Economic Analysis and Investment Priorities in Sweden’s Transport Sector

Abstract

Beginning as a planning tool within Sweden's national road administration some 50 years ago, benefitcost analysis (BCA) has come to be a pillar of the national transport policy because of subsequent strategic choices made by the national parliament. These choices made it necessary to widen the analysis of costs to include also externalities and a foregone conclusion was that efficient investment priorities should be made based on BCA. But no one asked whether the political decision makers or the BCA models were up to that task. This paper reviews the institutional framework and practice of BCA in Sweden for transport infrastructure investment, and considers design issues that have been and still are debated, such as whether the discount rate should include a risk term and how to account for the marginal cost of public funds. A main concern with BCA results is the underestimation of construction costs, making transport sector projects look better than they are. Several ex post analyses have established that a higher NPV ratio increases the probability of being included in the investment program proposal prepared by the agency. The requirement to let projects undergo BCA seems to make planners "trim" project proposals by trying to reduce investment costs without significantly reducing benefits. This relationship is weaker among profitable projects. Moreover, there is no correlation between rate-of-return and the probability of being included in the final program, which is established on political grounds.

Application of BCA in Europe – Experiences and Challenges

“…Moreover, the authors argue, institutional processes appear to point in this direction too, whether based on the established centrality of The Green Book (U.K. HM Treasury, 2011) in creating a BCA culture in U.K. policymaking or more novel ways that are emerging to embed environmental valuation in the work of government departments and agencies responsible for policy implementation. Andersson et al (2018) describe the evolution of BCA in the Swedish transport sector and current issues in its implementation. The study focuses on its practice for road and railway investments due to its limited use to date in other transport sectors such as airport or maritime infrastructure investments.…”

“…Further development in the 1980s and the creation of an agency in charge of BCA in the 1990s established economic appraisal as a formal requirement of road and railway infrastructure projects in Sweden. Andersson et al (2018) in their overview describe the principles and guidelines provided for evaluations of policies and projects in the Swedish transport sector and provide a critical discussion of the political considerations taken in actual imple-mentation of these principles and guidelines. The article also summarizes previous findings on the role of BCA in actual decision making in the transport sector in Sweden.…”

“…Andersson et al. (2018) describe the evolution of BCA in the Swedish transport sector and current issues in its implementation. The study focuses on its practice for road and railway investments due to its limited use to date in other transport sectors such as airport or maritime infrastructure investments.…”

“…The article by Andersson et al. (2018) describes a context in which BCA is generally accepted as a tool for economic appraisals and has grown in importance. It also describes, though, the reality of implementing BCA in a context of different disciplines having different priorities, and political considerations being taken.…”

“…The objective of the symposium and this article is to highlight some of the experiences gained from using BCA in Europe and to draw some conclusions on what has been achieved and what the challenges ahead are. To achieve this, the symposium consists of four different articles covering different areas such as the environment (Atkinson, Groom, Hanley & Mourato, 2018), transportation (Andersson, Hultkrantz, Nilsson & Lindberg, 2018), chemical risks (Georgiou, Rheinberger & Vainio, 2018), and regional development (Florio, Morretta & Willak, 2018), in different countries and institutional settings.…”