The Sochi 2014 Winter Olympics: The Cost-Benefit Analysis and Ways to Improve the Project Efficiency

Abstract

Russia will be hosting the 2014 Winter Olympic and Paralympic Games (WOPG) in the city of Sochi in Krasnodar Krai for the first time in its history including the history of the former USSR. The selection of Sochi took place after eight years of a steady economic growth in Russia that rebounded from the 1998 economic crisis at an average GDP annual growth rate of 6.8% during 1999-2006. Staging of the 2014 WOPG is associated with one of the largest investment programmes in the country in the 2000-2010s causing a number of discussions about necessity of such large spending, while the estimated costs of the Olympics also vary considerably depending on methods of calculation and assumptions used. In this paper we firstly analysed drawbacks of economic impact studies often used for evaluation of public investment projects’ costs, including the 2014 WOPG. Secondly, using studies about sport events in the USA and Olympic Games that took place during last 30 years we revealed advantages of cost-benefit analysis in obtaining unbiased estimations of public investments’ efficiency. Thirdly, to evaluate the Sochi-2014 project efficiency we employed cost-benefit analysis with five accounts (areas of impact), namely government financial account, resident/consumer account, environmental account, economic and social development accounts, calculated the net present value of this project and assessed its possible alternatives. In conclusion we suggested several policy directions that would enhance public investment efficiency within the Sochi-2014 project.

Keywords: cost-benefit analysis, Russia, Winter Olympics, Sochi, economic impact studies

JEL Classification: D61, H54, L83, N94