This, however, is not always true. Therefore, in programs such as the Environmental Management program, the time at which benefits and costs are experienced becomes an important consideration. For example, a dollar spent in ten years is worth less than a dollar spent today because today ' s dollar could be invested in a savings account or another investment and be worth more than a dollar in ten years. To determine how much less future costs and benefits are worth, analysts typically apply a discount rate. A major issue in discounting future costs and benefits is selecting the appropriate discount rate.
Analysts emphasize the use of two major variables to determine the proper discount rate.
The first variable is the rate at which people are willing to sacrifice present consumption for future consumption. This is often called the time preference rate or the social rate of time preference. Second, public projects use resources that can be employed in private investment projects. Thus, if private investment projects yield 15 percent, diverting resources from private investment to public projects entails an opportunity cost of 15 percent or an opportunity cost rate of 15 percent. The return on private investment is often called the opportunity cost rate.