According to the World Health Organization’s (WHO) 2002 World Health Report, the discount rate for the costs of a health program is the opportunity cost of capital, which is the rate of return that investors could be making in financial markets. In the current bear market, a good representation of the opportunity cost of capital is the rate of return of U.S. treasury bonds, because they are viewed as safe investments; the rate of return of 10-year treasury bonds as of March 13, 2009, is 2.87%, according to Google finance. The discount rate for the potential benefits of a program, however, is debatable, and the WHO report states that studies have used discount rates for benefits that range from zero to 5%. Nevertheless, the WHO report recommends that the same discount rate be used for costs and benefits, and the discount rate that the WHO uses is 3%. Therefore, we will use a discount rate of 3% for our cost/benefit analysis because it is the WHO discount rate, and it is a good representation of the current opportunity cost of capital.
Sources:
Google Finance. (2009). 10 Year Bond. Retrieved March 13, 2009, from http://www.google.com/finance
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