From a1e194eb368a9b01436f9a6237ded6d4f5e53915 Mon Sep 17 00:00:00 2001 From: Tom Russell Date: Mon, 29 Mar 2021 15:24:45 +0100 Subject: [PATCH] Add notes on discount rates. --- .../04-evaluate-adaptation-options.ipynb | 69 ++++++++++++------- 1 file changed, 44 insertions(+), 25 deletions(-) diff --git a/tutorials/04-evaluate-adaptation-options.ipynb b/tutorials/04-evaluate-adaptation-options.ipynb index c40847e..0b75bb4 100644 --- a/tutorials/04-evaluate-adaptation-options.ipynb +++ b/tutorials/04-evaluate-adaptation-options.ipynb @@ -164,7 +164,7 @@ { "cell_type": "code", "execution_count": null, - "id": "compatible-familiar", + "id": "sophisticated-pickup", "metadata": {}, "outputs": [], "source": [ @@ -190,7 +190,7 @@ { "cell_type": "code", "execution_count": null, - "id": "domestic-meter", + "id": "italian-color", "metadata": {}, "outputs": [], "source": [ @@ -210,7 +210,7 @@ }, { "cell_type": "markdown", - "id": "aggressive-input", + "id": "encouraging-poverty", "metadata": {}, "source": [ "Introduce costs of road upgrade options.\n", @@ -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", @@ -290,7 +309,7 @@ }, { "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." @@ -299,7 +318,7 @@ { "cell_type": "code", "execution_count": null, - "id": "peaceful-alabama", + "id": "intermediate-mouth", "metadata": {}, "outputs": [], "source": [ @@ -316,7 +335,7 @@ }, { "cell_type": "markdown", - "id": "nonprofit-london", + "id": "grand-depth", "metadata": {}, "source": [ "## 3. Estimate costs and benefits" @@ -324,7 +343,7 @@ }, { "cell_type": "markdown", - "id": "continuing-alignment", + "id": "honest-relation", "metadata": {}, "source": [ "Apply road kind assumptions for adaptation upgrades:" @@ -333,7 +352,7 @@ { "cell_type": "code", "execution_count": null, - "id": "trained-layer", + "id": "tracked-wagner", "metadata": {}, "outputs": [], "source": [ @@ -349,7 +368,7 @@ }, { "cell_type": "markdown", - "id": "numerical-zimbabwe", + "id": "compound-spine", "metadata": {}, "source": [ "Join adaptation cost estimates (per km)" @@ -358,7 +377,7 @@ { "cell_type": "code", "execution_count": null, - "id": "favorite-identification", + "id": "initial-independence", "metadata": {}, "outputs": [], "source": [ @@ -367,7 +386,7 @@ }, { "cell_type": "markdown", - "id": "solar-question", + "id": "foreign-quilt", "metadata": {}, "source": [ "Calculate total cost estimate for length of roads exposed" @@ -376,7 +395,7 @@ { "cell_type": "code", "execution_count": null, - "id": "dutch-invite", + "id": "floppy-crowd", "metadata": {}, "outputs": [], "source": [ @@ -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": [ @@ -408,7 +427,7 @@ { "cell_type": "code", "execution_count": null, - "id": "constant-advocate", + "id": "preliminary-plenty", "metadata": {}, "outputs": [], "source": [ @@ -417,7 +436,7 @@ }, { "cell_type": "markdown", - "id": "nasty-correlation", + "id": "criminal-burning", "metadata": {}, "source": [ "Calculate benefit-cost ratio" @@ -438,7 +457,7 @@ { "cell_type": "code", "execution_count": null, - "id": "technological-effectiveness", + "id": "affecting-piano", "metadata": {}, "outputs": [], "source": [ @@ -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" @@ -457,7 +476,7 @@ { "cell_type": "code", "execution_count": null, - "id": "complicated-translator", + "id": "treated-average", "metadata": {}, "outputs": [], "source": [ @@ -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", @@ -478,7 +497,7 @@ { "cell_type": "code", "execution_count": null, - "id": "suited-workshop", + "id": "negative-liquid", "metadata": {}, "outputs": [], "source": [ @@ -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?"