Hunting white elephants on the road. A practical procedure to detect harmful projects of transport infrastructure

Abstract

The white elephant concept is used to qualify public investments representing a severe misallocation of society's resources or expenditures that can be deemed to reduce the wellbeing of its future members. In the transport sector, white elephants (WEs) are particularly relevant due to the vast amount of resources involved in large-scale infrastructure projects and to their long lifecycle. In most articles on the subject, WEs are major projects showing a certain political or even economic short-term appeal but that are essentially inefficient. In this paper, the definition includes, beyond those that are inefficient, projects that are financially unsustainable and/or very unfair to future generations when properly analysed over their project lifecycle. An early identification as WEs of those efficient projects from the socioeconomic point of view that are bound to entice the failure of a main stakeholder or are unfair to future generations, facilitates reconsidering their financial structuring in order to make them acceptable and avoid the WE label.The authors propose a new approach to detect WEs that goes beyond the traditional detection through standard techniques, such as cost-benefit analysis (CBA), and involves the incorporation in decision-making of new indicators. Those of the Intergenerational Redistributive Effects Model (IREM) show the importance of the long-term impacts arising from major investment in transport infrastructure. Using the annuities of the socioeconomic CBA and financial analyses, the IREM indicators allow a look beyond the future impact of the project on society's welfare –measured through conventional CBA– and its capacity of being financed, and produce a good assessment of its intergenerational effects. In this paper, the authors present the results of applying IREM to a set of transport projects in the European Union and, with more detail, to several Spanish motorway projects with private financing. The IREM's outputs indicate that most of the projects in the sample will be fair to future generations. Some of the analysed investments could, however, be considered as WEs when applying the intergenerational perspective. IREM appears therefore to be a useful tool to avoid decision-making mistakes in major infrastructure projects.