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Survival of the Unfittest: Why the Worst Infrastructure Gets Built, And What We Can Do about It

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  • Bent Flyvbjerg
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    Abstract

    The article first describes characteristics of major infrastructure projects. Second, it documents a much neglected topic in economics: that ex ante estimates of costs and benefits are often very different from actual ex post costs and benefits. For large infrastructure projects the consequence is cost overruns, benefit shortfalls, and the systematic underestimation of risks. Third, implications for cost-benefit analysis are described, including that such analysis is not to be trusted for major infrastructure projects. Fourth, the article uncovers the causes of this state of affairs in terms of perverse incentives that encourage promoters to underestimate costs and overestimate benefits in the business cases for their projects. But the projects that are made to look best on paper are the projects that amass the highest cost overruns and benefit shortfalls in reality. The article depicts this situation as "survival of the un-fittest." Fifth, the article sets out to explain how the problem may be solved, with a view to arriving at more efficient and more democratic projects, and avoiding the scandals that often accompany major infrastructure investments. Finally, the article identifies current trends in major infrastructure development. It is argued that a rapid increase in stimulus spending combined with more investments in emerging economies combined with more spending on information technology is catapulting infrastructure investment from the frying pan into the fire.

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    File URL: http://arxiv.org/pdf/1303.6571
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    Bibliographic Info

    Paper provided by arXiv.org in its series Papers with number 1303.6571.

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    Date of creation: Mar 2013
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    Publication status: Published in Oxford Review of Economic Policy, vol. 25, no. 3, 2009
    Handle: RePEc:arx:papers:1303.6571

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    Web page: http://arxiv.org/

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    1. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
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