraisal is problematic: the longevity of impacts inextricably involves intergenerational ethical considerations. A crucial parameter is the choice of a discount rate. The predominant approach to estimate the discount rate in EU countries is the Ramsey rule, based on macroeconomic data, but not referring directly to society’s preferences. Those are considered by studies using surveys to elicit individual discount rates (IDR), but rarely concentrating on intergenerational time frame. The paper aims at delivering an insight into the intergenerational intertemporal preferences for Poland (households, n = 471) focusing on whether respondents are willing to declare zero discount rate intergenerationally and whether their choices differ between the short- and long-term perspectives and between human lives and money. To elicit IDR, two hypothetical investment scenarios were designed: lifesaving programs and lottery gains with delays from 10 to 150 years accompanied by attitude and socioeconomic questions. The results indicate that IDR follows hyperbolic time-decline, and a considerable share of respondents (around 20%) are willing to treat future generations as equally important in the case of human lives, while this proportion for monetary gains is two times lower. The IDR drivers differ between lives and money in respect of socioeconomic profile and attitude characteristics as well as between intragenerational and intergenerational time frames. The findings support (a) the rationale for distinct treatment of intergenerational allocations, (b) the divergence of preferences between public and private impacts, and (c) the switch from single to declining discount rate regime in Poland.

Measuring the impact of risk on LCOE (levelized cost of energy) in geothermal technology

Geothermal technology has a high level of uncertainty and, thus, requires thorough risk analysis for economic decisions. The levelized cost of energy (LCOE) is a basic economic analysis widely used in determining an investment or energy mix. Many reputable institutions and government agencies provide LCOE, to which they apply different levels of discount rates to reflect project risk. To this end, the weighted average cost of capital (WACC) is frequently used as a proxy for project risk-adjusted discount rate. However, whether using a higher discount rate for a riskier project is appropriate in calculating LCOE has not been scrutinized. The purpose of this paper is to propose a certainty equivalent method of LCOE as an alternative way for considering risk. We present a theoretical background and formula based on the utility theory, improving the probabilistic LCOE estimation methodology of previous studies. We also perform scenario analysis to show how the certainty equivalent model changes LCOE reflecting different level of risk of the individual variables, which traditional LCOE does not. Additionally, we suggest that the traditional LCOE should be used prudently, recognizing it can distort the result when an individual project has a different level of risk from the industry average.