S-WoPEc
 
Scandinavian Working Papers in Economics
HomeAboutSeriesSubject/JEL codesAdvanced Search
CTS - Centre for Transport Studies Stockholm (KTH and VTI)
CTS - Centre for Transport Studies Stockholm (KTH and VTI) CTS - Centre for Transport Studies Stockholm (KTH and VTI)
Working papers in Transport Economics

No 2016:8:
Does uncertainty make cost-benefit analyses pointless?

Disa Thureson () and Jonas Eliasson ()

Abstract: 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.

Keywords: Cost-benefit analysis; Infrastructure investments; Uncertainty; Robustness; (follow links to similar papers)

JEL-Codes: R42; R48; (follow links to similar papers)

18 pages, March 15, 2016

Before downloading any of the electronic versions below you should read our statement on copyright.
Download GhostScript for viewing Postscript files and the Acrobat Reader for viewing and printing pdf files.

Full text versions of the paper:

CTS2016-8.pdf    PDF-file
Download Statistics
This paper is published as:
Asplund, Disa and Jonas Eliasson, (2016), 'Does uncertainty make cost-benefit analyses pointless?', Transportation Research A, Vol. 92, pages 195-205



Questions (including download problems) about the papers in this series should be directed to Mats Berggren ()
Report other problems with accessing this service to Sune Karlsson () or Helena Lundin ().

Programing by
Design by Joachim Ekebom

Handle: RePEc:hhs:ctswps:2016_008 This page was generated on 2016-09-03 13:35:09