Cost–benefit analysis is considered as an effective means for the government to avoid failures in public projects. However, once cost–benefit analysis becomes mandatory and residents expect a public project to be established based upon it, there is a potential for a dynamic inconsistency problem to arise, where dynamic inconsistency is defined as a difference in the optimal policy before and after a certain time. Taking as an example the coastal levee improvement policy in the city of Rikuzentakata in Japan, the present study clarifies the mechanism behind the dynamic inconsistency problem that is attributable to mandatory cost–benefit analysis and also discusses quantitatively the influence of the dynamic inconsistency problem on social welfare. In addition, through examining the quantitative result, we indicate that, in the projects where the improvement cost increases gradually with the scale, the inefficiency of the dynamic inconsistency problem is incurred on a larger scale.
- cost–benefit analysis
- dynamic (or time) inconsistency problem
- public investment
ASJC Scopus subject areas
- Geography, Planning and Development
- Environmental Science(all)