The appropriate discount rate to use when assessing transportation products has been a subject of debate in Norway. The discount rate for assessing road investment projects was set at 8% in 2002 and was composed of two parts: a risk free interest rate at 3.5% and a risk mark-up rate at 0.5-4.5%. The risk mark-up rate is set to reflect how sensitive benefits from public investment projects are to economic trends. Higher discount rates render projects less profitable. The Norwegian discount rate is compared with those of other EU countries (Germany, Sweden, the Netherlands, Finland, UK, France), which are in the range 3-6%. The Norwegian Royal Ministry of Finance has revised the discount rate and advised that it should be set at 4% (2% risk free component and 2% risk mark-up). The impact of the change on road projects is discussed and a table is presented comparing the impact on net present values and benefit-cost ratios on selected projects.
Abstract