Forecasting the Demand for Privatized Transport: What Economic Regulators Should Know and Why
21 Pages Posted: 12 May 2002
Date Written: March 2002
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 email@example.com.
JEL Classification: L5, L9, R4
Suggested Citation: Suggested Citation
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