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Document Type

Thesis - University Access Only

Award Date


Degree Name

Master of Science (MS)

Department / School

Civil and Environmental Engineering

First Advisor

Xiao Qin


Engineering economic analyses (EEA) apply economic methodologies to engineering problems for decision-making support, including life-cycle cost analysis (LCCA), benefit-cost analysis (BCA), incremental benefit-cost analysis (IBCA), presentworth analysis (PWA) etc. When conducting an EEA, interest and inflation rates are the two most influential factors to be considered. Using inappropriate values for interest and inflation rates could decrease the accuracy of decision-making, such as unfairly favor specific industries (e.g. concrete over asphalt or vice versa), and fail in preparing budgets for future projects (i.e. overestimate or underestimate the future costs of the projects). Therefore, it is necessary to identify the appropriate methodology for measuring the sound interest and inflation rates to enhance the credibility of investment decisions. Currently, The SDDOT assumes a zero interest rate which may be problematic because it encourages spending instead of saving, and it cannot identify the differences of projects with various life cycles as interest rates can vary by analysis period. Additionally, The SDDOT uses a unique inflation rate in the whole state. This may be inappropriate because the prices of materials and labor can vary by different areas. Hence, the new methodologies for choosing the appropriate interest and inflation rates are essentially needed to validate the investment decisions.In this study, the SDDOT’s current uses of interest and inflation rates are firstly identified and examined, i.e. the applications of a zero interest rate and a general inflation rate in the whole South Dakota are tested and judged. Then the proposed methodologies for establishing interest and inflation rates are introduced. More specifically, a non-zero interest rate is calculated by the treasury and state-issued bond yields; the region- and material specific inflation rates are measured; and the risk analysis is conducted for LCCA. Lastly, several LCCA case studies are conducted using both current and proposed methodologies in order to illustrate the differences. The results of this study depict that using inappropriate rates could unfairly favor certain industries (such as concrete over asphalt or vice versa), and the interest and inflation rates calculated by the proposed methodologies are more reasonable for an EEA.

Library of Congress Subject Headings

Infrastructure (Economics)--South Dakota--Finance
Public investments--South Dakota
Cost effectiveness
Interest rates--South Dakota
Cost effectiveness
Interest rates--South Dakota
Inflation (Fiance)
Roads--South Dakota--Design and construction--Finance


Includes bibliographical references (pages 59-62).



Number of Pages



South Dakota State University


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