Decision-Making on Mega-Projects

Decision-Making on Mega-Projects

Cost–benefit Analysis, Planning and Innovation

Transport Economics, Management and Policy series

Edited by Hugo Priemus, Bent Flyvbjerg and Bert van Wee

This book enlarges the understanding of decision-making on mega-projects and suggest recommendations for a more effective, efficient and democratic approach. Authors from different scientific disciplines address various aspects of the decision-making process, such as management characteristics and cost–benefit analysis, planning and innovation and competition and institutions. The subject matter is highly diverse, but certain questions remain at the forefront. For example, how do we deal with protracted preparation processes, how do we tackle risks and uncertainties, and how can we best divide the risks and responsibilities among the private and public players throughout the different phases of the project?

Chapter 4: Cost–Benefit Analysis and the Wider Economic Benefits from Mega- Projects

Roger W. Vickerman

Subjects: business and management, operations management, development studies, development economics, economics and finance, development economics, public sector economics, regional economics, transport, environment, transport, urban and regional studies, transport


4. Cost–benefit analysis and the wider economic benefits from mega-projects Roger W. Vickerman 4.1 INTRODUCTION The potential for mega-projects to generate a social surplus, benefits above and beyond those accruing to users, has been recognised for a long time. The standard cost–benefit approach to the appraisal of transport infrastructure has tended to ignore such wider benefits, arguing that a welldefined cost–benefit analysis will ensure that the benefits to users will adequately capture all economic benefits. This has led to the situation where project promoters will attempt to reinforce the justification for projects by adding a mark-up to the user benefits to reflect these supposed wider benefits to the economy. This practice has then been extended to using such wider benefits as a means of justifying projects that would not be acceptable on the basis of the user benefits alone. Over the last 15 years considerable effort has been expended on providing a more rigorous theoretical basis for including such wider effects and on gathering empirical evidence to assess whether the magnitude of any errors from ignoring them is sufficient to justify the added complexity of widening the appraisal framework. In Section 4.2 we examine the theoretical justification for including any wider economic impacts; in Section 4.3 we assess empirical evidence on the extent of such impacts; and in Section 4.4 we consider the implications for the appraisal process,...

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