Forecasting the Demand for Privatized Transport: What Economic Regulators Should Know and Why

21 Pages Posted: 12 May 2002

See all articles by Lourdes Trujillo

Lourdes Trujillo

Departamento de Analisis Economico Aplicado; University College of London (UCL)

Emile Quinet

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS)

Antonio Estache

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES)

Date Written: March 2002

Abstract

This overview of issues that regulators should be aware of in demand forecasting discusses challenges that come with the decision to privatize transport, the perverse incentives introduced when privatization teams use strategic demand forecasts to evaluate assets, the most common problems with demand forecasting, the reasons that demand forecasting matters, and how to think about demand forecasting in the context of regulation.

Forecasting has long been a challenge and will remain so for the foreseeable future. But the analytical instruments and data processing capabilities available through the latest technology and software should allow much better forecasting than transport ministries or regulatory agencies typically observe.

Privatization brings new needs for demand forecasting. More attention is paid to risk under privatization than when investments are publicly financed. And regulators must be able to judge traffic studies done by operators and to learn what strategic behavior influenced these studies.

Many governments and regulators avoid good demand modeling out of lack of conviction that theory and models can do better than the "old hands" of the sector. This is dangerous when privatization changes the nature of business.

For projects amounting to investments of $100-200 million, a cost of $100,000-200,000 is not a reason to reject a reasonable modeling effort. And some private forecasting firms are willing to sell guarantees or insurance with their forecasts to cover significant gaps between forecasts and reality.

This paper - a product of the Governance, Regulation, and Finance Division, World Bank Institute - is part of a larger effort in the institute to increase understanding of infrastructure regulation. Antonio Estache may be contacted at aestache@worldbank.org.

JEL Classification: L5, L9, R4

Suggested Citation

Trujillo-Castellano, Lourdes and Quinet, Emile and Estache, Antonio, Forecasting the Demand for Privatized Transport: What Economic Regulators Should Know and Why (March 2002). World Bank Policy Research Working Paper No. 2446. Available at SSRN: https://ssrn.com/abstract=293881 or http://dx.doi.org/10.2139/ssrn.293881

Lourdes Trujillo-Castellano

Departamento de Analisis Economico Aplicado ( email )

Universidad de Las Palmas de Gran Canaria
Campus de Tafira
Las Palmas de Gran Canaria, Las Palmas 35017
Spain

University College of London (UCL)

Chadwick Building
Gower Street
London, London WC1E 6
United Kingdom

Emile Quinet

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France

Antonio Estache (Contact Author)

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
32 (0)2 6503838 (Phone)

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