How Predictive are Cost Forecasts for Broadband Stimulus? Evidence from the Recovery Act

77 Pages Posted: 11 May 2017

Date Written: November 14, 2016

Abstract

I examine cost forecasts for 49 fiber-optic and wireless networks funded by the Recovery Act. I find that grantees did not systematically underbid for projects. They did, however, underestimate and overestimate costs with nearly equal frequency, and escalate costs on average by 202 percent in cost per institution and 37 percent in cost per fiber mile. For four outputs, I ask whether cost forecasts predicted actual construction. I find that grantees overestimated fiber miles and indirectly connected institutions, while meeting targets for directly connected institutions and points of interconnection. I do not find budget, technology, or institution effects to explain the quality of cost forecasts in these outputs. My findings suggest that low-price bids can be cost-effective across project types. With data from the applicant pool, I compare offers from 116 projects with 657 rejected proposals.

Keywords: broadband infrastructure, broadband stimulus, Recovery Act

JEL Classification: H30, H42, K23, L50, L96

Suggested Citation

Lam, Sarah, How Predictive are Cost Forecasts for Broadband Stimulus? Evidence from the Recovery Act (November 14, 2016). GMU Working Paper in Economics Forthcoming, Available at SSRN: https://ssrn.com/abstract=2963377 or http://dx.doi.org/10.2139/ssrn.2963377

Sarah Lam (Contact Author)

Technology Policy Institute ( email )

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