How reliable are estimates of infrastructure costs? A comparative analysis
AbstractAlthough the economic importance of adequate infrastructure is generally recognised, in practice decision-makers - faced with the judgement of new large infrastructure projects - are hesitant to approve such new projects because of the uncertainty in the related cost estimates. It is often argued by them that expost the actual costs of new infrastructure appear to be usually underestimated. Sometimes even the term 'strategic underestimation ' is used. This paper investigates the causes of misjudgement of infrastructure costs by distinguishing systematically various classes of miscalculations and misrepresentations of costs. Based on a comparative analysis of cost estimates of infrastructure projects in the Netherlands and Finland, the interesting conclusion is found that in general cost estimates tend to be rather reliable. Underestimations are - in addition to inflationary backgrounds caused by the delay of projects over a long time span - mainly the result of additional political wishes in the form of adjustments or extensions imposed during the preparation and implementation stage of projects and which lead to excessive cost rises.
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Bibliographic InfoPaper provided by VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics in its series Serie Research Memoranda with number 0029.
Date of creation: 1998
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Find related papers by JEL classification:
- L98 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Government Policy
- M41 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - Accounting
- R53 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Public Facility Location Analysis; Public Investment and Capital Stock
This paper has been announced in the following NEP Reports:
- NEP-ALL-2002-03-14 (All new papers)
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- Tore Langmyhr, 2001. "The rationality of transport investment packages," Transportation, Springer, vol. 28(2), pages 157-178, May.
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