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Does uncertainty make cost-benefit analyses pointless?
KTH, School of Architecture and the Built Environment (ABE), Transport Science, Transport Planning, Economics and Engineering.ORCID iD: 0000-0003-1789-9238
2016 (English)In: Transportation Research Part A: Policy and Practice, ISSN 0965-8564, E-ISSN 1879-2375, Vol. 92, 195-205 p.Article in journal (Refereed) Published
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. Provided that decisions are based on CBA outcomes, reducing uncertainty is still worthwhile, however, because of the huge sums at stake. Even moderate reductions of uncertainties about unit values, investment costs, future demand and project effects may increase the realized benefits infrastructure investment plans by tens or hundreds of million euros. 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
Elsevier, 2016. Vol. 92, 195-205 p.
Keyword [en]
Cost-benefit analysis, Infrastructure investments, Uncertainty, Robustness
National Category
Civil Engineering
Identifiers
URN: urn:nbn:se:kth:diva-194469DOI: 10.1016/j.tra.2016.08.002ISI: 000384381700014Scopus ID: 2-s2.0-84989866931OAI: oai:DiVA.org:kth-194469DiVA: diva2:1043705
Note

QC 20161031

Available from: 2016-10-31 Created: 2016-10-28 Last updated: 2016-11-03Bibliographically approved

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CiteExportLink to record
Permanent link

Direct link
Cite
Citation style
  • apa
  • harvard1
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
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