Transportation Infrastructure Expert Says Major Projects Lack Economic Scrutiny

Politicians and policymakers often tout the economic and social benefits of large-scale transportation infrastructure investments, but often the projects they promote are approved without the benefit of thorough economic analysis.  So says Dr. Joseph Berechman, Professor and Chair of Economics at The City College of New York.

In a new book for the trade, “The Evaluation of Transportation Investment Projects,” (Routledge, 2009) Professor Berechman contends investment decisions about multi-billion dollar capital projects rely too heavily on preliminary cost estimates and demand forecasts.  These tend to be optimistic.

Key issues such as a project’s risks, capital costs financing, latent demand, market imperfections, labor force availability and various incompatibilities between trip rates, travel times and activity location are not taken into account, he notes.  The end result often is significant cost overruns and ridership and revenue below projections.

“There seems to be an inverse relationship between the size of the project and the amount of money and time spent on economic analysis,” he notes, adding that the assumptions behind many projects would not stand up to more thorough scrutiny.  

One project whose value he questions is New York’s Second Avenue Subway, which will cost $5 billion to build less than two miles of new subway on Manhattan’s Upper East Side in its first phase.  The money, he argues, could be better spent restoring the rest of the subway system to a state of good repair.

Noting that large-scale capital projects frequently go over budget, Professor Berechman says there are several reasons for this besides insufficient cost-benefit analyses.  Among them are the lack of accountability in agencies responsible for the projects and the lack of transparency, he contends.

In his book, Professor Berechman sets out to construct a comprehensive and methodical economic, planning and decision-making framework for evaluating these projects.  Founded on four key principles, the framework is:

• Based on well-established economic, transportation and policy-analysis theoretical principles;
• Comprehensive enough to encompass all relevant evaluation issues;
• Applicable to a wide range of transportation investment projects; and
• Amenable to empirical application including a sensitivity analysis and alternative scenarios regarding urban, regional and national developments.

Professor Berechman will present a “Book Talk” Lecture on “The Evaluation of Transportation Investment Projects, 2:30 – 4:30 p.m. Tuesday, December 1, at The University Club, One W. 54th Street, New York.

Note to Journalists:
Professor Berechman is available to assist in your reporting on transportation-related issues.  To speak with him, please contact Ellis Simon, 212-650-6460,  esimon@ccny.cuny.edu , or Jay Mwamba, 212-650-7580, jmwamba@ccny.cuny.edu .