Werner Rothengatter

Megaprojects and risk: An anatomy of ambition

Back cover text: Megaprojects and Risk provides the first detailed examination of the phenomenon of megaprojects. It is a fascinating account of how the promoters of multibillion-dollar megaprojects systematically and self-servingly misinform parliaments, the public and the media in order to get projects approved and built. It shows, in unusual depth, how the formula for approval is an unhealthy cocktail of underestimated costs, overestimated revenues, undervalued environmental impacts and overvalued economic development effects. This results in projects that are extremely risky, but where the risk is concealed from MPs, taxpayers and investors. The authors not only explore the problems but also suggest practical solutions drawing on theory and hard, scientific evidence from the several hundred projects in twenty nations that illustrate the book. Accessibly written, it will be essential reading in its field for students, scholars, planners, economists, auditors, politicians, journalists and interested citizens.

Big decisions, big risks. Improving accountability in mega projects

In terms of risk, many appraisals of very large infrastructure investments assume, or pretend to assume, that infrastructure policies and projects exist in a predictable Newtonian world of cause and effect where things go according to plan. In reality, the world of policy and project preparation and implementation is a highly stochastic one where things happen only with a certain probability and rarely turn out as originally intended. The failure to reflect the probabilistic reality of investment preparation and implementation is a central reason for the poor track record that can be documented for many major projects. The article describes lessons and recommendations on how to improve accountability in decision making on very large infrastructure investments in Denmark and Germany. The conventional approach to infrastructure investments is replaced by an alternative focusing on accountability. Redrawing the borderlines of private and public involvement, four specific measures to increase accountability are suggested and detailed: (1) Transparency, (2) Performance specifications, (3) Explication of regulatory regimes, and (4) Involvement of risk capital. The decision on whether or not to build a multi-billion dollar fixed link across the Baltic Sea connecting Scandinavia and Germany is used as an illustrative case. The cyclical process about the promotion of the German MAGLEV technology gives another good example for identifying basic failures in the political process. Beyond these examples from two countries, the approach developed is likely to be relevant for other major projects in other countries as well.

How good is first best? Marginal cost and other pricing principles for user charging in transport

The European Commission has suggested the use of the principle of social marginal cost pricing as a general first-best rule for pricing the transportation infrastructure in member countries, but allows for substantial exceptions from this principle through markups. This paper questions the use of a pricing principle that is obviously less relevant than the exceptions from it. A historical overview of this principle and its basic properties and major caveats are provided, with issues of efficiently providing, financing and managing the transportation infrastructure of primary concern. It is concluded that there is no need for a uniform system of transportation infrastructure prices for all transportation sectors and all regional units of the European Union. A workable and effective pricing system should instead reflect the political objectives, institutional arrangements and lever points of decision-making. A real world oriented pricing system will therefore consist of a number of different and non-uniform elements rather than a single abstract general economic orthodoxy. Some alternatives are suggested that are better suited for long term economic efficiency.

Big Decisions, Big Risks: Improving Accountability in Mega Projects

In terms of risk, many appraisals of very large infrastructure investments assume, or pretend to assume, that infrastructure policies and projects exist in a predictable Newtonian world of cause and effect where things go according to plan. In reality, the world of policy and project preparation and implementation is a highly stochastic one where things happen only with a certain probability and rarely turn out as originally intended. The failure to re¯ect the probabilistic reality of investment preparation and implementation is a central reason for the poor track record that can be documented for many major projects. The article describes lessons and recommendations on how to improve accountability in decision making on very large infrastructure investments in Denmark and Germany. The conventional approach to infrastructure investments is replaced by an alternative focusing on accountability. Redrawing the borderlines of private and public involvement, four speci®c measures to increase accountability are suggested and detailed: (1) Transparency, (2) Performance speci®cations, (3) Explication of regulatory regimes, and (4) Involvement of risk capital. The decision on whether or not to build a multi-billion dollar ®xed link across the Baltic Sea connecting Scandinavia and Germany is used as an illustrative case. The cyclical process about the promotion of the German MAGLEV technology gives another good example for identifying basic failures in the political process. Beyond these examples from two countries, the approach developed is likely to be relevant for other major projects in other countries as well. q 2002 Elsevier Science Ltd. All rights reserved.

EVALUATION OF INFRASTRUCTURE INVESTMENTS IN GERMANY

The procedures of the Standardized Evaluation Scheme for the Federal Transport Infrastructure Plan (BVWP) of Germany date back to the 1970s. Essentially, this assessment scheme consisted of a quantification of the changes of user costs, infrastructure costs, and some external costs and has been used as a baseline for assessing projects since reunification in 1990. For the year 2001, a new master plan for infrastructure and development is being prepared and there is discussion concerning the revision of the aforementioned evaluation methodology. This paper looks at evaluation methods for transport infrastructure in Germany, and discusses potential changes and upgrades to the current standardized scheme for such evaluations.

LINEAR OR NONLINEAR UTILITY FUNCTIONS IN LOGIT MODELS? THE IMPACT ON GERMAN HIGH-SPEED RAIL DEMAND FORECASTS

The paper shows that nonlinearity of the representative utility functions of the Logit model applied to an intercity mode choice model implied the presence of asymmetry and of thresholds in the response curve, as well as results that had more reasonable properties (diminishing marginal values of time saving, elasticities, and values of time that differed among the modes), and yielded very different high speed rail market shares for Germany than results obtained with the usual linear utility functions.

Do external benefits compensate for external costs of transport

Positive externalities of transport play a growing role in the political discussion. If one concentrates on externalities of infrastructure use it is easy to show that the number and the relevance of positive externalities is low. Most of the effects mentioned such as improvement of economic efficiency or development of new consumption/production structures are basically not external but normal consumers or producers surpluses induced by market interactions. Therefore, there is no reason to subtract external benefits from the external cost bills of traffic modes which are detrimental to the environment.

APPLICATION OF OPTIMAL SUBSET SELECTION TO PROBLEMS OF DESIGN AND SCHEDULING IN URBAN TRANSPORTATION NETWORKS

The paper describes some possibilities for modifying the optimal network algorithm developed by Boyce, Farhi and Weischedel in a way that makes it applicable to some practical problems of network planning. The modifications, which have been tested with respect to their effect on the efficiency of the algorithm, include the introduction of asymmetrical demand structures, the integration of an existing network, the lexico-minimization of a dynamic objective function, and the consideration of constraints related to interdependencies between candidate links. Two small network problems and one medium-sized problem (61 nodes, 104 links, 16 candidates) have been computed; the results support the hypothesis that the algorithm may be applied to produce approximate solutions to problems of practical dimensions within a reasonable range of time.

A Disaggregate Box-Cox Logit Mode Choice Model of Intercity Passenger Travel in Germany

In this chapter, we want to study the choice of transport mode, which is probably one of the most important issues in transport planning: mode choice affects the general efficiency with which one can travel in urban and inter-urban areas, the amount of space devoted to transport functions, and whether a range of choices is available to travellers. Mode choice analysis is the third step of the classical four-step transport planning process, coming after trip generation, which explains the level of trip-making, and trip distribution, which explains the relative frequency of trip lengths. Mode choice analysis requires information from the fourth step of the process: the assignment stage, or representation of itinerary choices within the networks, and the resulting values of prices and service levels by origin-destination pair. However, mode choice analysis tends to be the decisive step in the evaluation of transport scenarios because the ‘diversion’ effects arising from network service modification typically dominate the effects on total trip-making. It is often of critical importance in the analysis of the effects of new major infrastructural which change mode characteristics.

Economic Crisis and Consequences for the Transport Sector

The World economy has experienced the most severe economic crisis in 2007/2008 since 1929. Although the crisis started in the financial sector it has become obvious that the globalization bubble has increased the severeness of the economic downturn. As globalization is stimulating international trade, and trade is feeding the transport sector, it is natural that the sector of freight transport and logistics has been affected badly. But a deep crisis also has positive long-term effects: It helps to change routines of the economic agents such that they become more open for applying innovations and long-term challenges (“Schumpeter hypothesis”). This will induce structural changes in the economy, which may also change the patterns of freight transport and logistics. In the paper, a Schumpeter Scenario is developed to study the potential change of economic structures and the impacts on the transport markets, nationally and worldwide. There may be a chance by former transport sector to change to a more sustainable trajectory earlier than expected in the trend scenarios, if new technologies will become more compatible with the long-term issues of energy and CO2 saving.