Derailing the Boondoggle

An article appears in the magazine Miller-McCune by Ryan Blitstein Derailing the Boondoggle, which discusses Bent Flybjerg, reference-class forecasting, and the trouble with mega-projects.
Clearly engineering based estimates of project costs built up cubic yard by cubic yard ought to be compared with economic-based estimates of the costs of the same project using comparable cases. Similarly for demand forecasts. Ideally the two methods (economic and engineering) would be the same, or close. Practice indicates otherwise.
One wonders whether estimates showing benefits < costs would actually derail many of these projects. Hiawatha LRT in Minnesota had a published B/C ratio of 0.42 and went forward and is now heralded (politically) as a success. Whether the B/C would actually exceed 1.0 is a class project for my transportation economics class this Fall.
Nevertheless, not all forecasts are high. In the Twin Cities, our study "Post-Construction Evaluation of Traffic Forecast Accuracy" show they tended to underestimate traffic.

The Privatization of Public Infrastructure

Article in NYT: Running Out of Money, Cities Are Debating the Privatization of Public Infrastructure
“Reeling from more exotic investments that imploded during the credit crisis, Kohlberg Kravis Roberts, the Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors who have amassed an estimated $250 billion war chest — much of it raised in the last two years — to finance a tidal wave of infrastructure projects in the United States and overseas.”
This is like what This American Life called “The Giant Pool of Money” which was chasing mortgages a few years ago (and dotcoms before that).
Will we see a similar bubble in infrastructure financing deals gone bad in 5 or 10 years? Was the London Underground Metronet PPP collapse a harbinger of the future?
Unfortunately the ever-growing Giant Pool of Money seeking steady reward does not have foresight, it just finds a short run equilibrium without being able to see the consequences downstream.
Whether these are governed and regulated as public utilities, or unfettered monopolists will make a large difference on their political success as well.
Infrastructure is slow to build and slower to change, it is important to get the investments right. The private sector will want to offload risk and guarantee profit, which is at odds with the public good. The experience with private ownership of infrastructure is mixed, which does not mean it should not be pursued, but that it should be pursued intelligently learning from experience, especially international experience, where private roads, airports, ports, post offices, passenger rail, and transit systems, along with water and sewer, are far more common than in that bastion of market capitalism the United States.