Cost overruns and demand shortfalls – Deception or selection?
A number of highly cited papers by Flyvbjerg and associates have shown that ex ante infrastructure appraisals tend to be overly optimistic. Ex post evaluations indicate a bias where investment costs are higher and benefits lower on average than predicted ex ante. These authors argue that the bias must be attributed to intentional misrepresentation by project developers. This paper shows that the bias may arise simply as a selection bias, without there being any bias at all in predictions ex ante, and that such a bias is bound to arise whenever ex ante predictions are related to the decisions whether to implement projects. Using a database of projects the authors present examples indicating that the selection bias may be substantial. The examples also indicate that benefit–cost ratios remain a useful selection criterion even when cost and benefits are highly uncertain, gainsaying the argument that such uncertainties render cost-benefit analyses useless.
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Availability:
- Find a library where document is available. Order URL: http://worldcat.org/issn/01912615
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Supplemental Notes:
- Abstract reprinted with permission by Elsevier.
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Authors:
- Eliasson, Jonas
- Fosgerau, Mogens
- Publication Date: 2013-11
Language
- English
Media Info
- Media Type: Print
- Features: Appendices; Figures; References;
- Pagination: pp 105-113
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Serial:
- Transportation Research Part B: Methodological
- Volume: 57
- Issue Number: 0
- Publisher: Elsevier
- ISSN: 0191-2615
- Serial URL: http://www.sciencedirect.com/science/journal/01912615
Subject/Index Terms
- TRT Terms: Appraisals; Benefit cost analysis; Cost overruns; Infrastructure; Investments; Statistical bias
- Uncontrolled Terms: Selection process; Shortfalls
- Subject Areas: Administration and Management; Finance; Transportation (General); I10: Economics and Administration;
Filing Info
- Accession Number: 01504994
- Record Type: Publication
- Files: TRIS
- Created Date: Jan 27 2014 10:45AM