EFFECTIVENESS OF INFRASTRUCTURE SERVICE DELIVERY THROUGH EARMARKING -THE CASE OF HIGHWAY CONSTRUCTION IN CHINA

Cost overruns in Chinese highway construction projects arise both from poor construction quality and delays in completion, As a result of th e lack of an effective control mechanism linking project initiation wi th funding availability, new projects are initiated without sufficient budget to support completion as planned. Project managers are forced by the budget constraints either to sacrifice construction quality or to slow down the pace of construction, This paper develops a system dy namics model to understand the cost overrun problem in Chinese highway construction projects. Three policy options, (1) introduction of feas ibility studies, (2) loan financing of the cash-strapped projects, and (3) the raising of user charges, are evaluated using this model. The introduction of feasibility studies has the potential to be an effecti ve policy, yet it is impossible to implement because of organizational constraints. Loan financing leads to dependence on loans rather than sustaining service delivery. The raising of user charges is found to b e the most effective policy, although it is politically not very attra ctive. (C) 1998 John Wiley & Sons, Ltd.