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

Glenn Jenkins (), Godwin Olasehinde-Williams and Saule Baurzhan ()
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Saule Baurzhan: Department of Economics, Eastern Mediterranean University, Famagusta, TRNC via Mersin 10, Turkey
Authors registered in the RePEc Author Service: Katarzyna (Kate) Pankowska ()

No 2022-02, Development Discussion Papers from JDI Executive Programs

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.

Keywords: Reference Class Forecasting; Planners Fallacy; Hydropower; Cost Overruns; Economic Welfare; World Bank (search for similar items in EconPapers)
JEL-codes: D61 G31 O13 Q42 (search for similar items in EconPapers)
Pages: 34 Pages
Date: 2022-04-18
New Economics Papers: this item is included in nep-afr, nep-agr, nep-cwa and nep-isf
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Journal Article: Is there a net economic loss from employing reference class forecasting in the appraisal of hydropower projects? (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:dpaper:4580

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