 Cost overruns and demand shortfalls – Deception or selection?Jonas Eliasson () and Mogens Fosgerau Transportation Research Part B: Methodological, 2013, vol. 57, issue C, 105-113 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. Keywords: Cost overruns; Cost escalation; Forecast accuracy; Cost-benefit analysis; Appraisal; Selection bias (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:transb:v:57:y:2013:i:c:p:105-113 Ordering information: This journal article can be ordered from DOI: 10.1016/j.trb.2013.09.005 Access Statistics for this article Transportation Research Part B: Methodological is currently edited by Fred Mannering More articles in Transportation Research Part B: Methodological from Elsevier |
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