Counting costs that don’t count

Road workers in hi-vis vests are laying bitumentEver wondered why some economic arguments seem to fall on stony ground even when they’ve been well researched and even asked for? Looks like politicians’ personal experience counts for more when decisions are being made. A Norwegian researcher wanted to find out why road-building priorities diverge from those suggested by cost-benefit analysis. It is likely that many other policy decisions are made in a similar way, not just road investments. Here is an excerpt from the findings about why factors other than cost criteria are used to make decisions:

• Political institutions have created a kind of gift relationship in the road sector, with the state as donor and municipalities as recipients.

• To the extent that the state cannot scrutinize all assumptions and calculations of traffic, costs and benefits, an information asymmetry arises and favours the local receivers.

• In cases of local/national conflict of interest, some key politicians and other stakeholders at the donor side either have their own agendas (such as campaigning), or their loyalty is with the recipient rather than the donor (society).

It seems reasonable that elected representatives are less likely to vote in accordance with the benefit/cost ratios of projects the more sceptical they are to the method of CBA. When sceptical, they are apt to look for alternative decision support, even if several studies have found CBA results to be quite robust.

The intention has not been to argue that the benefit/cost ratio should be decisive when setting priorities among projects on classified roads, but rather to highlight circumstances that tend to push CBA results into the background. The principle of choosing projects with high benefit/cost ratio may be supplemented by so many other assessment criteria that the difference between professional and political judgement is dissolved.”

The title of the article is, Why don’t cost-benefit results count for more? The case of Norwegian road investment priorities. Published in Urban, Planning and Transport Research an open access article.

Abstract: The starting point is that the benefit/cost ratio is virtually uncorrelated to the likelihood of a Norwegian classified road project entering the list of investments selected for the National Transport Plan. The purpose of the article is to explain what pushes cost-benefit results into the background in the prioritization process. The reasons for their downgrading point to mechanisms that are at work not only in Norway. Explanatory factors are searched for in incentives for cost-ineffective action among planners, bureaucrats and national politicians, respectively, as well as in features of the planning process and the political system. New data are used to show that the road experts’ list of prioritized projects changes little after submission to the national politicians, suggesting that the Norwegian Public Roads Administration puts little emphasis on its own cost-benefit calculations. Besides, it is shown that the petroleum revenues of the state do not provide a strong reason for neglecting cost-benefit accounts. The overall contribution of the article is to offer a comprehensive explanation why professional and political authorities in Norway set road-building priorities diverging massively from those suggested by cost-benefit analysis.