Errors in Project Approval and Mandatory Review

24 Pages Posted: 17 Sep 2010

See all articles by Delphine Prady

Delphine Prady

Toulouse School of Economics (TSE)

Florian Schuett

Tilburg Law and Economics Center (TILEC); Tilburg University - Tilburg University School of Economics and Management

Date Written: September 16, 2010

Abstract

We compare two processes for society to review projects: one that is entirely based upon the initiative of interested parties, and one that first submits projects to a nonpartisan and mandatory review. In the first case, the default outcome is approval and projects are carried out without prior authorization. In the second case, the mandatory review results in either approval or rejection of submitted projects. In either case, private parties can contest the outcome and initiate a definitive review. Since the second review overrules the first one, the mandatory review may seem redundant. However, the mandatory review can improve the decision of private parties to initiate a definitive review. Thanks to private parties' improved decision making, mandatory review can lead to a reduction of both type I and type II errors.

Keywords: project review, private initiative, type I and type II errors

JEL Classification: D02, K41

Suggested Citation

Prady, Delphine and Schuett, Florian, Errors in Project Approval and Mandatory Review (September 16, 2010). TILEC Discussion Paper No. 2010-034, Available at SSRN: https://ssrn.com/abstract=1677889 or http://dx.doi.org/10.2139/ssrn.1677889

Delphine Prady

Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France
+33688484233 (Phone)

Florian Schuett (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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