Friday, Aug 6, 2021 / 8:23 AM / By FDC Ltd / Header image credit: Medium
- Economists demand rigorous cost-benefit analysis before spending money on a project
- Rather than building new lanes to facilitate traffic in an urban area, two economists suggest in a new article that it might be wise to consider charging for congestion.
A new article by two economists says the payoffs from infrastructure spending aren’t always clear and recommends that policymakers look at the costs and benefits of each project.
“Whether we’re going to commit a significant amount of resources to new infrastructure projects or to maintaining our existing infrastructure, bringing some discipline to how we decide what to spend is an important part of that,” said James Poterba. , an economist at the Massachusetts Institute of Technology, who co-authored the article with Edward Glaeser of Harvard University.
The document is due for release Wednesday by the Aspen Economic Strategy Group, a non-partisan division of the Aspen Institute. Mr. Poterba is a member of the group. Congress and the White House are currently working on a bill that would include about $ 579 billion in new infrastructure spending.
The common way to determine the country’s infrastructure needs is to calculate how much it would cost to reduce congestion and improve the roads, bridges, airports, and transit systems that already exist. Rather, the economists’ approach looks at projects individually to assess whether they are necessary.
In some cases, the authors write, the best solution involves no construction. Rather than building new lanes to facilitate movement in a dense urban area, it might be wise to consider congestion pricing, which charges drivers a variable fee depending on the time of day, they write. .
Mr Poterba recommended a system of vouchers or tax relief for low-income households to ensure that they do not suffer disproportionate harm from the fees.
The cost of repairing a dangerous bridge in a remote area with very little traffic can outweigh the benefits, they write. In this case, the most economically efficient solution might be to shut it down or demolish it. It might also make more sense to connect cities with fast buses on dedicated lanes rather than building new rail lines. Access to the broadband network via satellite or 5G could be a good alternative to laying fiber optic cables to provide high-speed Internet access to rural areas, they write.
The paper suggests establishing an independent entity such as an infrastructure bank that would perform cost-benefit analyzes on projects and only finance those whose benefits outweigh the costs. This would help keep political considerations out of the process, they write.
The studies would take into account the financial costs of a project as well as its impact on the environment, maintenance needs and long-term economic impact.
But there are significant obstacles to cost-benefit analyzes. It is often difficult to estimate the final cost of a project as its design may change due to community opposition or environmental considerations.
Identifying the benefits of a project is also complicated, as the measure of benefits depends on its use, which is difficult to predict in advance.
“You have to be careful not to get caught with optimistic projections about what the demand for use will be,” Mr. Poterba said.
Such cost-benefit analyzes would likely recommend focusing more on maintaining existing infrastructure rather than new projects, they write. About 47% of road spending now goes to maintenance, they find.
Officials sometimes prefer to spend on new projects rather than maintenance because of a “ribbon cutting bias,” Mr Poterba said, “where you can point your finger at the thing and say it doesn’t. was not there before my time and now she is here “.
The document also expressed skepticism of public-private partnerships, in which a private entity funds the project in return for future income from tolls or other charges. The low interest rates of recent years mean that governments can often borrow more cheaply than the private sector, they write.
“Some state and local governments may be attracted to these partnerships because they ease current cash flow constraints,” the authors write. “But they can come at a price in terms of the long-term cost of infrastructure services.”
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