Is Mandatory Project Evaluation Always Appropriate? Dynamic Inconsistencies of Irreversible and Reversible Projects
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Tatsuhito Kono
Benefit-cost analysis (BCA) is used to optimize investment in public projects. Indeed, in many countries, BCA is mandatory for provision of most public services. However, once BCA is mandated, residents can strategically alter their behaviors based on a dynamic inconsistency that the BCA-based optimal service level depends on residents’ behaviors. This paper discusses this dynamic inconsistency problem, taking transportation services as an example. We show that the problem may decrease both social welfare and the utility of residents as compared with the first-best case, and that the occurrence of second-best outcomes depends on the reversibility of the project and the general-equilibrium interdependency with another project.
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Institutional Safeguards for Cost Benefit Analysis: Lessons from the Chilean National Investment System
- Indirect Effects in Cost-Benefit Analysis
- Is Mandatory Project Evaluation Always Appropriate? Dynamic Inconsistencies of Irreversible and Reversible Projects
- Principles and Standards
- Toward Standardization of Benefit-Cost Analysis of Early Childhood Interventions
- Skills of the trade
- Skills of the Trade: The Tufts Cost-Effectiveness Analysis Registry
Articles in the same Issue
- Article
- Institutional Safeguards for Cost Benefit Analysis: Lessons from the Chilean National Investment System
- Indirect Effects in Cost-Benefit Analysis
- Is Mandatory Project Evaluation Always Appropriate? Dynamic Inconsistencies of Irreversible and Reversible Projects
- Principles and Standards
- Toward Standardization of Benefit-Cost Analysis of Early Childhood Interventions
- Skills of the trade
- Skills of the Trade: The Tufts Cost-Effectiveness Analysis Registry
