Why Study Big Dams?

For the full text — coauthored by Atif Ansar, Bent Flyvbjerg, Alexander Budzier, and Daniel Lunn — click here.

Big dams are archetypical megaprojects

We study large dams because they serve as a particularly useful empirical setting to develop an understanding of investment fragility. This is so for the following reasons.

First, big dams are archetypical megaprojects. Dams are bespoke, site-specific constructions that have large physical proportions; require mobilization of vast quantities of inputs (materials, land, labor, or physical equipment); entail huge up-front financial outlays; generate a large number of unit of outputs; take a long time to build; last a long time; are spatially fixated; are highly complex not only in terms of the number of constituent parts but also in terms of high interdependencies between those parts. Large dams typically also impact large numbers of people and the environment during their construction, operation, and eventual removal.

A 90% completed dam is as useless as a dam not built at all

Second, dams are indivisible and discrete assets. A 90% completed dam is as useless as a dam not built at all. For this reason, the physical scope and costs associated with a dam are methodologically well-defined and therefore particularly well-suited for like-for-like comparisons between planned and actual outcomes.

Third, the main part of the whole-life costs of a dam are rendered up front during the construction phase. Unlike thermal power plants, dams do not require large variable costs in subsequent time periods for feedstock. There is a degree of transparency possible with the cash flows (or streams of costs and benefits) associated with dams that is much more difficult to establish for other big capital investments.

Intuition would suggest that the overall planning uncertainties ought to be more limited in large dams than, for example, big capital investments based on revolutionary new technologies delivering new services

Finally, results from large dams are generalizable to other big venture. Large dams are a widely studied engineering problem, or what conventional theory might consider “a standardized production technology” (Sidak & Spulber, 1997)*, generating basic services, such as electricity or water, as outputs with seemingly established demand trends. Intuition would suggest that the overall planning uncertainties ought to be more limited in large dams than, for example, big capital investments based on revolutionary new technologies delivering new services. A discovery of systemic errors in the building of dams would be indicative that the problems of investment fragility will be even more severe for less standardized capital investments.

Continue to read about dams and investment fragility here.

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*) See full list of references here: https://bit.ly/3igUs3w