Economic evaluation and incentives in transport infrastructure investment
AbstractLarge infrastructure projects are high cost investments devoted to the construction and operation of long life, specific assets, characterized by demand uncertainty and irreversibility. Besides these technical characteristics, the usual institutional setting for the proposal, evaluation and selection of projects, is one of different agents in a context of asymmetric information, with their own, and sometimes conflicting, objective functions. The selection of large investment projects in a multi-government setting, as it is the case within the European Union, deserves some modelling of the decision taking process. Many infrastructure projects co-financed by the European Commission can be treated as investments proposed by a Member State, approved and partially financed by the Commission. Once it is assumed that the objective function of the European Commission and any Member State may differ it is worth examining the consequences in terms of the incentives in the actual system of selection and finance of large infrastructure projects. This paper addresses the adverse selection problem which may be favouring the construction of socially undesirable projects from a European perspective. One way out of this is a better design for project selection introducing alternative mechanism with new incentives aimed to the efficient allocation of public funds. Meanwhile, to gather new information can help in the screening of projects. This paper deals with the problem of increasing the information available through the use of known cost ranges and values determinant in the social profitability of high speed rail investment projects. The idea is to inverse the evaluation process, and to figure out the demand threshold required for a positive net social benefit, instead of estimating the net social benefit of the project given a demand forecast. This does not mean that the present incentives to inefficient investment will change, but relevant information on the starting demand volumes required for a project to be socially profitable will help in the discussion on the ranking of projects competing for public money.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2006-25.
Date of creation: 13 Oct 2006
Date of revision:
Cost Benefit Analysis; Transport Infrastructure; High Speed Rail;
Find related papers by JEL classification:
- R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Systems - - - Transportation: Demand, Supply, and Congestion
- R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Systems - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning
- H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gramlich, Edward M, 1994. "Infrastructure Investment: A Review Essay," Journal of Economic Literature, American Economic Association, vol. 32(3), pages 1176-96, September.
- Roger Vickerman, 1997. "High-speed rail in Europe: experience and issues for future development," The Annals of Regional Science, Springer, vol. 31(1), pages 21-38.
- Phang, Sock-Yong, 2003. "Strategic development of airport and rail infrastructure: the case of Singapore," Transport Policy, Elsevier, vol. 10(1), pages 27-33, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEMM Working Papers).
If references are entirely missing, you can add them using this form.