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Going for the Gold: The Economics of the Olympics
In this paper, we explore the costs and benefits of hosting the Olympic Games. On the cost side, there are three major categories: general infrastructure such as transportation and housing to accommodate athletes and fans; specific sports infrastructure required for competition venues; and operational costs, including general administration as well as the opening and closing ceremony and security. Three major categories of benefits also exist: the short-run benefits of tourist spending during the Games; the long-run benefits or the “Olympic legacy” which might include improvements in infrastructure and increased trade, foreign investment, or tourism after the Games; and intangible benefits such as the “feel-good effect” or civic pride. Each of these costs and benefits will be addressed in turn, but the overwhelming conclusion is that in most cases the Olympics are a money-losing proposition for host cities; they result in positive net benefits only under very specific and unusual circumstances. Furthermore, the cost–benefit proposition is worse for cities in developing countries than for those in the industrialized world. In closing, we discuss why what looks like an increasingly poor investment decision on the part of cities still receives significant bidding interest and whether changes in the bidding process of the International Olympic Committee (IOC) will improve outcomes for potential hosts.
Journal Article
Investing in public investment: an index of public investment efficiency
Pritchett (J Econ Growth 5:361–384, 2000) convincingly argued that the difference between investment cost and capital value is of first-order empirical importance especially for developing countries where public investment is the primary source of investment. This paper constructs a public investment efficiency index that captures the institutional environment underpinning public investment management across four different stages: project appraisal, selection, implementation, and evaluation. Covering 71 countries, including 40 low-income countries, the index allows for benchmarking across regions and country groups and for nuanced policy-relevant analysis and identification of specific areas where reform efforts could be prioritized. Research applications are outlined.
Journal Article
TRADE AND THE TOPOGRAPHY OF THE SPATIAL ECONOMY
We develop a general equilibrium framework to determine the spatial distribution of economic activity on any surface with (nearly) any geography. Combining the gravity structure of trade with labor mobility, we provide conditions for the existence, uniqueness, and stability of a spatial economic equilibrium and derive a simple set of equations that govern the relationship between economic activity and the geography of the surface. We then use the framework to estimate the topography of trade costs, productivities and amenities in the United States. We find that geographic location accounts for at least twenty percent of the spatial variation in U.S. income. Finally, we calculate that the construction of the interstate highway system increased welfare by 1.1 to 1.4 percent, which is substantially larger than its cost.
Journal Article
Farther on down the Road: Transport Costs, Trade and Urban Growth in Sub-Saharan Africa
This article investigates the role of intercity transport costs in determining the income of sub-Saharan African cities. In particular, focusing on fifteen countries whose largest city is a port, I find that an oil price increase of the magnitude experienced between 2002 and 2008 induces the income of cities near that port to increase by 7% relative to otherwise identical cities 500 km farther away. Combined with external estimates, this implies an elasticity of city economic activity with respect to transport costs of –0.28 at 500 km from the port. Moreover, the effect differs by the surface of roads between cities. Cities connected to the port by paved roads are chiefly affected by transport costs to the port, while cities connected to the port by unpaved roads are more affected by connections to secondary centres.
Journal Article
The Cost-Benefit Fallacy: Why Cost-Benefit Analysis Is Broken and How to Fix It
Most cost-benefit analyses assume that the estimates of costs and benefits are more or less accurate and unbiased. But what if, in reality, estimates are highly inaccurate and biased? Then the assumption that cost-benefit analysis is a rational way to improve resource allocation would be a fallacy. Based on the largest dataset of its kind, we test the assumption that cost and benefit estimates of public investments are accurate and unbiased. We find this is not the case with overwhelming statistical significance. We document the extent of cost overruns, benefit shortfalls, and forecasting bias in public investments. We further assess whether such inaccuracies seriously distort effective resource allocation, which is found to be the case. We explain our findings in behavioral terms and explore their policy implications. Finally, we conclude that cost-benefit analysis of public investments stands in need of reform and we outline four steps to such reform.
Journal Article