Quantiative Economics

Among other factors such as the employer’s willingness and ability to pay employees, as well as the employee’s acceptance rate, the important institutional role played by labour organizations has been identified through existing empirical literature. This paper estimates the impact of union status on wages, while looking to other possible factors of wage determination, specifically, educational attainment levels and the province of residence. The results suggest that union status has a positive effect on wages, and that this effect is both economically and statistically significant. This effect holds even when accounting for educational attainment and province of residence. In addition, the findings also suggest that there is a positive relationship between educational attainment and wage. It is important to note that there are potential issues of endogeneity, such as with unionization itself, as well as omitted variable bias, as it is difficult to include or measure all the possible factors of the union wage effect.

Este libro habla sobre los momentos de cambio, sobre cómo prepararse para las bifurcaciones de la historia, sobre estos momentos de apertura, de riesgos, de oportunidades y amenazas que definen un nuevo paisaje de desarrollo. Cómo preparase para el momento en que procesos latentes, marginados, negados irrumpen en la “historia oficial” y abren el futuro a estados posibles.

Phronetic organizational research is an approach to the study of management and organizations focusing on ethics and power. It is based on a contemporary interpretation of the Aristotelian concept phronesis, usually as ‘prudence’. Phronesis is the ability to think and act in relation to values, to deliberate about ‘things that are good or bad for humans’ in the words of Aristotle (1976:1140a24–b12). Phronetic organizational research effectively provides answers to the following four value-rational questions, for specific problematics in management and organization studies: 1. Where are we going with this specific management problematic? 2. Who gains and who loses, and by which mechanisms of power? 3. Is this development desirable? 4. What, if anything, should we do about it?

This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.

Megaproject Planning and Management: Essential Readings contains the seminal articles from the growing body of research on megaproject planning and management along with an original introduction by the editor, Bent Flyvbjerg. The leading and most cited authority in the field, Flyvbjerg has used crowdsourcing and 25 years of experience to cherry-pick from several hundred articles and books the writings that define the field. This volume will be an indispensable source for those wishing to speak with authority about how megaprojects are prepared, delivered, and fought over. The target audience is students, academics, practitioners, and media pundits alike, as well as communities affected by megaprojects.

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 multi-billion 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, experience and hard, scientific evidence from the several hundred projects in twenty nations and five continents that illustrate the book. Accessibly written, it will be the standard reference for students, scholars, planners, economists, auditors, politicians and interested citizens for many years to come.

The article first describes characteristics of major infrastructure projects. Second, it documents a much neglected topic in economics: that ex ante estimates of costs and benefits are often very different from actual ex post costs and benefits. For large infrastructure projects the consequences are cost overruns, benefit shortfalls, and the systematic underestimation of risks. Third, implications for cost–benefit analysis are described, including that such analysis is not to be trusted for major infrastructure projects. Fourth, the article uncovers the causes of this state of affairs in terms of perverse incentives that encourage promoters to underestimate costs and overestimate benefits in the business cases for their projects. But the projects that are made to look best on paper are the projects that amass the highest cost overruns and benefit shortfalls in reality. The article depicts this situation as ‘survival of the unfittest’. Fifth, the article sets out to explain how the problem may be solved, with a view to arriving at more efficient and more democratic projects, and avoiding the scandals that often accompany major infrastructure investments. Finally, the article identifies current trends in major infrastructure development. It is argued that a rapid increase in stimulus spending, combined with more investments in emerging economies, combined with more spending on information technology is catapulting infrastructure investment from the frying pan into the fire.

As megaprojects have become ubiquitous, their real benefits and costs have come under increased scrutiny. We interviewed Bent Flyvbjerg, who has extensively studied megaproject development. Flyvbjerg has found systematic problems in the development process: by intentionally misrepresenting information and deliberately disregarding risks, proponents instigate projects that result in fewer benefits and higher costs than promised.

The Supplementary Green Book Guidance on Optimism Bias (HM Treasury 2003) with reference to the Review of Large Public Procurement in the UK (Mott MacDonald 2002) notes that there is a demonstrated, systematic, tendency for project appraisers to be overly optimistic and that to redress this tendency appraisers should make explicit, empirically based adjustments to the estimates of a project’s costs, benefits, and duration. HM Treasury recommends that these adjustments be based on data from past projects or similar projects elsewhere, and adjusted for the unique characteristics of the project in hand. In the absence of a more specific evidence base, HM Treasury has encouraged departments to collect data to inform future estimates of optimism, and in the meantime use the best available data. In response to this, the Department for Transport (henceforth DfT), has contracted Bent Flyvbjerg in association with COWI to undertake the consultancy assignment "Procedures for dealing with Optimism Bias in Transport Planning". The present Guidance Document is the result of this assignment.

"Over budget, over time, over and over again" appears to be an appropriate slogan for large, complex infrastructure projects. This article explains why cost, benefits, and time forecasts for such projects are systematically over-optimistic in the planning phase. The underlying reasons for forecasting errors are grouped into three categories: delusions or honest mistakes; deceptions or strategic manipulation of information or processes; or bad luck. Delusion and deception have each been addressed in the management literature before, but here they are jointly considered for the first time. They are specifically applied to infrastructure problems in a manner that allows both academics and practitioners to understand and implement the suggested corrective procedures. The article provides a framework for analyzing the relative explanatory power of delusion and deception. It also suggests a simplified framework for analyzing the complex principal-agent relationships that are involved in the approval and construction of large infrastructure projects, which can be used to improve forecasts. Finally, the article illustrates reference class forecasting, an outside view de-biasing technique that has proven successful in overcoming both delusion and deception in private and public investment decisions.

This article presents results from the first statistically significant study of traffic forecasts in transportation infrastructure projects. The sample used is the largest of its kind, covering 210 projects in 14 nations worth U.S.$59 billion. The study shows with very high statistical significance that forecasters generally do a poor job of estimating the demand for transportation infrastructure projects. For 9 out of 10 rail projects, passenger forecasts are overestimated; the average overestimation is 106%. For half of all road projects, the difference between actual and forecasted traffic is more than ±20%. The result is substantial financial risks, which are typically ignored or downplayed by planners and decision makers to the detriment of social and economic welfare. Our data also show that forecasts have not become more accurate over the 30-year period studied, despite claims to the contrary by forecasters. The causes of inaccuracy in forecasts are different for rail and road projects, with political causes playing a larger role for rail than for road. The cure is transparency, accountability, and new forecasting methods. The challenge is to change the governance structures for forecasting and project development. Our article shows how planners may help achieve this.

The paper reports on both methodological and substantive findings. It presents a method for generating simplified representations for regional urban populations, their geographical sub-populations and communities. the method generates greatly simplified high-resolution socio-economic profiles of populated geographical areas from complex large census data sets.

Do different types of megaprojects have different cost overruns? This apparently simple question is at the heart of research at the University of Oxford aimed at understanding the characteristics of megaprojects, particularly in terms of how they are established, run and concluded. In this study, we set out to investigate cost overruns in the Olympic Games. To do so, we examined the costs of the Games over half a century, including both summer and winter Olympics. We looked at the evolution of final reported costs and compared these to the costs established in the Games bids, submitted to the International Olympic Committee (IOC) up to seven years before the Games occurred. In so doing we established the largest dataset of its kind, and documented for the first time in a consistent fashion the costs and cost overruns for the Olympic Games, from 1960 to 2012. We discovered that the Games stand out in two distinct ways compared to other megaprojects: (1) The Games overrun with 100 per cent consistency. No other type of megaproject is this consistent regarding cost overrun. Other project types are typically on budget from time to time, but not the Olympics. (2) With an average cost overrun in real terms of 179 per cent – and 324 per cent in nominal terms – overruns in the Games have historically been significantly larger than for other types of megaprojects, including infrastructure, construction, ICT, and dams. The data thus show that for a city and nation to decide to host the Olympic Games is to take on one of the most financially risky type of megaproject that exists, something that many cities and nations have learned to their peril. For the London 2012 Games, we find that: (1) With sports-related real costs currently estimated at USD14.8 billion, London is on track to become the most costly Olympics ever. (2) With a projected cost overrun of 101 per cent in real terms, overrun for London is below the historical average for the Games, but not significantly so. (3) The London cost overrun is, however, significantly higher than overruns for recent Games since 1999. London therefore is reversing a positive trend of falling cost overruns for the Games.

What are the long-run effects of mass political repression on economic performance? Using an original county-level dataset from Maoist China, we demonstrate a strong and robust negative relationship exists between the scale of repression of intellectuals in the Anti-Rightist Campaign (ARC) in 1957–58 and economic productivity decades later. This fall in economic output is caused by the loss of already scarce human capital resulting from the violent political campaign. Until at least 2000, significant and robust negative correlations exist between the percentage of victims in a county and its populations' level of educational achievement and economic performance. By demonstrating the negative relationship between the state's purposeful destruction of human capital for political reasons and long-run economic growth, we are able to add China to a growing body of research on the long-run deleterious effects of state-sponsored political repression against intellectuals. Using China's ARC as an example, this study is the first to use quantitative methods to demonstrate the often-overlooked long-term negative economic effects of political repression under authoritarian regimes.

As megaprojects have become ubiquitous, their real benefits and costs have come under increased scrutiny. We interviewed Bent Flyvbjerg, who has extensively studied megaproject development. Flyvbjerg has found systematic problems in the development process: by intentionally misrepresenting information and deliberately disregarding risks, proponents instigate projects that result in fewer benefits and higher costs than promised.

For over fifty years, successive waves of critique have underscored that the apolitical character of much of Political Science research betrays the founding mission of the discipline to have science serve democracy. The Caucus for a New Political Science was originally based on such a critique, and the Perestroika movement in the discipline included a call for more problem-driven as opposed to theory- or method-driven work that would better connect Political Science research to ongoing political struggles. In recent years, movements for a public Sociology and public Anthropology as well as dissonant movements in Economics and related fields have added to the insistence that social science research was too often disconnected from the real world. Phronetic Social Science has emerged out of the ferment for change in the social sciences, starting with the much-debated book by Bent Flyvbjerg, Making Social Science Matter (Cambridge 2001). Flyvbjerg critiqued the social sciences for mimicking the natural sciences while proposing an alternative approach that focuses research on helping people address the problems they are facing in the context they are facing them. Today, Phronetic Social Science goes beyond the call for an alternative approach to social inquiry and its growing adherents are providing evidence that this alternative approach to doing research can enrich the social sciences by more effectively connecting research to efforts to address real world problems as people experience them. This essay provides a genealogy of efforts to connect Political Science to politics, a review of the major critiques of mainstream research, an explication of the rationale for more problem-driven, mixed methods research, a specification of the key principles of the phronetic approach, and examples of its application in the public realm. The essay concludes with implications for realizing a more political Political Science by way of taking a phronetic approach.

Back cover text: This book aims to enlarge the understanding of decision-making on mega-projects and suggest recommendations for a more effective, efficient and democratic approach. Authors from different scientific disciplines address various aspects of the decision-making process, such as management characteristics and cost-benefit analysis, planning and innovation and competition and institutions. The subject matter is highly diverse, but certain questions remain at the forefront. For example, how do we deal with protracted preparation processes, how do we tackle risks and uncertainties, and how can we best divide the risks and responsibilities among the private and public players throughout the different phases of the project? - Presenting a state-of-the-art overview, based on experiences and visions of authors from Europe and North America, this unique book will be of interest to practitioners of large-scale project management, politicians, public officials and private organisations involved in mega-project decision-making. It will also appeal to researchers, consultants and students dealing with substantial engineering projects, complex systems, project management and transport infrastructure.

This paper focuses on problems and their causes and cures in policy and planning for large infrastructure projects. First, it identifies as the main problem in major infrastructure development pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is massive cost overruns, benefit shortfalls, and waste. Second, the paper explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that it is their projects, and not the competition's, that gain approval and funding. This results in the "survival of the unfittest," where often it is not the best projects that are built, but the most misrepresented ones. Finally, the paper presents measures for reforming policy and planning for large infrastructure projects, with a focus on better planning methods and changed governance structures, the latter being more important.

Risk, including economic risk, is increasingly a concern for public policy and management. The possibility of dealing effectively with risk is hampered, however, by lack of a sound empirical basis for risk assessment and management. This article demonstrates the general point for cost and demand risks in urban rail projects. The article presents empirical evidence that allow valid economic risk assessment and management of urban rail projects, including benchmarking of individual or groups of projects. Benchmarking of the Copenhagen Metro is presented as a case in point. The approach developed is proposed as a model for other types of policies and projects in order to improve economic and financial risk assessment and management in policy and planning.

The term ‘phronetic social science’ was coined in Making Social Science Matter (Flyvbjerg 2001). However, as pointed out in that volume and by Schram (2006), phronetic social science existed well before this particular articulation of the concept, but it was just not organized, recognized or named as such. Rather, it occurred here and there as scholars had adopted phronesis-like methods for their own purposes. The present title is the first organized volume of empirical–practical work in phronetic social science. Before Making Social Science Matter, phronesis, as a critical term of Aristotelian philosophy, had been theorized and its continuing importance as a key concept in Western thought had been convincingly argued by distinguished philosophers like Hans Georg Gadamer, Hannah Arendt, Alasdair MacIntyre and Richard J. Bernstein, among others. But no one had developed the theory and philosophy of phronesis into a practical methodology that could be applied by researchers interested in actually practising a phronetic social science. Making Social Science Matter developed such a methodology. Its implications were discussed and developed further in Making Political Science Matter (Schram and Caterino 2006). After these two theoretical–methodological contributions, it was evident that an important next step in demonstrating the usefulness of phronetic social science would be to illustrate, with concrete examples, how applied phronesis works in practical, empirical social science research. The contributions on applied phronesis contained in the present volume make clear that this next step has now been taken.

There is ferment in the social sciences. After years of sustained effort to build a science of society modelled on the natural sciences, that project, long treated with suspicion by some, is now openly being rethought. A critical intervention in this period of reflection was Making Social Science Matter (MSSM) by Bent Flyvbjerg, published in 2001. In that book Flyvbjerg challenged the very idea of social science as a science modelled on the natural sciences. Flyvbjerg argued that, as the social sciences study human interactions that involve human consciousness, volition, power and reflexivity, attempts to build generalizable, predictive models such as those for the natural world are misplaced and even futile.

Out-of-control information technology (IT) projects have ended the careers of top managers, such as EADS CEO Noël Forgeard and Levi Strauss’ CIO David Bergen. Moreover, IT projects have brought down whole companies, like Kmart in the US and Auto Windscreen in the UK. Software and other IT is now such an integral part of most business processes and products that CEOs must know their IT risks, which are typically substantial – and overlooked. The analysis of a sample of 1,471 IT projects showed that the average cost overrun was 27% — but that figure masks a far more alarming “fat tail” risk.  Fully one in six of the projects in the sample was a Black Swan, with a cost overrun of 200%, on average, and a schedule overrun of almost 70%. This highlights the true pitfall of IT change initiatives: It’s not that they’re particularly prone to high cost overruns on average – it is that there are a disproportionate number of Black Swans. By focusing on averages instead of the more damaging outliers, most managers and consultants have been missing the real risk in doing IT. In conclusion, the article outlines ideas as to what can be done to avoid Black Swans.

Este trabalho descreve a metodologia
definida pela ANEEL, o orgão regulador do
sistema elétrico brasileiro, para o cálculo dos
custos marginais de fornecimento de potência e
das tarifas de uso dos sistemas de distribuição.
São também apresentados alguns resultados
obtidos com a aplicação do sistema
computacional TARDIST, desenvolvido pelo
CEPEL, em um estudo de caso.

This paper focuses on problems and their causes and cures in policy and planning for large-infrastructure projects. First, it identifies as the main problem in major infrastructure developments pervasive misinformation about the costs, benefits, and risks involved. A consequence of misinformation is cost overruns, benefit shortfalls, and waste. Second, it explores the causes of misinformation and finds that political-economic explanations best account for the available evidence: planners and promoters deliberately misrepresent costs, benefits, and risks in order to increase the likelihood that it is their projects, and not those of their competition, that gain approval and funding. This results in the ‘survival of the unfittest’, in which often it is not the best projects that are built, but the most misrepresented ones. Finally, it presents measures for reforming policy and planning for large-infrastructure projects with a focus on better planning methods and changed governance structures, the latter being more important.

Teaching MBA research methodology classes can be a challenge. Students lack previous exposure to research methodology and statistics, and do not recognize growing labor needs for knowledge workers that the courses offer. Given industry demand for students prepared for high complexity positions and the growing demand for business professors to produce high-quality research, this article presents the results of a project-based pedagogy for graduate MBA research methods course that has been used to meet four goals; 1) provide high-quality instruction of research methods and statistics, 2) production of high-quality academic publications that provide options for students and professors to present the research for professional conferences and publication, 3) offering students the ability to answer intrinsically relevant (and interesting) research questions, and 4) giving students the required software to execute future research projects.