The shadow cost of disadvantaged business enterprise (DBE) project participation goals in Tennessee highway construction

Highway and bridge construction on interstate highways, U.S. highway routes, and state highways is partially funded by federal gasoline taxes and administered by the individual state departments of transportation. In 1983 the U.S. government instituted legislation that increased the opportunity for disadvantaged business enterprise (DBE) firms to participate in federally-funded highway construction. After subsequent evolution, this legislation remains the subject of debate due to its economic impact and social implications. Some industry participants characterize the DBE program as inefficient because of the perception that DBE project participation goals create higher project costs and administrative burden. The price paid to achieve an equity objective is known as a shadow cost. This paper examines whether DBE participation goals imposed shadow costs to Tennessee highway projects during the years 2005 - 2008. This question is considered against a backdrop of the political economics of the policies behind the goals. Measuring a shadow cost is relevant to efficiency and public policy. Since highway construction funding comes from federal and state gasoline tax revenue, nearly all Tennessee and U.S. motorists are affected.