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The Economics of Infrastructure Investment: Beyond Simple Cost Benefit Analysis
Abstract
This non-technical ‘think-piece’ examines aspects of infrastructure project evaluation, concentrating on circumstances that may render a standard cost benefit analysis (CBA) inappropriate. It is designed to make infrastructure investors and planners think deeply about their assumptions and to broaden the range of issues that are taken into account. Issues considered include: the role of CBA; network effects (increasing returns to scale) and the endogeneity of resources within an economy; the valuation of productive versus consumptive benefits; the value of traded versus non-traded sector production; the role and choice of the discount rate; and the importance of considering option values when making infrastructure investment and disinvestment decisions.
Citation
Grimes, Arthur. 2010. "The Economics of Infrastructure Investment: Beyond Simple Cost Benefit Analysis". Motu Working Paper 10-05.
Motu code: MWP1005
JEL codes: H54