Recommendation 10

Employ a new approach to infrastructure economics that recognises the long-term and system-wide value of infrastructure provision.

Understanding the wider benefits of infrastructure and how decisions affect a wide variety of interests is crucial when the services infrastructure provides are disrupted, in need of rebuilding, repairing or replacing. Considering the other dimensions of value identified in the previous sections is important, but upfront finance and ongoing funding are necessary factors in the continuing viability of infrastructure provision.

Standard economic theory, including its application in the infrastructure sector, often refers to ‘market failures’, and is based upon instances when the economic and financial valuation of infrastructure diverges from what is considered socially and economically valuable in the long run. There are three reasons why the traditional assessment and evaluation approach of cost-benefit analysis may be inappropriate as an appraisal tool for infrastructure:

(i) the uncertainty inherent in the long run and system-wide duration and impact of infrastructure;

(ii) the interdependence of attitudes, preferences and behaviours of individuals with the infrastructure systems with which they interact (i.e. infrastructure can shape preferences and values so the latter cannot be used as fixed guides for evaluation); and,

(iii) the system-wide impacts of infrastructure on economic growth and society which require a system-wide analysis beyond the scope of standard cost-benefit analysis.

Just as there is a need for a systems assessment of social and environmental benefits, iBUILD research has shown that a similarly broad view of economic costs and benefits is also crucial. This helps unlock future funding and finance by identifying economic values of the systems of infrastructure provision that include those benefits that are diffuse across the economy and society and over long timeframes.[55*]