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

Glenn Jenkins (), Godwin Olasehinde-Williams and S. Baurzhan

Renewable and Sustainable Energy Reviews, 2022, vol. 159, issue C

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 was 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)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1364032122001411
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Is there a net economic loss from employing reference class forecasting in the appraisal of hydropower projects? (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:rensus:v:159:y:2022:i:c:s1364032122001411

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/bibliographic
http://www.elsevier. ... 600126/bibliographic

DOI: 10.1016/j.rser.2022.112218

Access Statistics for this article

Renewable and Sustainable Energy Reviews is currently edited by L. Kazmerski

More articles in Renewable and Sustainable Energy Reviews from Elsevier
Bibliographic data for series maintained by Catherine Liu ().