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Add notes on discount rates.
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@tomalrussell
tomalrussell committed Mar 29, 2021
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Showing 1 changed file with 44 additions and 25 deletions.
69 changes: 44 additions & 25 deletions tutorials/04-evaluate-adaptation-options.ipynb
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{
"cell_type": "code",
"execution_count": null,
"id": "compatible-familiar",
"id": "sophisticated-pickup",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -190,7 +190,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "domestic-meter",
"id": "italian-color",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -210,7 +210,7 @@
},
{
"cell_type": "markdown",
"id": "aggressive-input",
"id": "encouraging-poverty",
"metadata": {},
"source": [
"Introduce costs of road upgrade options.\n",
Expand All @@ -233,13 +233,32 @@
" 'routine_usd_per_km': [ 20_000, 10_000, 5_000 ],\n",
" 'periodic_usd_per_km': [ 100_000, 50_000, 25_000 ],\n",
"})\n",
"discount_rate_percentage = 12\n",
"options"
]
},
{
"cell_type": "markdown",
"id": "included-cloud",
"id": "elder-prince",
"metadata": {},
"source": [
"Set a discount rate. This will be used to discount the cost of annual and periodic maintenance, as well as the present value of future expected annual damages.\n",
"\n",
"This is another sensitive parameter which will affect the net present value calculations for both costs and benefits. As an exercise, try re-running the remainder of the analysis with different values here. What economic or financial justification could there be for assuming different discount rates?"
]
},
{
"cell_type": "code",
"execution_count": null,
"id": "rapid-award",
"metadata": {},
"outputs": [],
"source": [
"discount_rate_percentage = 3"
]
},
{
"cell_type": "markdown",
"id": "refined-success",
"metadata": {},
"source": [
"Given initial and routine costs and a discount rate, we can calculate the net present value for each adaptation option.\n",
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},
{
"cell_type": "markdown",
"id": "accompanied-therapy",
"id": "missing-disclaimer",
"metadata": {},
"source": [
"This table can then be summarised by summing over all years in the time horizon, to calculate the net present value of all that future investment in maintenance."
Expand All @@ -299,7 +318,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "peaceful-alabama",
"id": "intermediate-mouth",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -316,15 +335,15 @@
},
{
"cell_type": "markdown",
"id": "nonprofit-london",
"id": "grand-depth",
"metadata": {},
"source": [
"## 3. Estimate costs and benefits"
]
},
{
"cell_type": "markdown",
"id": "continuing-alignment",
"id": "honest-relation",
"metadata": {},
"source": [
"Apply road kind assumptions for adaptation upgrades:"
Expand All @@ -333,7 +352,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "trained-layer",
"id": "tracked-wagner",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -349,7 +368,7 @@
},
{
"cell_type": "markdown",
"id": "numerical-zimbabwe",
"id": "compound-spine",
"metadata": {},
"source": [
"Join adaptation cost estimates (per km)"
Expand All @@ -358,7 +377,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "favorite-identification",
"id": "initial-independence",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -367,7 +386,7 @@
},
{
"cell_type": "markdown",
"id": "solar-question",
"id": "foreign-quilt",
"metadata": {},
"source": [
"Calculate total cost estimate for length of roads exposed"
Expand All @@ -376,7 +395,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "dutch-invite",
"id": "floppy-crowd",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -387,16 +406,16 @@
},
{
"cell_type": "markdown",
"id": "covered-aurora",
"id": "simple-secretariat",
"metadata": {},
"source": [
"Calculate net present value of avoided damages over the time horizon"
"Calculate net present value of avoided damages over the time horizon:"
]
},
{
"cell_type": "code",
"execution_count": null,
"id": "billion-import",
"id": "judicial-rehabilitation",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -408,7 +427,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "constant-advocate",
"id": "preliminary-plenty",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -417,7 +436,7 @@
},
{
"cell_type": "markdown",
"id": "nasty-correlation",
"id": "criminal-burning",
"metadata": {},
"source": [
"Calculate benefit-cost ratio"
Expand All @@ -438,7 +457,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "technological-effectiveness",
"id": "affecting-piano",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -448,7 +467,7 @@
},
{
"cell_type": "markdown",
"id": "adopted-tracker",
"id": "rubber-destruction",
"metadata": {},
"source": [
"Filter to find cost-beneficial adaptation options under historic flood scenarios"
Expand All @@ -457,7 +476,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "complicated-translator",
"id": "treated-average",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -467,7 +486,7 @@
},
{
"cell_type": "markdown",
"id": "english-washington",
"id": "caring-trader",
"metadata": {},
"source": [
"Summarise by region to explore where cost-beneficial adaptation options might be located.\n",
Expand All @@ -478,7 +497,7 @@
{
"cell_type": "code",
"execution_count": null,
"id": "suited-workshop",
"id": "negative-liquid",
"metadata": {},
"outputs": [],
"source": [
Expand All @@ -493,7 +512,7 @@
},
{
"cell_type": "markdown",
"id": "cubic-cruise",
"id": "helpful-negative",
"metadata": {},
"source": [
"Given the aggregation, filtering and plotting you've seen throughout these tutorials, what other statistics would be interesting to explore from these results?"
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