EPISODE 10 – The HMT GREEN BOOK 2022 – A pragmatic approach
EPISODE 10 – The HMT GREEN BOOK 2022 – A pragmatic approach
“
The Green Book outlines the principles of appraisal and evaluation, the overarching policy framework, generating options and longlist appraisal, shortlist options appraisal, and valuation of costs and benefits. It also includes non-market valuation, place-based analysis, distributional appraisal, public-private partnerships, uncertainty, optimism bias and risk, discounting, transformation, systems and dynamic change. In addition, it provides definitions for the words used in the guidance and outlines the critical appraisal steps.
The Five Case Model and Logical Change Process are also outlined in the book as structured approaches to appraising and evaluating projects and programs. The Green Book also guides managing successful programs and projects. It outlines the importance of having a well-defined problem, a clear set of objectives, and a plan for achieving them. It outlines any organisation’s various business, service, and external risks and guides how to identify, assess, and manage them.
The Green Book 2022 is a maintenance refresh of the Green Book 2020, with updated hyperlinks, references, email addresses, and guidance on fraud risk, real terms growth in values, NPSV and BCR construction, wellbeing, environmental valuation and greenhouse gas emissions, willingness to pay for a Quality Adjusted Life Year and distributional appraisal.”
“
This section of the Green Book podcast outlines the appraisal and evaluation process for public spending, taxation, and regulatory changes. It explains the importance of considering all costs and benefits that affect the population’s welfare and how to generate options and undertake a longlist and detailed appraisal.
The Green Book definition of public/social value for money is discussed, as well as an approach to the valuation of costs and benefits, guidance on how to present appraisal results, and an approach to monitoring and evaluation. The chapter also explains the need to involve key stakeholders and experts in the process and consider unintended collateral effects, place-based effects, and the duties placed on public officials by the Equality Act 2010 and the Family Test 2010. Finally, the chapter explains the importance of selecting the preferred option and determining the public value for money. It emphasises the need to quantify Business As Usual to ensure realistic SMART objectives.”
“
This section of the Green Book podcast outlines the overarching policy framework for developing a business case. It emphasises the importance of understanding the current situation and setting, as well as wider public policy and potential impacts on other public bodies. It also explains the need for research, consultation and engagement with stakeholders.
The Five Case Model is a required framework to consider a proposal’s costs, risks, and context. This includes the strategic dimension, which focuses on the case for change and expected outcomes, and the economic dimension, which involves longlist appraisal and selection of the shortlist. Unintended consequences must also be taken into account. The commercial dimension covers the commercial strategy and procurement tender, while the financial dimension considers the net cost to the public sector. Finally, the management dimension looks at the practical arrangements for implementation, risk management, benefit register, monitoring and evaluation and data collection. Monitoring and evaluation are critical components of the design and delivery of future interventions and should be included in proposals.”
“
This section of the podcast of the Green Book outlines the methodology for appraising proposals for new primary or secondary legislation or policy changes. It emphasises the need to frame policy objectives as social outcomes and develop a rationale explaining the desired change and how it can be brought about. It outlines the process of longlist and shortlist appraisal, including identifying SMART objectives and considering constraints and dependencies, critical success factors, place-based, equalities, and distributional effects.
Regulatory Impact Assessments (RIAs) should also follow the Green Book methodology. The strategic assessment should be undertaken to understand the current position and establish the rationale for intervention. Longlist appraisal should involve identifying options. Shortlist appraisal should include selecting a social cost-benefit analysis or social cost-effectiveness analysis, identifying and valuing costs and benefits, estimating the financial cost, and applying optimism bias. The preferred option should be identified considering NPSV, BCR, unmonetisable features, risks, and uncertainties. Finally, monitoring and evaluation should be conducted during the implementation and operational phase to inform management and evaluate outcomes.”
“
The Five Case Model is discussed in Chapter 5 of The Green Book, a structured, facilitated workshop that efficiently and effectively supports the development of policies, strategic portfolios, programmes, and projects. This model employs an options framework filter to support the immediate and transparent consideration of a wide range of options based on research evidence and stakeholder and expert input. This method helps identify an optimum viable shortlist of options, capturing a clear rationale for including and excluding alternative options. The options are driven by SMART objectives and viewed through the lens of the public service the scheme intends to deliver.
The process of generating options and longlist appraisal is outlined in this chapter. This includes using the Options Framework-Filter process to rate choices, breaking down options into a series of choices, conducting a SWOT analysis, and considering the effect on viability through Critical Success Factors. Finally, a workshop with public service professionals, key stakeholders and experts is used to identify the maximum and minimum potential scope and several alternative options between the two extremes.
The podcast section also covers the appraisal of individual spending decisions made in the context of pre-determined budgets. This includes calculating Net Present Social Value (NPSV) and Benefits Cost Ratios (BCRs) to compare the costs and benefits of each option. Costs to society are given a negative value and benefit a positive value, which can be adjusted for inflation and discounted to calculate the NPSV for each option. This chapter provides a comprehensive overview of generating and appraising options to identify the best way forward and ensure that the objectives are met.”
“
This section of the Green Book podcast outlines the appraisal framework for selecting and evaluating options for public sector interventions. It explains the importance of considering costs and benefits realistically, adjusting for inflation and discounting by the Social Time Preference Rate (STPR). It also explains the need to consider non-monetised costs and benefits and to make adjustments for optimism bias and risk. The preferred option should be selected based on the Net Present Social Value (NPSV) or Benefit Cost Ratio (BCR) and should consider the public sector spending constraint. Regulatory assessment should consider business costs and social returns should consider public sector costs in the denominator.”
“
In the section of the podcast of the Green Book, techniques for valuing the costs and benefits of a proposal where a market price is unavailable are discussed. A hierarchy of methods is presented, ranging from using prices from a relevant market to using direct wellbeing-based responses to inferring the implicit price placed on a good by examining consumer behaviour in a similar or related need. Research studies may be commissioned when reliable values are unavailable, and desk-based research and other data sources may be used to generate a range of estimates. Additionally, the value of non-market goods may be revealed through people’s decisions when prices are available.
The chapter also covers the valuation of costs and benefits for asset sales, with the value usually determined by the market or a discounted value of future income streams. It also discusses the social costs and benefits of disposal and the potential public sector and social costs of ongoing ownership. Finally, the valuation of financial asset sales is discussed, with a market risk premium added to the Social Times Preference Rate. Potential purchasers may have different reasons for finding a financial asset attractive.
Infrastructure interventions should be appraised and valued similarly, considering the size and complexity of the assets and potential productivity benefits. Supplementary guidance on wellbeing concepts, measurement, and evaluation is available on the Green Book page.”
“
This section of The Green Book podcast guides how to value costs and benefits when appraising government interventions. It discusses the concept of natural capital, which includes stocks of elements of nature that have value to society and how this can be used to assess environmental effects. It also outlines the Value of Prevented Fatality (VPF), Statistical Life Years (SLYs) and Quality-Adjusted Life Years (QALYs) to measure the impact of risks on life expectancy and health-related quality of life, respectively. Additionally, the chapter guides how to present appraisal results transparently, clearly showing the social value of alternative options.
This includes a generic core appraisal summary table used to assess Business As Usual (BAU), alternative options, and place-based appraisals. It also covers the need to consider a UK supply chain, competition effects, and unmonetisable and unquantifiable costs and benefits when creating a business case. This chapter provides a comprehensive overview of the need to consider the value of costs and benefits when appraising government interventions.”
“
The Green Book guides the non-market valuation of environmental and social impacts. It outlines damage costs, impact pathways, abatement costs, and vegetation benefits to assess air quality impacts. It also explains the use of Life Cycle Assessment (LCA) studies to access data on environmental externalities and provides indicative values for noise, waste, and recreation. It discusses using hedonic pricing studies to estimate values for environmental costs and benefits and guides local amenity and dis-amenity values. It also explains the use of Annual Average Damages (AAD) to assess flooding and coastal erosion impacts and the importance of considering displacement and the counterfactual when valuing physical health benefits. Finally, it outlines the use of land values to derive social value in appraisal and the wider effects associated with development.”
“
It also guides the valuation of non-market items such as land value, energy efficiency, and Greenhouse Gas (GHG) emissions. It outlines the steps to calculate the social cost of energy and convert energy use into GHG emissions, as well as the assumptions that should be made for each environmental value. It also guides using Multi-Criteria Decision Analysis (MCDA) and swings weighting when considering complex, unmonetisable trade-offs. Finally, it explains the concept of Place-Based Analysis and when it should be employed to assess the potential place-based impacts of projects. This guidance is intended to enable sensitivity analysis and should be used with supporting advice from ENCA, BEIS, and DLUHC.”
“
The Green Book guides the appraisal of Public Private Partnership (PPP) options. It outlines the importance of considering the time scales and resources required for PPPs and the need to appraise them like other options. It also emphasises the need to include a public sector comparator and consider the costs and risk changes during the contract negotiation. It stresses the need to align the interests of agents and principals with minimum complexity and to calculate the social value, wider social costs and benefits, and risk costing of the PPP option.”
“
The principles of risk management and the risks of failure to an organisation. It explains the three main types of risk: business, service and external. Business risks remain with the public sector and cannot be transferred; service risks are often associated with the delivery of services. However, they can be transferred to other parties, and external risks are associated with external factors and can be managed through contractual arrangements or insurance. It also explains the importance of early consultation with stakeholders, pilot studies, design flexibility, the precautionary principle, contractual risk, proven technology and the option of abandoning a proposal.”
“
It guides discounting for the appraisal of proposals. It explains the concept of discounting, which allows costs and benefits with different time spans to be compared on a standard “present value” basis. It also outlines the components of the Social Time Preference Rate (STPR), which is used to discount future costs and benefits. This includes the allowance for time preference (δ) and catastrophic and systemic risk (L). The overall value of ρ is set at 1.5%, with δ at 0.5% and L at 1%. The marginal utility of consumption (µ) is set at 1.3, while the expected growth rate of future real per capita consumption (g) is set at 2%.
Research suggests that the overall discount rate of 3.5% is justifiable. The recommended discount rate for risk to health and life values is 1.5%, as the ‘wealth effect’ is excluded. Tables 7 and 8 provide standard declining discount rates and discount factors by year. This page also discusses the effects of an intervention on intergenerational wealth transfers and suggests presenting the average discounted annual cost of the impact over the first 30 years. It is essential to convert costs and benefits to an actual price basis before discounting.”
“
This podcast provides more detail on the Green Book definitions and use of the terms “Transformation, Systems, and Dynamic Analysis”. Transformation is defined as a radical, permanent, qualitative change in the subject being transformed so that it has very different properties and behaves differently. It is not always a necessary result of quantitative change, but small changes can cause it to pass a tipping point and change qualitatively. Systems and dynamic analysis are used to consider wider systemic effects and account for dynamic differences in how parts of the system behave toward each other. These analyses also consider tipping points, feedback effects, leverage points, and barriers to change.
Additionally, the concept of irreversibility or virtual irreversibility due to cost and timescale is discussed. Finally, the Green Book Glossary Longlist, a list of possible options for the first appraisal stage, is also discussed. This list includes terms such as Additionality, Adverse Selection, Affordability, Agglomeration Benefits, Benefits Externalities, Business As Usual, Contingency Provision, Contingent Valuation, Cost Externalities, Cost of Capital, Deadweight, Diminishing Marginal Utility, Diminishing Marginal Utility of Income, Discounting, Displacement, Effectiveness, Evaluation, Expected Value, External Benefits, Cost Externalities, GDP Deflator, Gold Plating, Hedonic Pricing, Information Asymmetry, Intervention, Implementation, Irreversibility, Leakage, Market Failure, Market Value, Marginal Utility, Monte Carlo Analysis, Moral Hazard, Multi-Criteria Decision Analysis, Net Present Value, Nominal Price, Opportunity Cost, Optimism Bias, Options Framework, Outcome, Output, Policy, Portfolio, PPP, Precautionary Principle, Preferred Option, Price Indices, Programmes, Projects, Prosperity, Public Sector Comparator, Real Option Theory, Real Terms, Relative Price Effect, Relevant Costs and Benefits, Resources, Resource Cost, Revealed Preference, Risks, Risk Costs, Risk Register, Senior Responsible Owner, Sensitivity Analysis, Shadow Price, Shortlist, Social Benefits, Social Costs, Social Cost Benefit Analysis, Social Cost-Effectiveness Analysis, Social Time Preference Rate, Strategic Portfolio, Substitution, Switching Value, Systematic Risk, and Transfer Payments.”
“
This podcast provides a comprehensive list of references related to economic discounting and the Green Book, a guide to public sector appraisal and project planning. The references include books, research papers, and journal articles from authors such as Abel, Dixit, Eberly, Pindyck, Arrow, Cropper, Gollier, Groom, Heal, Newell, Nordhaus, Pizer, Portney, Sterner, Tol, and Weitzman.
These works discuss topics such as options, capital, investment, discounting benefits and costs for future generations, determining benefits and costs, valuing infrastructure, social preferences for risk, inequality and time, land use in the UK, public value, asset markets, consumer demand, and consumer behaviour. The references include discussion papers, reports and journal articles from the Royal Economic Society, Loughborough University, University College London, and the Department for Work and Pensions. A range writes these sources of authors discusses topics such as long-term corporate and social discount rates, positive gamma discounting, declining discount rates, and the morality of groups.
The Green Book Glossary also includes references to key works in the field, such as Social Interest Rate for Public Sector Appraisal in the United Kingdom, United States and Canada (Kula, 1987), The marginal utility of Income (Layard et al., 2008), Revision du taux d.actualisation des investissem- net publics (Lebegue, 2005), The Costs and Benefits of Analysis: Project Appraisal and Planning Twenty Years On (Little and Mirrlees, 1994), Intergenerational wealth transfers and social discounting (Lowe, 2008), Value for money and the valuation of public sector assets (Lowe, 2008), The World Economy: A Millennial Perspective (Maddison, 2001), Improving Cost Benefit Analysis (Maddison and Day, 2015), Long term Discount Rates for the Forest Enterprise (Newbery, 1992), Discounting the distant future (Newell and Pizer, 2003);
Cost Benefit Analysis (Official Norwegian Reports, 2012), Very Long-Run Discount Rates (Giglio et al., 2015), Resolving Intertemporal Conflicts: Economics vs Politics (Millner and Heal, 2014), Methodologies for Assessment of Policies for Long-Term Transition to Sustainable Transport (OECD, 2015), Middle-Income Households (ONS, 2013), A Social Time Preference Rate for Use in Long-Term Discounting (OXERA, 2002), and A Social Discount Rate for the United Kingdom (Pearce and Ulph, 1995).
Additionally, the references include works from Phillips L. (2011), Egan, M. Airoldi, M. MCDA Decision Conference CoRWM (2006), Phillips L. et al. (2013), Quinet E. (2013), Ramsey F.P. (1928), Sandmo A. (1998), Scott, M. and Dowley, M. (1977), Scott, M.F.G. (1989), Smith, C. and Flanagan, J. (2001), Spackman, M. (2016), Stern, N. (1977, 2007, 2008), Sterner, T. and Persson, U. (2008), Southard, M. and Essink-Bot, M-L. (1997), Thaler, R.H. and Sunstein, C.R. (2008), Tol, R. (2010), Traeger, C. (2012), USEPA (2010), and Vissing-Jørgensen, A. and Attanasio, O. (2003).
These works discuss topics such as the Royal Navy’s Type 45 Story, public health, nuclear waste storage, investing public funds, economic growth, decision-making, time discounting, income, the risk-benefit impact of H1N1 influenza vaccines, economic analysis, and stock-market participation. Lastly, the references include articles by Michael Weitzman related to gamma discounting and modelling and interpreting the economics of catastrophic climate change from 1996 to 2010. This page provides an overview of the key concepts and research related to economic discounting.”
EPISODE 10 – The HMT GREEN BOOK 2022 – A pragmatic approach
“
The Green Book outlines the principles of appraisal and evaluation, the overarching policy framework, generating options and longlist appraisal, shortlist options appraisal, and valuation of costs and benefits. It also includes non-market valuation, place-based analysis, distributional appraisal, public-private partnerships, uncertainty, optimism bias and risk, discounting, transformation, systems and dynamic change. In addition, it provides definitions for the words used in the guidance and outlines the critical appraisal steps.
The Five Case Model and Logical Change Process are also outlined in the book as structured approaches to appraising and evaluating projects and programs. The Green Book also guides managing successful programs and projects. It outlines the importance of having a well-defined problem, a clear set of objectives, and a plan for achieving them. It outlines any organisation’s various business, service, and external risks and guides how to identify, assess, and manage them.
The Green Book 2022 is a maintenance refresh of the Green Book 2020, with updated hyperlinks, references, email addresses, and guidance on fraud risk, real terms growth in values, NPSV and BCR construction, wellbeing, environmental valuation and greenhouse gas emissions, willingness to pay for a Quality Adjusted Life Year and distributional appraisal.”
“
This section of the Green Book podcast outlines the appraisal and evaluation process for public spending, taxation, and regulatory changes. It explains the importance of considering all costs and benefits that affect the population’s welfare and how to generate options and undertake a longlist and detailed appraisal.
The Green Book definition of public/social value for money is discussed, as well as an approach to the valuation of costs and benefits, guidance on how to present appraisal results, and an approach to monitoring and evaluation. The chapter also explains the need to involve key stakeholders and experts in the process and consider unintended collateral effects, place-based effects, and the duties placed on public officials by the Equality Act 2010 and the Family Test 2010. Finally, the chapter explains the importance of selecting the preferred option and determining the public value for money. It emphasises the need to quantify Business As Usual to ensure realistic SMART objectives.”
“
This section of the Green Book podcast outlines the overarching policy framework for developing a business case. It emphasises the importance of understanding the current situation and setting, as well as wider public policy and potential impacts on other public bodies. It also explains the need for research, consultation and engagement with stakeholders.
The Five Case Model is a required framework to consider a proposal’s costs, risks, and context. This includes the strategic dimension, which focuses on the case for change and expected outcomes, and the economic dimension, which involves longlist appraisal and selection of the shortlist. Unintended consequences must also be taken into account. The commercial dimension covers the commercial strategy and procurement tender, while the financial dimension considers the net cost to the public sector. Finally, the management dimension looks at the practical arrangements for implementation, risk management, benefit register, monitoring and evaluation and data collection. Monitoring and evaluation are critical components of the design and delivery of future interventions and should be included in proposals.”
“
This section of the podcast of the Green Book outlines the methodology for appraising proposals for new primary or secondary legislation or policy changes. It emphasises the need to frame policy objectives as social outcomes and develop a rationale explaining the desired change and how it can be brought about. It outlines the process of longlist and shortlist appraisal, including identifying SMART objectives and considering constraints and dependencies, critical success factors, place-based, equalities, and distributional effects.
Regulatory Impact Assessments (RIAs) should also follow the Green Book methodology. The strategic assessment should be undertaken to understand the current position and establish the rationale for intervention. Longlist appraisal should involve identifying options. Shortlist appraisal should include selecting a social cost-benefit analysis or social cost-effectiveness analysis, identifying and valuing costs and benefits, estimating the financial cost, and applying optimism bias. The preferred option should be identified considering NPSV, BCR, unmonetisable features, risks, and uncertainties. Finally, monitoring and evaluation should be conducted during the implementation and operational phase to inform management and evaluate outcomes.”
“
The Five Case Model is discussed in Chapter 5 of The Green Book, a structured, facilitated workshop that efficiently and effectively supports the development of policies, strategic portfolios, programmes, and projects. This model employs an options framework filter to support the immediate and transparent consideration of a wide range of options based on research evidence and stakeholder and expert input. This method helps identify an optimum viable shortlist of options, capturing a clear rationale for including and excluding alternative options. The options are driven by SMART objectives and viewed through the lens of the public service the scheme intends to deliver.
The process of generating options and longlist appraisal is outlined in this chapter. This includes using the Options Framework-Filter process to rate choices, breaking down options into a series of choices, conducting a SWOT analysis, and considering the effect on viability through Critical Success Factors. Finally, a workshop with public service professionals, key stakeholders and experts is used to identify the maximum and minimum potential scope and several alternative options between the two extremes.
The podcast section also covers the appraisal of individual spending decisions made in the context of pre-determined budgets. This includes calculating Net Present Social Value (NPSV) and Benefits Cost Ratios (BCRs) to compare the costs and benefits of each option. Costs to society are given a negative value and benefit a positive value, which can be adjusted for inflation and discounted to calculate the NPSV for each option. This chapter provides a comprehensive overview of generating and appraising options to identify the best way forward and ensure that the objectives are met.”
“
This section of the Green Book podcast outlines the appraisal framework for selecting and evaluating options for public sector interventions. It explains the importance of considering costs and benefits realistically, adjusting for inflation and discounting by the Social Time Preference Rate (STPR). It also explains the need to consider non-monetised costs and benefits and to make adjustments for optimism bias and risk. The preferred option should be selected based on the Net Present Social Value (NPSV) or Benefit Cost Ratio (BCR) and should consider the public sector spending constraint. Regulatory assessment should consider business costs and social returns should consider public sector costs in the denominator.”
“
In the section of the podcast of the Green Book, techniques for valuing the costs and benefits of a proposal where a market price is unavailable are discussed. A hierarchy of methods is presented, ranging from using prices from a relevant market to using direct wellbeing-based responses to inferring the implicit price placed on a good by examining consumer behaviour in a similar or related need. Research studies may be commissioned when reliable values are unavailable, and desk-based research and other data sources may be used to generate a range of estimates. Additionally, the value of non-market goods may be revealed through people’s decisions when prices are available.
The chapter also covers the valuation of costs and benefits for asset sales, with the value usually determined by the market or a discounted value of future income streams. It also discusses the social costs and benefits of disposal and the potential public sector and social costs of ongoing ownership. Finally, the valuation of financial asset sales is discussed, with a market risk premium added to the Social Times Preference Rate. Potential purchasers may have different reasons for finding a financial asset attractive.
Infrastructure interventions should be appraised and valued similarly, considering the size and complexity of the assets and potential productivity benefits. Supplementary guidance on wellbeing concepts, measurement, and evaluation is available on the Green Book page.”
“
This section of The Green Book podcast guides how to value costs and benefits when appraising government interventions. It discusses the concept of natural capital, which includes stocks of elements of nature that have value to society and how this can be used to assess environmental effects. It also outlines the Value of Prevented Fatality (VPF), Statistical Life Years (SLYs) and Quality-Adjusted Life Years (QALYs) to measure the impact of risks on life expectancy and health-related quality of life, respectively. Additionally, the chapter guides how to present appraisal results transparently, clearly showing the social value of alternative options.
This includes a generic core appraisal summary table used to assess Business As Usual (BAU), alternative options, and place-based appraisals. It also covers the need to consider a UK supply chain, competition effects, and unmonetisable and unquantifiable costs and benefits when creating a business case. This chapter provides a comprehensive overview of the need to consider the value of costs and benefits when appraising government interventions.”
“
The Green Book guides the non-market valuation of environmental and social impacts. It outlines damage costs, impact pathways, abatement costs, and vegetation benefits to assess air quality impacts. It also explains the use of Life Cycle Assessment (LCA) studies to access data on environmental externalities and provides indicative values for noise, waste, and recreation. It discusses using hedonic pricing studies to estimate values for environmental costs and benefits and guides local amenity and dis-amenity values. It also explains the use of Annual Average Damages (AAD) to assess flooding and coastal erosion impacts and the importance of considering displacement and the counterfactual when valuing physical health benefits. Finally, it outlines the use of land values to derive social value in appraisal and the wider effects associated with development.”
“
It also guides the valuation of non-market items such as land value, energy efficiency, and Greenhouse Gas (GHG) emissions. It outlines the steps to calculate the social cost of energy and convert energy use into GHG emissions, as well as the assumptions that should be made for each environmental value. It also guides using Multi-Criteria Decision Analysis (MCDA) and swings weighting when considering complex, unmonetisable trade-offs. Finally, it explains the concept of Place-Based Analysis and when it should be employed to assess the potential place-based impacts of projects. This guidance is intended to enable sensitivity analysis and should be used with supporting advice from ENCA, BEIS, and DLUHC.”
“
The Green Book guides the appraisal of Public Private Partnership (PPP) options. It outlines the importance of considering the time scales and resources required for PPPs and the need to appraise them like other options. It also emphasises the need to include a public sector comparator and consider the costs and risk changes during the contract negotiation. It stresses the need to align the interests of agents and principals with minimum complexity and to calculate the social value, wider social costs and benefits, and risk costing of the PPP option.”
“
The principles of risk management and the risks of failure to an organisation. It explains the three main types of risk: business, service and external. Business risks remain with the public sector and cannot be transferred; service risks are often associated with the delivery of services. However, they can be transferred to other parties, and external risks are associated with external factors and can be managed through contractual arrangements or insurance. It also explains the importance of early consultation with stakeholders, pilot studies, design flexibility, the precautionary principle, contractual risk, proven technology and the option of abandoning a proposal.”
“
It guides discounting for the appraisal of proposals. It explains the concept of discounting, which allows costs and benefits with different time spans to be compared on a standard “present value” basis. It also outlines the components of the Social Time Preference Rate (STPR), which is used to discount future costs and benefits. This includes the allowance for time preference (δ) and catastrophic and systemic risk (L). The overall value of ρ is set at 1.5%, with δ at 0.5% and L at 1%. The marginal utility of consumption (µ) is set at 1.3, while the expected growth rate of future real per capita consumption (g) is set at 2%.
Research suggests that the overall discount rate of 3.5% is justifiable. The recommended discount rate for risk to health and life values is 1.5%, as the ‘wealth effect’ is excluded. Tables 7 and 8 provide standard declining discount rates and discount factors by year. This page also discusses the effects of an intervention on intergenerational wealth transfers and suggests presenting the average discounted annual cost of the impact over the first 30 years. It is essential to convert costs and benefits to an actual price basis before discounting.”
“
This podcast provides more detail on the Green Book definitions and use of the terms “Transformation, Systems, and Dynamic Analysis”. Transformation is defined as a radical, permanent, qualitative change in the subject being transformed so that it has very different properties and behaves differently. It is not always a necessary result of quantitative change, but small changes can cause it to pass a tipping point and change qualitatively. Systems and dynamic analysis are used to consider wider systemic effects and account for dynamic differences in how parts of the system behave toward each other. These analyses also consider tipping points, feedback effects, leverage points, and barriers to change.
“
This podcast provides a comprehensive list of references related to economic discounting and the Green Book, a guide to public sector appraisal and project planning. The references include books, research papers, and journal articles from authors such as Abel, Dixit, Eberly, Pindyck, Arrow, Cropper, Gollier, Groom, Heal, Newell, Nordhaus, Pizer, Portney, Sterner, Tol, and Weitzman.
These works discuss topics such as options, capital, investment, discounting benefits and costs for future generations, determining benefits and costs, valuing infrastructure, social preferences for risk, inequality and time, land use in the UK, public value, asset markets, consumer demand, and consumer behaviour. The references include discussion papers, reports and journal articles from the Royal Economic Society, Loughborough University, University College London, and the Department for Work and Pensions. A range writes these sources of authors discusses topics such as long-term corporate and social discount rates, positive gamma discounting, declining discount rates, and the morality of groups.
The Green Book Glossary also includes references to key works in the field, such as Social Interest Rate for Public Sector Appraisal in the United Kingdom, United States and Canada (Kula, 1987), The marginal utility of Income (Layard et al., 2008), Revision du taux d.actualisation des investissem- net publics (Lebegue, 2005), The Costs and Benefits of Analysis: Project Appraisal and Planning Twenty Years On (Little and Mirrlees, 1994), Intergenerational wealth transfers and social discounting (Lowe, 2008), Value for money and the valuation of public sector assets (Lowe, 2008), The World Economy: A Millennial Perspective (Maddison, 2001), Improving Cost Benefit Analysis (Maddison and Day, 2015), Long term Discount Rates for the Forest Enterprise (Newbery, 1992), Discounting the distant future (Newell and Pizer, 2003);
Cost Benefit Analysis (Official Norwegian Reports, 2012), Very Long-Run Discount Rates (Giglio et al., 2015), Resolving Intertemporal Conflicts: Economics vs Politics (Millner and Heal, 2014), Methodologies for Assessment of Policies for Long-Term Transition to Sustainable Transport (OECD, 2015), Middle-Income Households (ONS, 2013), A Social Time Preference Rate for Use in Long-Term Discounting (OXERA, 2002), and A Social Discount Rate for the United Kingdom (Pearce and Ulph, 1995).
Additionally, the references include works from Phillips L. (2011), Egan, M. Airoldi, M. MCDA Decision Conference CoRWM (2006), Phillips L. et al. (2013), Quinet E. (2013), Ramsey F.P. (1928), Sandmo A. (1998), Scott, M. and Dowley, M. (1977), Scott, M.F.G. (1989), Smith, C. and Flanagan, J. (2001), Spackman, M. (2016), Stern, N. (1977, 2007, 2008), Sterner, T. and Persson, U. (2008), Southard, M. and Essink-Bot, M-L. (1997), Thaler, R.H. and Sunstein, C.R. (2008), Tol, R. (2010), Traeger, C. (2012), USEPA (2010), and Vissing-Jørgensen, A. and Attanasio, O. (2003).
These works discuss topics such as the Royal Navy’s Type 45 Story, public health, nuclear waste storage, investing public funds, economic growth, decision-making, time discounting, income, the risk-benefit impact of H1N1 influenza vaccines, economic analysis, and stock-market participation. Lastly, the references include articles by Michael Weitzman related to gamma discounting and modelling and interpreting the economics of catastrophic climate change from 1996 to 2010. This page provides an overview of the key concepts and research related to economic discounting.”
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