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Cost-benefit Analysis of Infrastructure Projects in an Enlarged European Union: Returns and Incentives

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  • Massimo Florio

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  • Silvia Vignetti

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Abstract

We consider results of cost-benefit analysis (CBA) in a large sample of ISPA (Structural Instrument for Pre-Accession countries) projects co-financed by the European Union to support investment in transport and environment. The research focus is on the empirical analysis of the variability of financial and economic rates of return and how to integrate this information in the EU co-financing mechanism. We investigate to what extent the variability of expected returns and of EU co-financing rates is due to structural project characteristics (sectors, countries) or to other unexplained factors, including errors in the appraisal. We find that while the absolute level of grants is related to sectors, the EU co-financing rate depends on countries. There is no justification in economic analysis of such a country bias, because the variability of economic rate of returns is unrelated either to sector or country factors. These findings points to the need of a more consistent approach to evaluation and EU co-financing of infrastructure supported by the EU funds. We suggest possible improvements, based on the idea to offer an incentive to projects with high-expected economic␣rates of return relative to a benchmark and showing ex-post the realism of the initial analysis. Copyright Springer Science+Business Media, LLC 2005

Suggested Citation

  • Massimo Florio & Silvia Vignetti, 2005. "Cost-benefit Analysis of Infrastructure Projects in an Enlarged European Union: Returns and Incentives," Economic Change and Restructuring, Springer, vol. 38(3), pages 179-210, December.
  • Handle: RePEc:kap:ecopln:v:38:y:2005:i:3:p:179-210 DOI: 10.1007/s10644-006-9002-0
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    References listed on IDEAS

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    1. César Calderón & Alberto Chong, 2004. "Volume and Quality of Infrastructure and the Distribution of Income: An Empirical Investigation," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 50(1), pages 87-106, March.
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    5. Massimo FLORIO & Silvia VIGNETTI, 2004. "Cost benefit analysis, developing planning and the EU cohesion fund: learning from experience," Departmental Working Papers 2004-31, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
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    Cited by:

    1. Zaman Gheorghe & Vasile Valentina & Cristea Anca, 2012. "Sustainable Development Challenges And Fdi Impact In Host Countries," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 444-460, July.

    More about this item

    Keywords

    cost-benefit analysis; EU Structural Funds; infrastructure; project evaluation; D61; H43; R58;

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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