The application of cost-benefit analysis to transport investment projects in Britain

Abstract

This paper explains the need for the application of cost-benefit analysis to the evaluation of alternative projects for investment in the transport field and outlines briefly the historical development of the technique. The results of a comparative survey of a number of cost-benefit studies which have been carried out in Britain and some conclusions as to their thoroughness and comprehensiveness (or otherwise) are presented.The article concludes with a number of specific and detailed recommendations to remedy apparent methodological weaknesses. Six of these recommendations seem to merit particular attention:(1) The viewpoint of most studies should be extended so as to avoid confinement, for example, within an arbitrary local government boundary, and a wider range of "externalities" should be considered. Intangibles should be included explicitly in all such evaluation exercises.(2) The actual incidence of costs and benefits should be examined in order to indicate the directional impact of the project and its implications in terms of equity. The elimination of transfer payments and double-counting should be postponed until the latest possible stage in the evaluation.(3) Equity considerations should be investigated in atiy transportation plan, since most projects have considerable equity implications for particular areas or socio-economic groups.(4) Discounted cash flow techniques, which are still used only in a minority of transportation studies, should become standard practice. Most evaluations are based on a single-year rate of return, or at best on simple trend forecasting. More resources should be devoted to proper evaluation of alternative plans which give due importance to the cost and benefit streams through time.(5) Sensitivity analysis should be used in all transportation evaluations. Knowledge of the impact of different assignments, shadow prices, and discount rates are essential information for any decisionmaker.(6) Last, but not least, much greater communication should exist between analyst and decisionmaker than has existed in the past.

Social Benefit-Cost Analysis for Electric BRTS in Ahmedabad

“…Historically, benefit-cost analysis has been used to evaluate alternative transportation projects and to aid in decision-making and policy formulations with equity considerations, discounted cash flow techniques, and sensitivity analysis for benefit-cost studies of the future (Barrell and Hills, 1972). It has been recommended for comparing transportation projects cost analysis over traditional benefit-cost analysis which aggregates all monetizable cost components, including "cost savings" (these were referred to as "benefits" in traditional analysis techniques) (DeCorla-Souza et al, 1997).…”

Application of System Dynamics to Evaluate the Social and Economic Benefits of Infrastructure Projects

“…Gallatin was U.S. Secretary of the Treasury at that time and he recommended comparisons in terms of costs and benefits in water infrastructure projects. Perhaps the first widespread use of CBA was instituted by the 'Federal Navigation Act-1936' of the U.S.A., which mandated the usage of cost-benefit analysis to assess proposed waterway infrastructure [18]. In 1939, the use of CBA was significantly expanded when the 'Flood Control Act' required CBA analysis for all new projects.…”

Generalised time and the problem of equity in transport studies

“…In practice, however, it is impossible to avoid making some such assumption whenever it is desired to offset benefits accruing to one group against costs borne by another. In a study of 19 cost-benefit analyses carried out in Britain in the period 1960/71, Barrell and Hills (1972) point out that all, in effect, have assumed that the marginal utility of money is equal for all members of society. Consistent with this they found that few studies made any substantial attempts to identify separately the "social incidence" of the various costs and benefits.…”