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Time-declining risk-adjusted social discount rates for transport infrastructure planning

Author

Listed:
  • Kathrin Goldmann

    (Institute of Transport Economics, Muenster)

Abstract

This paper proposes a social discount rate for transport infrastructure project evaluation in Germany that accounts for production efficiency, systematic traffic demand risk, as well as increasing uncertainty in the long-run. The systematic risk in infrastructure planning is measured by the sensitivity of transport volume towards GDP using cointegration analysis. In contrast to the only existing application of this model in transport economics, in this paper the systematic risk for freight transport projects is substantially higher than for passenger transport projects. Due to different systematic risk patterns, the discount rates for freight and passenger transport projects should differ as well, with the former being equal to approximately 3.5% and declining to 2.7% after 50 years, and the latter ranging between 2.0% and the risk-free rate of 1.3%. This paper focuses especially on the econometric challenges of the CAPM-like estimation of systematic risk in public transport infrastructure project assessment and is at the same time the first application to German data.

Suggested Citation

  • Kathrin Goldmann, 2017. "Time-declining risk-adjusted social discount rates for transport infrastructure planning," Working Papers 22, Institute of Transport Economics, University of Muenster.
  • Handle: RePEc:mut:wpaper:22
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    References listed on IDEAS

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    Cited by:

    1. Catalão, Francisco Pinheiro & Cruz, Carlos Oliveira & Sarmento, Joaquim Miranda, 2019. "The determinants of cost deviations and overruns in transport projects, an endogenous models approach," Transport Policy, Elsevier, vol. 74(C), pages 224-238.

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    More about this item

    Keywords

    Social discount rate; Traffic demand risk; Time series analysis; Infrastructure planning; Â Cost-benefit analysis;
    All these keywords.

    JEL classification:

    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

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