Abstract
Transport projects can be typically contemplated as exogenous interventions in transport markets, which move the economy from one equilibrium to another, commonly through the reduction of the generalized price (composed of monetary price, time, and other disutility components) borne by transport users. This chapter describes two methods for the assessment of the economic effects of any transport project. The first one is based on the aggregation of changes in surpluses. The second one is based on the measurement of the change in willingness to pay and the net social value of the resources used or saved. The analysis is based on a simple model to avoid the mechanical application of rules of thumb from different sources, helping to find some practical ways to avoid common pitfalls and double counting in the measurement of benefits and costs of transport projects. The narrative on how the transport sector works and how government intervention affects social welfare is supported by an analytical approach from which the rules and measurement criteria are derived, always explaining the assumptions and conditions under which they hold.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
This chapter is based on de Rus et al. (2022).
- 2.
Everyday life activities are time-consuming, and this resource should be explicitly included in the analysis because individuals make their travel decisions both in terms of market prices and the opportunity cost of the travel time. This follows Becker (1965) or DeSerpa (1971) but also many contributions in transport economics literature (see Jara-Díaz et al., 2016, for example).
- 3.
Price and value of travel time may not be the only relevant parameters affecting consumers’ travel behaviour. When the overall conditions of transport services matter (in terms of comfort, reliability, safety, etc.), some additional elements of utility should be added to the generalized price. For the sake of simplicity, we omit these elements here, as the main results are unaffected.
- 4.
See Hensher (2011) for an overview of the major theoretical and empirical issues concerning the value of travel time savings.
- 5.
There are several reasons why the value of time may empirically differ from the wage rate. This is the case when both work and travel affect utility directly (and not only the budget constraint, as in our model), or when working time is unaltered by travel time savings. In those situations, the value of time of each individual depends on the sort of travel they undertake, i.e., the time at which the journey is made, the characteristics of the journey (congested, repetitive, or free flow), the journey purpose (commuting or leisure), the journey length, the mode of transport, or the size of the time saving (see Mackie et al., 2001, for further details).
- 6.
Once the spatial nature of transport activities is included in the model, the explicit treatment of changes in proximity and location could yield potential increases of productivity and the WEBs. Thus, time savings (as measured in our model) would underestimate the social benefits of transport projects (see Sect. 2.3.3).
- 7.
Alternatively, if the individual is asked how much money he is willing to accept to waive the potential benefits derived from the reduction in the generalized price of transport due to the project, we also obtain a monetary measure of the change in his utility. This is the so-called equivalent variation (EV). When EV is given to the individual as an additional income, he is indifferent between the situation with and without the project, as expressed by: \(V\left( {g^{1} ,y^{g1} } \right) = V\left( {g^{0} ,y^{g0} + {\text{EV}}} \right)\). If income effects are zero, CV and EV coincide.
- 8.
The relative error of using the change in consumer’s surplus instead of CVP is low if the elasticity of demand with respect to income, or the proportion of the change in consumer’s surplus with respect to income, is small enough (Willig, 1976).
- 9.
Important practical issues arise if capital or land is under foreign ownership (see Johansson & de Rus, 2019). Our analysis assumes a closed economy.
- 10.
Notice that an external effect is a change in resources.
- 11.
There are all sorts of measurement/prediction errors, which apply to both methods (Mackie & Preston, 1998).
- 12.
Notice that in this section, we use the parameter \(v\) to denote the value of time since, as already mentioned, it may empirically differ from the wage rate.
- 13.
See Harberger (1965), Neuberger (1971) and Small (1999).
- 14.
We assume no change in workers’ surplus nor landowners’ surplus.
- 15.
Notice that, since \(g_{j}^{0} = g_{i}^{0d} ,\) time savings given by expression (2.50) may be also expressed as: \(\frac{1}{2}v_{j} (t_{i}^{0} - t_{i}^{1} )x_{j}^{d} + \frac{1}{2}[(p_{i}^{0} - p_{j} ) + (p_{i}^{1} - p_{j} )]x_{j}^{d}\).
- 16.
It is common to consider that time savings of deviated demand are given by \(\frac{1}{2}v_{j} \left( {t_{j}^{0} - t_{i}^{1} } \right)\), but this is only the case if \(p_{j} = p_{i}^{1}\).
- 17.
See Johansson (1993) and de Rus (2021a). In particular, the section deals with inputs that can be purchased in markets. Non-market resources are not discussed here.
- 18.
Note that the distinction between goods and inputs is somehow blurred in practice as the inputs to be purchased for the project are indeed produced inputs (i.e., goods). Nevertheless, the distinction is useful for the discussion of the shadow price of inputs when those inputs deviate from the private sector.
- 19.
Assuming a shadow price of public funds equal to one.
- 20.
See Chap. 4 for the analysis of pricing and investment when there are other transport alternatives.
- 21.
Notice that producers’ surplus refers to both capital owners’ surplus and land owners’ surplus, and all inputs are paid at their marginal opportunity cost.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
de Rus, G., Socorro, M.P., Valido, J., Campos, J. (2023). Cost–Benefit Analysis of Transport Projects: Theoretical Framework and Practical Rules. In: Economic Evaluation of Transport Projects . Springer, Cham. https://doi.org/10.1007/978-3-031-35959-0_2
Download citation
DOI: https://doi.org/10.1007/978-3-031-35959-0_2
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-35958-3
Online ISBN: 978-3-031-35959-0
eBook Packages: Economics and FinanceEconomics and Finance (R0)