Cost–Benefit Analysis and Incentives in Evaluation

Cost–Benefit Analysis and Incentives in Evaluation

The Structural Funds of the European Union

Edited by Massimo Florio

This book provides an authoritative contribution to applied cost–benefit analysis (CBA) and other evaluation methods in the context of the regional policy of the European Union. Through the use of Structural Funds and other financial and regulatory mechanisms, the EU will help to promote thousands of infrastructure projects in the next decade. CBA will be a key ingredient in the investment decision process and the authors provide important insights from their international experiences in project appraisal and evaluation and point to some valuable lessons to be learnt for the future.

Chapter 6: Economic Evaluation and Incentives in Transport Infrastructure Investment

Ginés De Rus

Subjects: economics and finance, public sector economics, valuation, environment, transport, valuation


Ginés De Rus INTRODUCTION Investment in public infrastructure is still going to be one of the priorities of the Member States and the European Union in the next decade (European Commission, 2001). The European Commission co-finances national and cross-frontier infrastructure projects through the Structural Funds and the Cohesion Fund. The rationale of devoting European public funds to this aim is to help ‘convergence’, ‘regional competitiveness and employment’, and ‘European territorial cooperation’. The total funds allocated to achieve these objectives are €307.6 billion1 for the period 2007–13 and distributed through the ERDF, ESF and Cohesion funds (European Council, 2005). One of the characteristics of this co-financing by the European Commission is the no repayment nature of these funds, having the effect of reducing the cost of the infrastructure projects from the perspective of the member countries receiving the community funds. In a context of asymmetric information and different objectives, the relationship of the European Commission and the Member States cannot be modelled in a conventional cost–benefit analysis framework, where projects are evaluated with demand forecasts (imperfect information) but symmetric information is implicitly assumed, and where the central planner select projects according with the expected net present value in the benefit of the European Union as a whole without significant conflict of interests. The reality in the European Union with a multi-government setting, information asymmetries and conflicting interests requires a different approach in which incentives are explicitly accounted for....

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