Project Evaluation and Uncertainty in Practice: A Statistical Analysis of Rate-of-Return Divergences of 1,015 World Bank Projects |
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| Authors: | Pohl Gerhard; Mihaljek Dubravko |
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| Institution: | Gerhard Pohl is with the Geneva Office of the World Bank. At the time of writing, Dubravko Mihaljek was with the Department of Economics at the University of Pittsburgh and the Economics Institute in Zagreb. Research for this study was initiated while Dubravko Mihaljek was a summer assistant in the Economic Advisory Staff of the World Bank. Helpful comments by the participants in a World Bank seminar and anonymous referees are gratefully acknowledged. |
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| Abstract: | This article analyzes the World Bank's experience with projectevaluation for a sample of 1,015 projects by comparing estimatedrates of return at appraisal with reestimated rates of returnwhen construction works are completed, usually 5 to 10 yearsafter appraisal. The analysis highlights the high degree ofuncertainty in project analysis. A wide range of variables hasbeen introduced to explain the observed divergence in appraisaland reestimated rates of return, but only a relatively smallpart of the divergence can be explained, even with the benefitof hindsight. Project analysis thus has to cope with a largedegree of uncertainty, which the traditional methods of projectevaluation and selection have not been able to reduce. |
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