Ranking Transport Projects by Their Socioeconomic Value or Financial Internal Rate of Return?

Public-private partnerships (PPP) are driving an increasing number of infrastructure projects. This paper studies the optimal ranking by the public authority of infrastructure projects when these projects are partially self-financed by their own revenues such as tolled highways. In this case, the optimal investment program must be defined under a constraint of annual subsidies. This paper demonstrates that the optimal ranking is not necessarily the ranking of decreasing socioeconomic internal rate of return (IRR). This counter-intuitive result can be demonstrated by a general approach. Analytical calculations are not useful in this discrete problem because each program is an ordered subset of projects. Therefore, there is no continuous variation linking the various programs and the usual tools of optimization, such as differential calculus, are useless. Thus, the authors adopt here a discrete optimization analysis based on techniques such as Monte Carlo sampling. The ratio of the socioeconomic net present value to the amount of subsidy required is the best criterion for providing the optimal ranking in the case of a PPP or whenever projects are partially financed by the users.

Language

  • English

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  • Accession Number: 01000440
  • Record Type: Publication
  • Files: TRIS, ATRI
  • Created Date: May 22 2005 7:42PM