Explaining Cost Overruns of Large-Scale Transportation Infrastructure Projects Using a Signalling Game

Transportmetrica A: Transport Science, 9(3): 239–258. DOI: 10.1080/18128602.2011.565817

26 Pages Posted: 11 Sep 2014

Date Written: 2013

Abstract

Strategic behaviour is one of the main explanations for cost overruns. It can theoretically be supported by agency theory, in which strategic behaviour is the result of asymmetric information between the principal and agent. This paper gives a formal account of this relation by a signalling game. This is a game with incomplete information which considers the way in which parties anticipate upon other parties’ behaviour in choosing a course of action. The game shows how cost overruns are the result of an inappropriate signal. This makes it impossible for the principal to distinguish between the types of agents, and hence, allows for strategic behaviour. It is illustrated how cost overruns can be avoided by means of two policy measures, e.g. an accountability structure and benchmarking.

Keywords: cost overruns, transportation infrastructure, strategic behaviour, asymmetric information, signalling game

Suggested Citation

Cantarelli, Chantal C. and Chorus, Caspar and Cunningham, Scott, Explaining Cost Overruns of Large-Scale Transportation Infrastructure Projects Using a Signalling Game (2013). Transportmetrica A: Transport Science, 9(3): 239–258. DOI: 10.1080/18128602.2011.565817, Available at SSRN: https://ssrn.com/abstract=2357331

Chantal C. Cantarelli (Contact Author)

Cranfield University ( email )

Bedfordshire, MK43 0AL
United Kingdom

Caspar Chorus

Independent ( email )

Scott Cunningham

Independent ( email )

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