Cost overruns and demand shortfalls - Deception or selection?

Jonas Eliasson, Mogens Fosgerau

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    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 we 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. © 2013 Elsevier Ltd.
    Original languageEnglish
    JournalTransportation Research Part B: Methodological
    Volume57
    Pages (from-to)105-113
    ISSN0191-2615
    DOIs
    Publication statusPublished - 2013

    Keywords

    • Cost benefit analysis
    • Forecasting
    • Investments
    • Costs

    Fingerprint

    Dive into the research topics of 'Cost overruns and demand shortfalls - Deception or selection?'. Together they form a unique fingerprint.

    Cite this