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Underestimating Costs in Public Works Projects: Error or Lie?

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  • Bent Flyvbjerg
  • Mette K. Skamris Holm
  • S{o}ren L. Buhl

Abstract

This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.

Suggested Citation

  • Bent Flyvbjerg & Mette K. Skamris Holm & S{o}ren L. Buhl, 2013. "Underestimating Costs in Public Works Projects: Error or Lie?," Papers 1303.6604, arXiv.org.
    • Handle: RePEc:arx:papers:1303.6604
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    Cited by:

    1. Elizabeth Brubaker, 2011. "A Bridge Over Troubled Waters: Alternative Financing and Delivery of Water and Wastewater Services," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 330, May.
    2. Antonio Estache & Atsushi Iimi, 2010. "Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(2), pages 163-187, March.
    3. Ginés de Rus, 2014. "The economic evaluation of infrastructure investment. Some inescapable tradeoffs," Working Papers 2014-16, FEDEA.
    4. Joseph Sturm & Mashrur Chowdhury & Anne Dunning & Jennifer Ogle, 2011. "Analysis of cost estimation disclosure in environmental impact statements for surface transportation projects," Transportation, Springer, vol. 38(3), pages 525-544, May.
    5. Sergey Belev & Olga Boldareva & Ilya Sokolov & Anna Zolotareva, 2013. "Features of the Public Procurements of Innovation Products in Russian and the World," Published Papers 166, Gaidar Institute for Economic Policy, revised 2013.

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