Eli5: why are estimated budgets for big construction projects always wrong and end up spending more than expected? Why can’t we get better at these estimates?
In: Economics
Because a lot of the public in America has this idea that the private construction company that does the project, should be the one that assumes the risk for the project (despite it being a government project that the public or government is in favor of).
The reasonable approach to having to assume risk, is to estimate a budget that includes such risk in it.
Alon Levy has a blog post about why, despite it going against some people’s common sense, it has to be the other way around and the government has to assume the risk:
https://pedestrianobservations.com/2020/11/30/who-should-bear-the-risk-in-infrastructure-projects/
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