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Ranking transport projects by their socioeconomic value or financial internal rate of return?

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  • Bonnafous, Alain
  • Jensen, Pablo

Abstract

This paper discusses the choice by the public authority of the most efficient programme of infrastructure investments. More specifically, it studies the optimal ranking of project implementation when these projects are partially self-financed by their own revenues such as tolled highways. In this case, the optimal investment programme must be defined under a constraint of annual subsidies. This paper demonstrates that the optimal ranking is not necessarily the ranking of decreasing socioeconomic IRR. This counter-intuitive result can be demonstrated by a general approach. Analytical calculations are not useful in this discrete problem because each programme is an ordered subset of projects. Therefore, there is no continuous variation linking the various programmes and the usual tools of optimization, such as differential calculus, are useless. Thus, we adopt here a discrete optimization analysis based on standard techniques in the physics area, such as Monte Carlo sampling.

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  • Bonnafous, Alain & Jensen, Pablo, 2005. "Ranking transport projects by their socioeconomic value or financial internal rate of return?," Transport Policy, Elsevier, vol. 12(2), pages 131-136, March.
    • Handle: RePEc:eee:trapol:v:12:y:2005:i:2:p:131-136
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    References listed on IDEAS

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    1. Alain Bonnafous, 2002. "Les infrastructures de transport et la logique financière du partenariat public-privé : quelques paradoxes," Revue Française d'Économie, Programme National Persée, vol. 17(1), pages 173-194.
    2. Alain Bonnafous, 1999. "Infrastructures publiques et financement privé : le paradoxe de la rentabilité financière," Revue d'Économie Financière, Programme National Persée, vol. 51(1), pages 157-166.
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    1. Anastasios Michailidis & Efstratios Loizou & Georgios Theodosiou, 2006. "Socioeconomic Evaluation and Ranking of Infrastructure Projects," ERSA conference papers ersa06p395, European Regional Science Association.
    2. Musso, Enrico & Ferrari, Claudio & Benacchio, Marco, 2006. "Port Investment: Profitability, Economic Impact and Financing," Research in Transportation Economics, Elsevier, vol. 16(1), pages 171-218, January.
    3. Mandic, Dragomir & Jovanovic, Predrag & Bugarinovic, Mirjana, 2014. "Two-phase model for multi-criteria project ranking: Serbian Railways case study," Transport Policy, Elsevier, vol. 36(C), pages 88-104.
    4. Rolfe, John & Flint, Nicole, 2018. "Assessing the economic benefits of a tourist access road: A case study in regional coastal Australia," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 167-178.
    5. Valentin Bertsch & Valeria Di Cosmo, 2018. "Are Renewables Profitable in 2030? A Comparison between Wind and Solar across Europe," Working Papers 2018.28, Fondazione Eni Enrico Mattei.
    6. Mishra, Sabyasachee & Khasnabis, Snehamay & Dhingra, Sunder Lall, 2013. "A simulation approach for estimating value at risk in transportation infrastructure investment decisions," Research in Transportation Economics, Elsevier, vol. 38(1), pages 128-138.
    7. Bonnafous, Alain, 2015. "The economic regulation of French highways: Just how private did they become?," Transport Policy, Elsevier, vol. 41(C), pages 33-41.
    8. Beria, Paolo & Grimaldi, Raffaele, 2014. "Cost Benefit Analysis to assess urban mobility plans. Consumers’ surplus calculation and integration with transport models," MPRA Paper 59590, University Library of Munich, Germany.
    9. Bernard Lapeyre & Emile Quinet, 2017. "A Simple GDP-based Model for Public Investments at Risk," Post-Print hal-01666574, HAL.
    10. Maffii, Silvia & Parolin, Riccardo & Ponti, Marco, 2010. "Social marginal cost pricing and second best alternatives in partnerships for transport infrastructures," Research in Transportation Economics, Elsevier, vol. 30(1), pages 23-28.
    11. Acharya, Bikram & Lee, Jongsu & Moon, HyungBin, 2022. "Preference heterogeneity of local government for implementing ICT infrastructure and services through public-private partnership mechanism," Socio-Economic Planning Sciences, Elsevier, vol. 79(C).
    12. Bernard Lapeyre & Emile Quinet, 2017. "A Simple GDP-based Model for Public Investments at Risk," PSE-Ecole d'économie de Paris (Postprint) hal-01666574, HAL.
    13. Bertsch, Valentin & Di Cosmo, Valeria, 2020. "Are renewables profitable in 2030 and do they reduce carbon emissions effectively? A comparison across Europe," MPRA Paper 101822, University Library of Munich, Germany.

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