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Quantitative Analysis of Dynamic Inconsistencies in Infrastructure Planning: An example of coastal levee improvement

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  • Kono, Tatsuhito
  • Kitamura, Naoki
  • Yamasaki, Kiyoshi
  • Iwakami, Kazuki

Abstract

Cost-benefit analysis (CBA) is considered as an effective means to avoid the government’s failures of public projects. However, once CBA becomes mandatory and residents expect a public project to be established based upon it, there is the potential for a dynamic inconsistency problem to arise, where dynamic inconsistency is defined as a difference in the optimal policy between before and after a timing. Taking as an example the coastal levee improvement policy in the city of Rikuzentakata in Japan, the present study clarifies the mechanism behind the dynamic inconsistency problem that is attributable to mandatory CBA and also discusses quantitatively the influence of the dynamic inconsistency problem on social welfare. In addition, through examining the quantitative result, we indicate that, in the projects where the improvement cost increases gradually with the scale, the inefficiency of the dynamic inconsistency problem is incurred on a larger scale.

Suggested Citation

  • Kono, Tatsuhito & Kitamura, Naoki & Yamasaki, Kiyoshi & Iwakami, Kazuki, 2016. "Quantitative Analysis of Dynamic Inconsistencies in Infrastructure Planning: An example of coastal levee improvement," MPRA Paper 107920, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:107920
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    More about this item

    Keywords

    Dynamic (or time) inconsistency problem; Cost-benefit analysis; Public investment;
    All these keywords.

    JEL classification:

    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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