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Quantitative analysis of dynamic inconsistencies in infrastructure planning: an example of coastal levee improvement

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

Abstract

Cost–benefit analysis is considered as an effective means for the government to avoid failures in public projects. However, once cost–benefit analysis becomes mandatory and residents expect a public project to be established based upon it, there is a potential for a dynamic inconsistency problem to arise, where dynamic inconsistency is defined as a difference in the optimal policy before and after a certain time. 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 cost–benefit analysis 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

  • Tatsuhito Kono & Naoki Kitamura & Kiyoshi Yamasaki & Kazuki Iwakami, 2016. "Quantitative analysis of dynamic inconsistencies in infrastructure planning: an example of coastal levee improvement," Environment and Planning B, , vol. 43(2), pages 401-418, March.
    • Handle: RePEc:sae:envirb:v:43:y:2016:i:2:p:401-418
    DOI: 10.1177/0265813515609221
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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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