Underestimating Costs in Public Works Projects: Error or Lie?

TL;DR

This study reveals that cost estimates for transportation infrastructure projects are systematically underestimated due to strategic misrepresentation, not error, highlighting a need for more honest reporting in project planning.

Contribution

It provides the first statistically significant evidence that cost underestimation in public works is primarily due to deliberate lying rather than error.

Findings

Cost estimates are highly and systematically misleading.

Underestimation is best explained by strategic misrepresentation.

Results are consistent across different regions and project types.

Abstract

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.