Article

Getting Incentives Right: do we need ex post CBA?

Centre for Industrial Studies (CSIL), Working Papers 01/2010;
Source: RePEc

ABSTRACT This paper, presented at the Sixth European Conference on Evaluation of Cohesion Policy (Warsaw, 30 November-1 December 2009), discusses why there is a strong need of ex-post Cost-Benefit analysis and which conditions should be met for a proper ex-post exercise to be carried out in the framework of Cohesion Policy major projects. After an introduction about the objectives and instruments of the 2007-2013 EU Cohesion Policy, and in particular the legal framework for co-financing environmental and transport projects, the paper illustrates and discusses some methodological choices which have been made by the authors of the EC CBA Guide. It is showed that, without an ex-post Cost-Benefit analysis, the ex-ante exercise is also weakened as a decision making tool. In particular, in the light of evidence from literature about the most common mistakes and pitfalls in ex-ante project appraisal, it is explained how systematic ex-post evaluation is important in particular linked to ex-ante incentives to reveal true information about the projects characteristics (especially on investment costs and demand forecast which are often respectively under and overestimated due to an optimism bias) and ex-post performance assessment. The EC has a unique role to play in this context, and recommendations are given about how to improve the use of CBA for investment decisions and how to contract co-funding of major projects in the framework of incentive theory.

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    ABSTRACT: As of the moment when the European Union (EU) pre-entry resources and, since May 1, 2004, the EU structural fund resources became available to Latvia, businesses have had the chance to implement projects that promote business development, while positively influencing the national economy in general. Unfortunately, information of inefficiently administered financial resources in construction and infrastructure development projects surfaces ever more often. The international project management practice has developed and uses an entire complex of methods that helps justify the usefulness of the financial resources spent on a project and prevent inefficient administration of financial resources. The objective of this article is to evaluate, on the basis of theoretical aspects of the project cost-benefit analysis (CBA) method, the efficiency of methods applied in the construction and infrastructure development projects currently taking place in Latvia. At the end of the research, the authors of this article provide suggestions that could ensure application of project management principles to improve efficiency of the administration of allocated financing and to perform compliant project initialization, thus securing efficient realization of construction and infrastructure development projects that is compliant with the project management principles and fosters sustainable business.
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