Value for moneyTo what extent does discount rate matter?

  1. Carlos Contreras Gómez 1
  1. 1 Universidad Complutense de Madrid
    info

    Universidad Complutense de Madrid

    Madrid, España

    ROR 02p0gd045

Journal:
Revista de economía aplicada

ISSN: 1133-455X

Year of publication: 2014

Volume: 22

Issue: 66

Pages: 93-112

Type: Article

More publications in: Revista de economía aplicada

Abstract

This paper proposes a Value for Money test to assess the appropriateness of using public-private partnerships (PPPs), and performs a numerical analysis to verify to what extent the outcomes are sensitive to the dis- count rates being used. The test is applied to two projects which differ in the length of the concession contract and the level of capital intensity. The paper finds that the higher the discount rate being used, the larger the advantage of using a PPP as the supply method. This conclusion is more visible in the case of projects with longer concession terms. More- over, using one single discount rate for very different project profiles seems to be inadequate

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