Thursday, July 27, 2017

When is an Airport a Sunk Cost?

Fred Cyrus Roeder writes in Handelsblatt that Berlin's yet to be completed new airport is "A Textbook Example of the Sunk-Cost Fallacy." It is already seven years past its original opening date and costs are currently 150% higher than originally planned. Both numbers will undoubtedly rise. Moreover, an expansion is already needed for it to fulfill its intended purpose.

How could this have happened?
The fatal flaw was the decision by Berlin’s mayor and the governor of Brandenburg, the state surrounding the city, to ignore conventional wisdom and attempt to supervise hundreds of contractors instead of hiring one good general contractor to oversee construction. This decision transferred any liability from the private-sector contractor directly to the taxpayer.

Herr Roeder advocates scrapping the whole project and starting over.

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