The Tragicomedy of Infrastructure: Exploring Time Inconsistency and Pre-Commitment Strategies in Energy and Transport Infrastructure Investment

Abstract

This paper blends insights about time inconsistency from two distinct literatures: behavioural economics and macroeconomic policy, and applies them to the problems of infrastructure investment and finance. We explore the interplays between these different forms of time inconsistency, and associated pre-commitment strategies, in the context of infrastructure investment and finance by analysing the attitudes of 157 infrastructure financiers towards two major infrastructure projects in the UK – the Swansea Bay Tidal Lagoon and London’s Crossrail 2 project. We analyse responses to assess the impact of individual differences on preferences for pre-commitment strategies. We find that different types have different preferences for pre-commitment strategies. We explore the policy implications of this finding for real-world infrastructure investment and finance.