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A Sensitivity Assessment of Uncertainty in Infrastructure Expansion

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  • Haynes, Kingsley E
  • Krmenec, Andrew

Abstract

Under and overdesign is a major consideration in public infrastructure expansion. Traditional engineering economies of scale leading to overdesign errors must be conterbalanced by greater attention to high cost financing. Uncertainty in demand forecasting and in financial markets make decision tools which incorporate measures of information imperfection increasingly important. Further issues of overall social welfare make the question of short term and intergenerational equity major concerns. A rational expectations stochastic-analog of the conventional, present value, infrastructure expansion model has optimal overdesign properties. The problem is restated as a two-person, planner vs. future, social welfare game in a simple capital loss model. Sensitivity analysis shows the game-theoretic model which favors expansion underdesign is relatively less sensitive to greater demand forecast uncertainty than the rational expectations model.

Suggested Citation

  • Haynes, Kingsley E & Krmenec, Andrew, 1989. "A Sensitivity Assessment of Uncertainty in Infrastructure Expansion," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 23(4), pages 299-309.
    • Handle: RePEc:spr:anresc:v:23:y:1989:i:4:p:299-309
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    Cited by:

    1. Ding, Chengri & Knaap, Gerrit J. & Hopkins, Lewis D., 1999. "Managing Urban Growth with Urban Growth Boundaries: A Theoretical Analysis," Journal of Urban Economics, Elsevier, vol. 46(1), pages 53-68, July.
    2. Haynes, Kingsley E. & Li, Ming, 2004. "Analytical Alternatives In Intelligent Transportation System (Its) Evaluation," Research in Transportation Economics, Elsevier, vol. 8(1), pages 127-149, January.

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