In the HBU thread, the issue of the future was raised. How do or how should our opinions of value relate to the future?

Of course, the What is Value? thread is still open and a definition would be useful in addressing this thread, but what do you think?

HBU is still open too.

Reply to post by Scott Cullen, on November 13, 1998 at 18:11:39:

ALWAYS! See 'Value Is' 10/18 #(294) and Future Value vs Negative Value thread.

Scott

Reply to post by Scott Cullen, on November 13, 1998 at 18:11:39:

Kerry said 11/21: "I think where the thread begins to lose credibility with me is the "future" in the "textbook definition". I'm much more prone to buy into the definition of value being 'current worth of a benefit'."

Value is current worth as of the date of value. That date of value might be 'retrospective," i.e. sometime in the past (e.g. what was the value of the tree when the chemical trespass occurred in 1990?). It might be "prospective," i.e. sometime in the future (e.g. what will the value of the urban forest be in 20 years when the city has completed a program of maintainence, removal and replacement, as compared to only removing trees when they die?). It might be the more common case, the value of the tree today. In any case the estimate of value must look forward from the date of value.

Consider a tree of a desireable species and characteristic form. It is large and at peak growth, not over mature. It is healthy. It is structurally sound. It is in the middle of a large fenced field, an important part of an important viewshed. Say it has a value of X.

Now change only the structure variable. There is a significant defect. There is no telling when the tree will fail but it is very likely that it will. There is no impact on tree health. There is no impact on appearance, the defect is not visible to the casual observer. Being in the middle of the fenced field there are no targets and thus no hazards. There is no liability and the tree does not have to be removed on account of the defect. Is value =X or
If value in the first case =X it is because all the benefits that will be received are worth X today. Those benefits include the benefits that will be enjoyed for the rest of today. And the rest of the year. And during each year that the tree provides benefits. Say that's another 100 years. In a Replacment Cost approach we don't attempt to quantify those benefits, we simply consider that whatever they are we can recover them, we can be made whole, if we replace the tree so replacement cost = value. In a benefits approach we would calculate or estimate the benefits to be received in year 100 and discount for the time value of money. The same for year 99, and year 98 and so on back to today. The sum of all those discounted benefits = X, i.e. present value.

If in the second case we estimate that the tree will not last more than 20 years then 80 years of benefits are just eliminated from the equation. We will discount the benefits expected in year 20, 19, 18, 17 and so forth for the time value of money and additionally for the risk of failure which will reduce the liklihood that we will actually receive the benefits. The sum of these discounted benfits = present value which obviously is < X. In a Replacement Cost approach we would depreciate the cost estimate to reflect the same considerations.

The example I gave Russ in another post was a season ticket to 25 games is worth X. A ticket to tonight's game is worth X/25. A ticket to last night's game is worth 0.

If you use a market approach (rather than a replacement cost or a benefits approach) the same logic applies. The market will pay for future benefits. All other things being equal, a rennovated house is worth more than a fixer upper; a new car is worth more than a ten year old car with 115,000 miles on it.

In any case value is the current worth of future benefits.