Net present value (NPV)

Net present value (NPV) is a tool used by economists to “discount” future monetary values. It is based on the very intuitive principle that having something of value today is worth more than receiving that same thing sometime later in the future. For example, if given the choice of receiving $100 today or $100 one year from now, almost everyone (and everyone who is rational!) would choose to receive $100 today. As discussed on our last day of class, the concept of discounting is used extensively within environmental policy, especially in terms of cost-benefit assessments. At the same time, many environmental activists and, indeed, policy-oriented environmental scientists are troubled by the use of discounting for certain kinds of ecosystem services.