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The Economics of Infrastructure Investment: Beyond Simple Cost Benefit Analysis

Author

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  • Arthur Grimes

    (Motu Economic and Public Policy Research)

Abstract

This non-technical 'think-piece' examines aspects of infrastructure project evaluation, concentrating on circumstances that may render a standard cost benefit analysis (CBA) inappropriate. It is designed to make infrastructure investors and planners think deeply about their assumptions and to broaden the range of issues that are taken into account. Issues considered include: the role of CBA; network effects (increasing returns to scale) and the endogeneity of resources within an economy; the valuation of productive versus consumptive benefits; the value of traded versus non-traded sector production; the role and choice of the discount rate; and the importance of considering option values when making infrastructure investment and disinvestment decisions.

Suggested Citation

  • Arthur Grimes, 2010. "The Economics of Infrastructure Investment: Beyond Simple Cost Benefit Analysis," Motu Working Papers 10_05, Motu Economic and Public Policy Research.
    • Handle: RePEc:mtu:wpaper:10_05
    as

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    File URL: https://motu-www.motu.org.nz/wpapers/10_05.pdf
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures

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