Why Governments Keep Paying for Cost Overruns

Governments around the world routinely approve projects that end up costing far more than initial estimates. In this episode, Lucas and Luna explore the psychology and politics behind cost overruns, focusing on a 2024 study of 200 major infrastructure projects across OECD countries. They discuss how optimism bias, strategic misrepresentation, and the 'sunk cost' fallacy combine to create a cycle of escalating spending. Lucas breaks down the key finding: projects over $1 billion have an average cost overrun of 34 percent, with transportation projects like rail and bridges the worst offenders. Luna highlights a counterexample from Denmark's fixed-link projects, where rigorous independent review kept cost overruns below 5 percent. The episode examines why political incentives reward underestimation and how institutional reforms like Denmark's 'disaggregated oversight' model could break the pattern. Tune in for a clear-eyed look at one of public finance's most stubborn problems. #CostOverruns #Infrastructure #PublicFinance #GovernmentSpending #OptimismBias #StrategicMisrepresentation #SunkCostFallacy #OECD #Denmark #RailProjects #BridgeConstruction #BudgetOversight #FiscalResponsibility #Economics #Government #FexingoBusiness #BusinessPodcast #BudgetBusting Keep every episode free: buymeacoffee.com/fexingo