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Explaining low economic return on road investments. New evidence from Norway

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  • Halse, Askill Harkjerr
  • Fridstrøm, Lasse

Abstract

Is regional policy to blame for the negative economic return on many road projects, or can road investments give value for money also in remote areas? In Norway, a large majority of planned road projects have negative net benefits according to cost-benefit analysis (CBA). In this paper, we point at geographic characteristics that can explain this, comparing Norway with its neighbors Sweden and Denmark. We then show econometric evidence that such factors also explain a substantial part of the variation in the benefit-cost ratio within Norway. Projects in areas that are far from the largest cities or have difficult topography have lower net benefits. This implies that there is a trade-off between economic efficiency and investing in roads in rural areas with difficult topography. We also discuss the role of road design requirements, decision-making processes and the electoral system for road investment policy.

Suggested Citation

  • Halse, Askill Harkjerr & Fridstrøm, Lasse, 2019. "Explaining low economic return on road investments. New evidence from Norway," MPRA Paper 94389, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:94389
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    Cited by:

    1. Johanna Jussila Hammes, 2021. "The Impact of Career Concerns and Cognitive Dissonance on Bureaucrats’ Use of Benefit-Cost Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(2), pages 409-424, October.
    2. Welde, Morten & Tveter, Eivind, 2022. "The wider local impacts of new roads: A case study of 10 projects," Transport Policy, Elsevier, vol. 115(C), pages 164-180.
    3. Jussila Hammes, Johanna & Volden, Gro Holst & Welde, Morten & Börjesson, Maria & Odeck, James, 2021. "Finding transport projects with high value for money : what are the socio-geographic determinants?," Working Papers 2021:4, Swedish National Road & Transport Research Institute (VTI).
    4. Kim, Jinwon, 2022. "Does roadwork improve road speed? Evidence from urban freeways in California," Regional Science and Urban Economics, Elsevier, vol. 93(C).

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    More about this item

    Keywords

    Cost-benefit analysis; road investments; regional policy; distributive politics;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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