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Does uncertainty make cost-benefit analyses pointless?
Swedish National Road and Transport Research Institute, Society, environment and transport, Transport economics, TEK.ORCID iD: 0000-0002-4209-1997
Department of Transport Science, KTH.
2016 (English)Report (Other academic)
Abstract [en]

Cost-benefit analysis (CBA) is widely used in public decision making on infrastructure investments. However, the demand forecasts, cost estimates, benefit valuations and effect assessments that are conducted as part of CBAs are all subject to various degrees of uncertainty. The question is to what extent CBAs, given such uncertainties, are still useful as a way to prioritize between infrastructure investments, or put differently, how robust the policy conclusions of CBA are with respect to uncertainties. Using simulations based on real data on national infrastructure plans in Sweden and Norway, we study how investment selection and total realized benefits change when decisions are based on CBA assessments subject to several different types of uncertainty. Our results indicate that realized benefits and investment selection are surprisingly insensitive to all studied types of uncertainty, even for high levels of uncertainty. The two types of uncertainty that affect results the most are uncertainties about investment cost and transport demand. Reducing uncertainty can still be worthwhile, however, because of the huge amounts of money at stake: a 10% reduction in general uncertainty can increase the realized benefits of a national infrastructure investment plan by nearly 100 million euro (assuming that decisions are based on the CBAs). We conclude that, despite the many types of uncertainties, CBA is able to fairly consistently separate the wheat from the chaff and hence contribute to substantially improved infrastructure decisions.

Place, publisher, year, edition, pages
Stockholm, 2016. , 18 p.
Keyword [en]
Cost benefit analysis, Transport infrastructure, Investment, Decision process
National Category
Economics
Research subject
SAB, Qa Economics and finance
Identifiers
URN: urn:nbn:se:vti:diva-10841OAI: oai:DiVA.org:vti-10841DiVA: diva2:952368
Available from: 2016-08-12 Created: 2016-08-12 Last updated: 2016-09-05Bibliographically approved
In thesis
1. Cost-Benefit Analysis of climate policy and long term public investments
Open this publication in new window or tab >>Cost-Benefit Analysis of climate policy and long term public investments
2016 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This compilation dissertation consists of four essays with the common theme of welfare analysis of long-term public investments. The first two essays focus on analysis of climate change mitigation, i.e., the social cost of carbon dioxide. The third essay focuses on cost-benefit analysis (CBA) of transport investment projects, while the last essay takes a broader perspective on welfare analysis.

Place, publisher, year, edition, pages
Örebro: Örebro university, 2016. 33 p.
Series
, Örebro Studies in Economics, ISSN 1651-8896 ; 32
Keyword
Cost benefit analysis, Investment, Climate change, Transport infrastructure
National Category
Economics
Research subject
SAB, Qa Economics and finance
Identifiers
urn:nbn:se:vti:diva-10843 (URN)978-91-7529-127-7 (ISBN)
External cooperation:
Opponent
Supervisors
Available from: 2016-08-19 Created: 2016-08-12 Last updated: 2016-09-05Bibliographically approved

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