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What is a white elephant project?

Relevant Topics

This question pertains to topics in Microeconomics, such as Project Evaluation and Government Intervention

Definitions:

A White Elephant Project: This is a term used to describe an investment, asset, or project that has cost a lot to develop, but is not useful or is not producing a return. White elephant projects are often unprofitable, costly to maintain, and difficult to sell or dispose of.

Detailed Explanation:

White elephant projects are generally initiated with great enthusiasm and expectations for economic profit and/or social benefit. However, due to reasons such as poor planning, lack of demand, cost overruns, or corruption, these projects end up becoming financial burdens with little or no utility or profitability.

It's also essential to note that white elephant projects often result from the misallocation of resources. These projects can distort local economies, leading to inefficiencies and adverse impacts on economic welfare. Therefore, effective project evaluation and economic planning are crucial to avoid such situations.

Recent: 

The Millennium Dome, London: Initially built for the celebration of the new millennium in 2000, the Millennium Dome was criticised for its high cost (£789 million) and low visitor numbers. After its initial usage, the Dome was largely unused for several years and became a symbol of wasteful government spending. However, it was later sold and transformed into the O2 Arena.

Maglev Train, Shanghai:
The Shanghai Maglev Train, one of the fastest passenger trains in the world, is another example of a white elephant project. Despite its high-speed capabilities, the train has suffered from low ridership due to its high ticket prices and inconvenient location. It reportedly operates at a significant loss.

Summary:

A white elephant project refers to an investment or project that has required a high expenditure but fails to deliver returns or serves no useful purpose. These projects often result from poor planning, lack of demand, or misallocation of resources, and can lead to inefficiencies in an economy. Real-world examples include the Millennium Dome in London and the Shanghai Maglev Train. Effective project evaluation and planning are crucial to prevent such projects.

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