Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-11-24T08:50:38.270Z Has data issue: false hasContentIssue false
  • English
  • Français

Is Mandatory Project Evaluation Always Appropriate? Dynamic Inconsistencies of Irreversible and Reversible Projects

Published online by Cambridge University Press:  19 January 2015

Tatsuhito Kono  and
Hiromichi Notoya
Tatsuhito Kono
Affiliation:
Tohoku University
Hiromichi Notoya
Affiliation:
City of Yokohama
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

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.

Keywords

project evaluationdynamic inconsistencytransport servicemigration
Type
Article
Information
Journal of Benefit-Cost Analysis , Volume 3 , Issue 1 , 25 January 2012 , pp. 1 - 31
Copyright
Copyright © Society for Benefit-Cost Analysis 2012

References

Barro, R. J. and Gordon, D. B. 1983. A positive theory of monetary policy in a natural rate model. Journal of Political Economy. 91: 589-610.CrossRefGoogle Scholar
Boadway, R., Marceau, N., and Marchand, M. 1996. Investment in education and the time inconsistency of redistributive tax policy. Economica. 63: 171-189.CrossRefGoogle Scholar
Boadway, R., Flatters, F. 1982. Efficiency and Equalization Payments in a Federal System of Government: A Synthesis and Extension of Recent Results. Canadian Journal of Economics. 15: 613-633.CrossRefGoogle Scholar
Calvo, G. A. 1978. On the Time Consistency of Optimal Policy in a Monetary Economy. Econometrica. 46: 1411-1428.CrossRefGoogle Scholar
Calvo, G. A. 1978. Optimal seignorage from money creation. Journal of Monetary Eonomics. 4: 503-517.Google Scholar
Glazer, A. 2000. Time consistency of congestion tolls. Journal of Transport Economics and Policy. 34: 301-310.Google Scholar
Hayashi, Y. and Morisugi, H. 2000. International Comparison of Background Concept and Methodology of Transportation Project Appraisal. Transport Policy. 7: 73–88.CrossRefGoogle Scholar
Kydland, F. E. and Prescott, E. C. 1977. Rules rather than Discretion: The Inconsistency of Optimal Plans. Journal of Political Economy. 85: 473-492.CrossRefGoogle Scholar
Richer, J. 1995. Urban congestion and developer precommitments: Unilateral solutions to dynamic inconsistency. Urban Studies. 32: 1279-1291.CrossRefGoogle Scholar
SiegH, H,Smith, K.S., Banzhaf, S. and Walsh, R. 2004. Estimating the general equilibrium benefits of large change in spatially delineated public goods. International Economic Review. 45: 1047-1077.CrossRefGoogle Scholar
Tiebout, C. 1956. A Pure Theory of Local Expenditures. Journal of Political Economy. 64: 416–424Google Scholar
Turnovsky, S.J., and Brock, W.A. 1980. Time consistency and optimal government policies in perfect foresight equilibrium. Journal of Public Economics. 13: 183-212.CrossRefGoogle Scholar
Walsh, R. 2007. Endogenous open space amenities in a locational equilibrium. Journal of Urban Economics. 61: 319-344.Google Scholar