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The Economics of Infrastructure Investment: Beyond Simple Cost Benefit Analysis

  • Arthur Grimes

    ()

    (Motu Economic and Public Policy Research)

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.

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File URL: http://motu-www.motu.org.nz/wpapers/10_05.pdf
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Paper provided by Motu Economic and Public Policy Research in its series Working Papers with number 10_05.

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Length: 50 pages
Date of creation: Aug 2010
Date of revision:
Handle: RePEc:mtu:wpaper:10_05
Contact details of provider: Postal: Level 1, 97 Cuba Street, P.O. Box 24390, Wellington
Phone: 64-4-939-4250
Fax: 64-4-939-4251
Web page: http://www.motu.org.nz
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  1. Edward L. Glaeser & Joshua D. Gottlieb, 2009. "The Wealth of Cities: Agglomeration Economies and Spatial Equilibrium in the United States," Journal of Economic Literature, American Economic Association, vol. 47(4), pages 983-1028, December.
  2. Haughwout, Andrew F., 2002. "Public infrastructure investments, productivity and welfare in fixed geographic areas," Journal of Public Economics, Elsevier, vol. 83(3), pages 405-428, March.
  3. Arthur Grimes, 2009. "Capital intensity and welfare: traded and non-trade sector determinants," New Zealand Economic Papers, Taylor & Francis Journals, vol. 43(1), pages 21-39.
  4. Andrew Caplin & John Leahy, 2001. "The social discount rate," Discussion Paper / Institute for Empirical Macroeconomics 137, Federal Reserve Bank of Minneapolis.
  5. Nijkamp, Peter & Poot, Jacques, 2004. "Meta-analysis of the effect of fiscal policies on long-run growth," European Journal of Political Economy, Elsevier, vol. 20(1), pages 91-124, March.
  6. Arthur Grimes & Yun Liang, 2010. "Bridge to Somewhere: Valuing Auckland's Northern Motorway Extensions," Journal of Transport Economics and Policy, London School of Economics and University of Bath, vol. 44(3), pages 287-315, September.
  7. Weitzman, Martin L., 1998. "Why the Far-Distant Future Should Be Discounted at Its Lowest Possible Rate," Journal of Environmental Economics and Management, Elsevier, vol. 36(3), pages 201-208, November.
  8. Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, vol. 24(6), pages 990-1017, November.
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