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An analytical framework for evaluating transition impact of infrastructure projects

Author

Listed:
  • Philippe Aghion

    (European Bank for Reconstruction and Development and Harvard University)

  • Mark Schankerman

    (European Bank for Reconstruction and Development and LSE)

Abstract

This paper provides a non-technical summary of a framework for evaluating the transition impact (social returns) of any infrastructure investment that reduces transaction costs and thereby intensifies product market competition. The framework applies both to physical and institutional infrastructure. We show that infrastructure generates welfare gains by improving the ability of the market to weed out existing inefficient firms ("market selection"), by changing the incentives for firms to lower their costs by restructuring, and by providing greater (less) incentives to enter for low (high) cost potential entrants. We illustrate by simulation analysis that conventional cost-benefit analysis is not likely to capture these dynamic transition impacts of infrastructure.

Suggested Citation

  • Philippe Aghion & Mark Schankerman, 2000. "An analytical framework for evaluating transition impact of infrastructure projects," Working Papers 57, European Bank for Reconstruction and Development, Office of the Chief Economist.
    • Handle: RePEc:ebd:wpaper:57
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    File URL: http://www.ebrd.com/downloads/research/economics/workingpapers/wp0057.pdf
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    Citations

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    Cited by:

    1. Willem Buiter & Steven Fries, 2002. "Quelle devrait être la mission des banques multilatérales de développement ?," Revue d’économie du développement, De Boeck Université, vol. 10(1), pages 171-204.

    More about this item

    Keywords

    infrastructure; market selection; restructuring; entry; cost-benefit analysis;
    All these keywords.

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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