How the stream of benefits, discount rate, and other parameters of a major transit project affect its optimal timing are examined. A theoretical model of the timing of public infrastructure projects is used. The model takes into account the net benefits of a project, the variation of benefits with project age and timing of investment, construction cost and its growth, and discount rate. The model is used to examine three questions: Under what conditions is build-later optimal? How do changes in the discount rate and other parameters of an investment affect its optimal timing? How significantly do differences in the stream of net benefits from an investment affect its optimal timing? The first two questions are examined analytically, and the last question is examined numerically. When the stream of net benefits stays constant, declines, or shifts parallel with the timing of investment, build-later is not optimal. When the stream of net benefits grows over time, however, build-later can be optimal. A necessary condition for build-later to be optimal is that initial net benefits be relatively small. When build-later is optimal, how much later to build varies significantly.
ASJC Scopus subject areas
- Civil and Structural Engineering
- Mechanical Engineering