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Is there a net economic loss from employing reference class forecasting in the appraisal of hydropower projects?

Author

Listed:
  • Glenn P. Jenkins

    (Department of Economics, Queens University, Kingston, Ontario, Canada, K7L3N6 and Cambridge Resources International Inc.)

  • Olasehinde G. Williams

    (Department of Economics, University of Ilorin, Kwara State, Nigeria)

  • Saule Baurzhan

    (Department of Economics, Eastern Mediterranean University, Famagusta, TRNC via Mersin 10, Turkey)

Abstract

This paper investigates the potential effects of the use of reference class forecasting on the World Bank's financing decisions and quantifies the net economic impact of such decisions in the long run. A set of 57 World Bank-financed hydropower projects constructed between 1975 and 2015 were selected based on data availability. The findings show that reference class forecasting can help reduce net losses by preventing some hydropower projects with negative economic net present values from being executed. However, it also leads to the forfeiture of even larger amounts of net economic benefits by causing the rejection of some projects that are found, from ex-post analysis, to be economically worthwhile. Furthermore, because of the increased ex-ante rejection of projects, the loss of potentially economically positive projects from the portfolio of hydro dam projects is greatly increased. The errors in the estimation of economic net present values of these hydropower projects are highly positively correlated to the errors in the estimation of the benefits and only weakly negatively correlated to the errors in the estimation of costs.

Suggested Citation

  • Glenn P. Jenkins & Olasehinde G. Williams & Saule Baurzhan, 2022. "Is there a net economic loss from employing reference class forecasting in the appraisal of hydropower projects?," Development Discussion Papers 2022-02, JDI Executive Programs.
    • Handle: RePEc:qed:dpaper:4580
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    Cited by:

    1. Huijuan Fu & Guoqing Lyu & XiuQing Liu & Haining Jiang, 2024. "Spatial correlation between electricity generation and economic scale in Africa," PLOS ONE, Public Library of Science, vol. 19(6), pages 1-20, June.

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    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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