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Underestimating Costs in Public Works Projects: Error or Lie?

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  • Bent Flyvbjerg
  • Mette K. Skamris Holm
  • S{o}ren L. Buhl

Abstract

This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.

Suggested Citation

  • Bent Flyvbjerg & Mette K. Skamris Holm & S{o}ren L. Buhl, 2013. "Underestimating Costs in Public Works Projects: Error or Lie?," Papers 1303.6604, arXiv.org.
    • Handle: RePEc:arx:papers:1303.6604
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    References listed on IDEAS

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    1. Skamris, Mette K. & Flyvbjerg, Bent, 1997. "Inaccuracy of traffic forecasts and cost estimates on large transport projects," Transport Policy, Elsevier, vol. 4(3), pages 141-146, July.
    2. Leavitt, Dan & Ennis, Sean & McGovern, Pat, 1993. "The Cost Escalation of Rail Projects: Using Previous Experience to Re-Evaluate the CalSpeed Estimates," University of California Transportation Center, Working Papers qt2rt1w7xj, University of California Transportation Center.
    3. Mackie, Peter & Preston, John, 1998. "Twenty-one sources of error and bias in transport project appraisal," Transport Policy, Elsevier, vol. 5(1), pages 1-7, January.
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    5. Julius Margolis, 1970. "The Analysis of Public Output," NBER Books, National Bureau of Economic Research, Inc, number marg70-1.
    6. Maynard M. Hufschmidt & Jacques Gerin, 1970. "Systematic Errors in Cost Estimates for Public Investment Projects," NBER Chapters, in: The Analysis of Public Output, pages 267-315, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Elizabeth Brubaker, 2011. "A Bridge Over Troubled Waters: Alternative Financing and Delivery of Water and Wastewater Services," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 330, May.
    2. Antonio Estache & Atsushi Iimi, 2010. "Bidder Asymmetry in Infrastructure Procurement: Are There any Fringe Bidders?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(2), pages 163-187, March.
    3. Ginés de Rus, 2014. "The economic evaluation of infrastructure investment. Some inescapable tradeoffs," Working Papers 2014-16, FEDEA.
    4. Joseph Sturm & Mashrur Chowdhury & Anne Dunning & Jennifer Ogle, 2011. "Analysis of cost estimation disclosure in environmental impact statements for surface transportation projects," Transportation, Springer, vol. 38(3), pages 525-544, May.
    5. Sergey Belev & Olga Boldareva & Ilya Sokolov & Anna Zolotareva, 2013. "Features of the Public Procurements of Innovation Products in Russian and the World," Published Papers 166, Gaidar Institute for Economic Policy, revised 2013.

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