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Transport Policy 7 (2000) 41±50
Methods for evaluation of transportation projects in the USA q
D.B. Lee Jr.
US Department of Transportation, Volpe National Transportation Systems Center, Kendall Square, Cambridge, MA 02142, USA
Abstract ªProjectsº, as the term is used here, are capital investmentsÐfrom resurfacing streets to multi-billion dollar constructionÐthat create transportation infrastructure. ªMethodsº are primarily bene®t±cost analysis, although other frameworks have been, and still remain, in use. Most projects are constructed by public agencies and authorities, primarily at the state and local level, but the federal government is the dominant source of evaluation guidance because most transportation projects use some share of federal funds. Bene®t±cost analysis (BCA or BC) is a decision framework for government agencies to use in considering the desirability of taking alternative actions, whether investment, operations, or regulation. This survey describes the use of BCA by US transportation agencies, comparing theory, published guidance, and actual practice. Published by Elsevier Science Ltd.
Keywords: Transportation project evaluation; Bene®t±cost analysis
1. Institutional factors affecting evaluation Although the bene®t±cost (BC) framework has come to dominate other methods of evaluation in the US, Bene®t± cost analysis (BCA) is by no means supreme, and any kind of technical evaluation faces an uphill struggle in the decision process. Application of BC is the strongest at the federal level, but states and, to a lesser extent, localities accept the appropriateness of the BC format while not necessarily doing a lot of it. 1.1. Political pressures for evaluation Considerable pressure comes from both the Of®ce of Management and Budget (OMB, which seeks to reduce requests for funds by federal agencies) and Congress (which seeks justi®cation for spending taxpayer funds). Those in the political arena who believe that objective analysis will support their position favor BCA because they believe it is neutral or at least arguable, while those who want to see how things look before making a commitment also ask for BC. Those who believe an objective evaluation will produce results contrary to their interests oppose or try to ignore BC. The result is that requests for studies from Congress often explicitly call for bene®t±cost
q A previous version of this paper was presented at a symposium on international comparisons of bene®t±cost practices hosted by the Japanese Society of Civil Engineers in Tokyo in May 1999. The author thanks attendees and anonymous reviewers for helpful comments and suggestions.
to be applied, even for programs (such as Intelligent Transportation Systems) that Congress continues to support. 1.2. The intergovernmental context for transportation evaluation The process by which transportation projects are selected in the US is tied up in intergovernmental relations and ®nancing mechanisms (Wiener, 1999). The Interstate Highway program and similar programs for transit and airports created ªuserº tax instruments that channel funds to the national level, for redistribution back to states and localities. The return grants generally require matching, with the federal government paying 60±90% of the costs; states often pick up most or all of the remainder. With such a large share of funding coming from higher levels of government, local politicians have a strong incentive to get as much as possible, whether the projects are worthwhile or not. With respect to highways, this problem has been dealt with by allocating funds through formulas, so that states cannot get a larger share by lobbying for more projects. This constraint, in turn, has spawned ªdemonstrationº projects that are earmarked by congressional jurisdiction on a pork-barrel basis. Transit funding also has a combination of formula funds and earmarked projects. Airport funding is similar. 1.3. Incentives for under-maintenance Amid pressures to ªbring home the baconº, long term costs may be discounted or ignored. Operating costs,
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Substantive requirements versus process requirements A technical manual prescribing correct methods for conducting bene®t±cost analysis lies at one end of the substantive-procedural spectrum. 2.2. 2. it almost never rejects a project on grounds of insuf®cient justi®cation.. but such evaluations are less likely to contribute as much to decisions as they would without the funding incentives. 1. and subsequently for lawyers who took the reports to court to assess ªadequacy.º NEPA is still in force. The response for transit has been to provide operating subsidies as well as capital grants. Although the federal government is supposed to approve the projects. 2.B. can be a large share of total costs over the lifetime of a facility. and states (including independent authorities) do most of the construction. it is unclear who is responsible for evaluating projects. MPOs have dif®culty in reaching consensus or addressing regional problems of congestion and air quality. The National Environmental Policy Act (NEPA) called for an Environmental Impact Statement (EIS) for major projects. distribution. but it introduced the era of ªpublic involvement. States and localities propose projects. This tug-of-war is continuously being renegotiated. but it is only one of many instruments.º Not much light was shed on whether the projects were any good. The trend over the past several decades has been away from attempting to specify how to do an evaluation and toward more indirect technical guidance. Metropolitan Planning Organizations (MPOs) have evolved an analytic methodologyÐknown as ªfour-stepº models. Planning requirements FTA initially demanded ªalternatives analysisº to justify funding for major transit projects. assignment. The federal government is willing to raise the revenues. State and local roles Under this intergovernmental system. Full life-cycle costs can be readily assessed within a BC evaluation. 1996).1. surface treatments are postponed until the improvement can be treated as capital. For highways. for trip generation. By providing a higher federal contribution for capital expendituresÐmaking capital dollars cheaper than operating cost dollarsÐlocalities are encouraged to substitute capital for maintenance. Guidance for project evaluation Attempts by higher-level government agencies to in¯uence decisions at lower levels are always fraught with some con¯ict. van der Wilden et al. 1. and return the money without strings. along with process suggestions. with mandatory detailed outlines (FHWA/FTA. 1993. and worked least well on those with the least technical capability. Local governments prefer that someone else take on the onus of levying taxes. but has been folded in practice into subsequent planning requirements. Prescriptive guidance had the effect of forcing everyone down to the lowest common denominator.42 D. but this has been gradually softened into Major Investment Studies (MIS) that are .4. especially for transit. localities have more discretion to choose among projects of different modes (they can spend the same money on transit or highways) and thus have somewhat more motivation for applying bene®t±cost. 1987). Lee / Transport Policy 7 (2000) 41±50 Fig. This legislation provided much work for consultants.. Politically. Major components of bene®t±cost analysis. Issuance of prescriptive guidance is one mechanism used by the federal government to try to bring lower governments up to an acceptable minimum practice of decision making. and the context is not receptive to the discipline required for BCA (Lyons et al. Under ISTEA. but expects to redirect the funds to some extent so as to achieve national objectives. this means that although resurfacing (an overlay of three or more inches) is considered a capital expense. and mode choiceÐthat is not well suited to BCA. although this does not eliminate the tendency to buy new vehicles rather than maintain the old.
and include positive and negative spillovers (ªexternalitiesº) as well: 1. The basic framework The technical process of BC analysis can be separated into alternatives. by some means. pavement. Nas. see Wiener. for example. bene®ts. there is no particular encouragement to use BC at the project level. 3. Evaluation is the synthesis of the information into a conclusion about whether the project is feasible or not (the framework used here is presented in Appendix D of Camus and Weinblatt. there is a set of supporting actions associated with that alternative that ensure that the maximum bene®ts are derived from the investment. and ² conformity to air quality implementation plans. and analytic methods are left open. Project bene®ts can be derived from the objectives served by building the project. damage to vehicles. 1995): ² a broadly inclusive public involvement process. When an alternative is selected.g. Impacts: costs. congestion relief. Such an evaluation will be biased against inef®cient alternatives. i. 1994. and . 2. or other more modest investments. bene®ts.B. etc. and evaluation phases. Improved safety reduces the risk of accidents that result in fatalities. Project Alternative(s).e. The base alternativeÐloosely referred to as the ªdo nothingº alternativeÐshould be the most plausible yet ef®cient utilization of the stock of capital resources that is likely to be available over the life of the proposed project. and external costs (pollution. Society as a whole is not made better off or worse off by transfers. While these checks and balances tend to ensure some internal consistency to plans. April 1994. 1999. and transfers All impacts can be classi®ed into costs. 1999). not against several alternative alignments for the same freeway. The vast bulk of impacts are transfers. Rather than prescribe the evaluation method. mode choice) that lead to costs and bene®ts. If a rail transit line is constructed. Construction of a new freeway. they exhibit congestion). This may or may not include operating and maintenance costs. ªPlausibleº is in con¯ict with ªef®cientº because existing transportation facilities are. Save Time. more attention has been paid to the technical certi®cation process. and consistency with land use plans. The Intermodal Surface Transportation Ef®ciency Act (ISTEA) made large changes in shifting categorical programs (transit. by and large. Reduce User. security. There is always a way to get from one place to another. as represented in Fig. costs typically consist of direct outlays for the project. Whichever alternative is chosen. A transportation improvement may result in greater comfort. Capital investment alternatives are generally ordered according to the magnitude of the investment. bridges. 1999). 1999). Small. 2. 1995). 4. Improve Quality. 3. User (capital and operating) costs. or changes in land use or pollution. August 1994. highway. but also jobs resulting from construction and operation. and transfers. Agency. and their translation into bene®ts. 3. all that matters is the difference between costs and bene®ts. 1. other than insofar as they affect equity or cause changes in behavior (e. 1. in which individuals may gain or lose but society is unaffected in the aggregate. Selecting a base alternative that is inef®ciently operated assumes that correction of the inef®ciency is not feasible during the lifetime of the proposed project.2. ² ®nancial plans. without substantial additional investment. but certainly includes capital costs. and External Costs. Ultimately. land use policies should facilitate the appropriate densi®cation around stations that will make the demand forecasts reasonable (FTA recognized this need in its 1978 ªPolicy Toward Rail Transitº. As a matter of practice. Instead. These supporting actions become assumptions upon which the evaluation is based. convenience. other authoritative sources include Mohring. it implies a commitment to the implementation of the supporting actions as well as the project actions. intermodal. bridges) into poolable funds that could be redirected at the state and local level. 3. and other property damage. Lee / Transport Policy 7 (2000) 41±50 43 more ¯exible in how the evaluation is performed (FHWA/ FTA.D. perhaps with other bene®ts as well. so whether a particular item is called a cost or a bene®t is not critical so long as it is properly debited or credited. Bene®t±cost guidance 3.1. Base Alternative. and major MPOs were reviewed with respect to their technical resources and organizational capabilities for carrying out the intentions of ISTEA (FHWA/FTA. 1996. The most obvious type of transfers are ®nancial or monetary. A new or expanded facility allows the travel to be made in less time. Improve Safety. injuries.g. Siwek. ² management systems for congestion. impacts. ² major investment studies as appropriate. Layard and Glaister. Impacts are the differences caused by the actions taken. noise) may be reduced by a capital improvement. should be compared against TSM options. Supporting Actions. lane widenings. FTA. 1993. such as changes in user fees or taxes used to ®nance construction. ² consideration of a 15 ªplanning factorsº checklist that includes such items as enhancement of transit. relative to the base. from low capital alternatives to high. the legislation listed six ªelementsº that should be covered (Siwek. not ef®ciently operated (e. public (capital and operating) costs.
but seldom goes beyond them except in narrowly speci®c areas such as accident costs. or less damage to goods for shippers. A somewhat pessimistic review of the use of bene®t±cost is found in Lave. how well it satis®es the objectives proposed for it. and a knowledgeable reviewer can ®nd them more easily than if the procedures are hidden in some proprietary black-box model or idiosyncratic evaluation method (see Hahn. especially the failure to impose ef®cient pricing. the practice of BCA falls well below the lip service. the terms of debate at the DOT and in other arenas dealing with transportation have shifted from 100% engineering to roughly 80% economics. The critical requirement for . 1994. FTA. There are.44 D. Even these speci®c instructions are not followed slavishly. ªRevised Measures. it was taken with a grain of salt by professional analysts. and is re¯ected in the generalized cost to the user. economic concepts (and BC) are less evident.g. for an assessment of federal efforts to apply bene®t±cost analysis to regulatory evaluation. the extent is less. Increase Consumer Surplus. 3. and how it compares on various indicators with other alternatives. Thus although most professionals at the federal level accept that BCA is the preferred framework for evaluation. Published bene®t±cost guidance The published guidance (including drafts not widely distributed and not cited here) generally adheres to the above principles. Different of®ces compete to be the gurus on BC. 5.5. This is an inevitable lag. Disbene®ts of deterred travel can be valued in the same way.. Process-oriented techniques (e.3. The FTA has been more tentative. Measures Of Effectiveness (MOEs) are directed at how well an alternative works. If the general attitude is that programs and policies will get a more receptive hearing if they are presented in the language and concepts of bene®t±cost. depending upon their scope of responsibility. 1994). 1998). 1996).e. 1999). Consultants always present themselves as experts in everything. Good bene®t±cost analysis does not arise from precise instructions. Guidance at the federal executive level tends to be broadly exhortatory rather than prescriptive. Various departments and agencies. 1 When OMB previously recommended a real discount rate of 10%. Quality changes for the user can often be represented as changes in the opportunity cost (value) of travel time. Delphi) have also largely disappeared. say. bearing labels such as multi-objective or multi-criteria programming. All of the above can be broadly grouped as reducing the cost of transportation. 1997). the bene®ts of additional travel are valued as the area under the demand curve above the price. Many analysts seek to produce the result their client or boss wants. but is moving gradually in the direction of bene®t±cost (FTA. 3. called consumer surplus. who felt free to also use other rates. FHWA uses BCA in its biennial report to Congress on recommended highway investment levels nationally (Camus and Weinblatt. and almost no supplemental training. i.B. US DOT.. then agencies will try to absorb and use that language. Hoffer et al. There is not much graduate education in the subject (as compared to. When this occurs. 1 The FAA has issued relatively detailed guidance for conducting bene®t±cost evaluations of airport improvements and upgrades to the air traf®c control system (FAA. 1992. The actual practice of bene®t±cost Most of the guidance issued by federal and transportation agencies is reasonably sound and not especially detailed. in the nature of stating what is preferred rather than giving orders (President of the United States. traf®c engineering). 1998. incentives to improve. and has traditionally recommended discount rates (OMB Circular A-94 and various memoranda and bulletins: OMB. and the discount rate. issue policy or guidance that expands on the high-level guidance or recommends how to prepare project or funding justi®cations. 1986). talking to customers rather than the decision-makers. Over the past three decades. There is little recognition in practice or in the guidance of the problem of inef®cient (second-best) alternatives in transportation evaluation. but BCA makes it harder to bury the assumptions. Because ªinducedº travelers have not previously expressed a willingness to pay for travel in the primary market. but from establishing the groundrules for debate. 1993 and 1994). cost-effectiveness (different from true cost-effectiveness).4. ªEconomic Analysis¼º 1998. however. The ascendancy of BC has not advanced to the degree where those who practice or are responsible for it are expected to be trained in the theory and methods. This does not mean that the terms used are fully understood. and technical evaluation more informal. goals-achievement. Thus OMB has elaborated the executive orders. the value of time. While engineering standards have also given ground at state and local levels. Other evaluation methods Evaluation methods that have receded or disappeared fall mainly into the category of scoring-and-weighting. more travel will ensue. The additional volume is referred to as induced travel in the short run or induced demand in the long run. replaced by focus groups. 3. Lee / Transport Policy 7 (2000) 41±50 reliability for passengers. ª1997 Status¼º. September 1994. 1997. General guidance is sometimes issued in support of BCA but without recognizing the level of effort required to produce a de®nitive document (US DOT.º. and invent whatever is acceptable when asked to do a BC analysis. and suf®ciency ratings (for highways). and can be embarrassed if their pronouncements or practices or models are revealed to be defective.
3. Transportation demand forecasts Travel demand forecasts are critical to any project evaluation. there is no need for the list of indicators to be either exhaustive or non-overlapping. Lee / Transport Policy 7 (2000) 41±50 45 Fig. and is popular at the MPO level. Until recently. There is a political cost to identifying ªwrongº decisions. Induced demand Induced demand is not mentioned in any guidance. The cost-effectiveness approach to evaluation is currently expressed as the calculation of ªperformanceº measures. or passenger miles) can be compared to total or incremental costs. 4. One example was a review of the cost and ridership bases for major transit projects as of the time the decisions were made to begin construction (Pickrell. calculation of an effectiveness measure is that it be comparable across all alternatives. 2 Thus existing forecasts incorporate exogenous demand factors. however. a lack that stems from the same conceptual underpinnings that produce single values for demand forecasts rather than a functional relationship between demand and price. to obtain some useful overall indicators of cost-effectiveness (e. and evaluation consisted of choosing among alternative means for dealing with the travel. even if the actors have changed.B. but seldom acknowledge endogenous factors. cost per trip). Feedback on evaluation results It has always been dif®cult to review previous governmental decisions. for purposes of improving the technical content and the decision process. but not on whether the initial evaluation recommending the expenditures was sound. in these cases there is no initial BCA. the portion of capital cost that produces time savings versus the portion that reduces air pollution). Since that study. vehicle trips. planning forecasts have been somewhat more unbiased. vehicle miles. There has also been an increasing interest in retrospective BC evaluations. This myopia has contributed to a backlash from environmentalists claiming that demand forecasts do not account for ªinducedº demand. Long run demand with short run demand curves. demand forecasts have been treated as external to evaluation: travel was predicted to grow. . since without users there are no bene®ts. however.g. 4. pressured by politicians seeking documentation for innovative programs involving risk and for judging initiatives previously taken. Measures of primary output (person trips. so the retrospective evaluation can shed light on whether the program should be continued or replicated.g. 1990).1. Most existing traf®c assignment models lack mechanisms for including elasticities. cost-effectiveness analysis in the narrow and formal sense has limited application because rarely can costs be uniquely assigned to a particular output (e. and this extends to the forecasts upon which decisions were based. but 2 Mode choice is often modeled with price as a factor. 2.6. This study documented what everyone already knewÐthat cost estimates were low and ridership forecasts highÐbut nonetheless provoked a defensive reaction from transit interests. Because there is no way to aggregate measures across more than one indicator. The need to conduct evaluations of previous decisions has become generally accepted in the US. Unfortunately. for both urban and intercity travel.D. which inevitably ®lls up whatever capacity is provided. With multiple objectives. however.
or cost to the user. induced travel de®ned at the facility level will include traf®c diverted from parallel routes. operating costs) results in a change in travel. as shown in Fig. the consumer surplus captures the net value of changes in travel volume on all facilities. 4.B. or from other induced travel. The incremental consumer surplus represents the bene®ts of additional travel if demand is elastic. Consumer surplus with average cost pricing. These conditions are characterized here as a ªprimary facilityº and a ªparallel facility. meaning that they should incorporate diversions and other travel responses in the short run. Speci®cally. 1. time. rather than attempting to show the social costs (external to the user) at the same time. A simple de®nition is that induced demand is the change in volume from a movement along the demand curve (Lee et al. Bene®t±cost evaluation of projects requires that baseline demand forecasts be adjusted to take into account induced demand.º The issue concerns the degree to which changes in costs or bene®ts on the parallel facility are relevant to the evaluation of improvements to the primary facility. In the long run. but it has no application to other conditions. The term induced means a movement along a travel demand curve as a result of changes in endogenous factors. 3. If addressed at all in guidance. Both short and long run demand curves should be estimated on a general equilibrium basis. Consumer surplus The most confused area of bene®t±cost practice concerns the measurement and interpretation of the portion of incremental bene®ts associated with changes in traf®c volumes from a highway improvement. This representation is correct so long as pricing is exactly at average variable cost.3. changes in the generalized price of travel (user charges. Lee / Transport Policy 7 (2000) 41±50 Fig. A typical diagram is shown in Fig. the term is much usedÐinconsistentlyÐin discussion. another time of day. Such demand curves are referred to as general equilibrium demand curves. but is referred to as cost savings to existing users. Time savings on parallel facilities Bene®t±cost analyses of highway improvements have sometimes counted as a bene®t the savings in travel time on road sections other than the one that has been improved. In theory. it is represented as a triangle under the demand curve and lying between the average cost of travel with and without the improvement. although it is measured only on the facility that is being improved. The conclusion reached is that such changes should not be included at all in the bene®ts of the improvement to the . 2. which implies a shift in the short run demand. The measurement of induced travel is dependent upon the market for which the demand curve is de®ned. The rectangle to the left of the shaded triangle is also consumer surplus.2. both short and long run. 1999). which can be represented as components of generalized price. 2. new trips not previously being made. but they are not covered in guidance and they are not yet commonly applied in practice. the movement is along the long run demand curve. 1999)..46 D. this is simply to say that improvements that change user costs should be evaluated in the light of whatever changes in volume will actually occur. 4. The additional travel may come from parallel routes. while induced travel at the regional level will include only trips that are new to the region (Lee. These concepts are understood by some planners. or other travel behavior resulting in more VMT. depending upon the price elasticity of demand. 3. on the rationale that trips diverted to the improved section relieve congestion on substitute routes. It becomes more general if the dashed lines simply give the price. In the short run. 3. and land use changes in the long run.
92 (1993) per personhour for highway travel. empirical estimates have traditionally been differentiated on trip purpose (commute. whereas attributes such as schedule ¯exibility (departure at will). Measures of systemwide (network) travel time savings are not useful for bene®t±cost analysis. reaching new price and quantity equilibria without any loss in transition.D. 1997).g. these savings represent one of the few positive impacts. Second-best conditions would greatly complicate the analysis. Use of the wage rate for anything other than broad averages is seldom done. Because the losses of consumer utility in the related market are mostly if not entirely captured in or shifted to other markets. between commuting and recreation). 5. 1999) uses US$ 13 per vehicle hour for cars and US$ 22 per vehicle hour for trucks. such that the travel between these points can be regarded as a single homogeneous good: a traveler is indifferent with respect to how the travel is accomplished. U$ 2 per person-trip for each of higher reliability and perception of safety. mode (auto. This apprehension notwithstanding. More recently. Improvements to the primary facility will attract travelers from other routes. travel time reliability. A travel ªmarketº is a facility carrying vehicles from some points on a network to other points. Impacts in related markets transmitted entirely through the demand curves fall in the category of ªpecuniaryº externalities. These values are simply examples. although commercial vehicles are given higher time values than passenger vehicles. uncertainty about connections. air). and US$ 5 per driver-hour for sleep/read/work ability. and modify the conclusions only slightly. Coincidentally. Individuals are presumed to be able to balance their mix of activities such that major differences do not occur between one and another (e. there are no correct or widely sanctioned numbers. the required knowledge would be daunting in magnitude and elusiveness. If an attempt were made to estimate all impacts in related markets and sum them up. Resources are perfectly mobile and can be redeployed immediately from one market or form into another. Time is regarded as an opportunity costÐtravelers are presumed to have other activities they would prefer to engage in if they weren't travelingÐwhose ªvalueº depends upon the travelers willingness to pay to shift the time from travel to another activity.g. These conclusions are based on ®rst-best conditions in all markets. and having a seat or not vary greatly among travel experiences. i. and stimulate additional travel on complementary routes.B. they are regarded as transfers. air travelers' times are valued at three to four times that of urban passenger travel. the market occurs on a single facility. these external effects are likely to be small. 5. 3. transit wait. and paid versus unpaid time. exposure to unpleasant or dangerous conditions. Value of time Because the primary purpose of most transportation improvements is to reduce the time it takes to get from one place to another. multiplied by 2. With respect to impacts on the parallel route: 1. the valuation of that time in terms commensurate with the improvement costs is unavoidably a central issue in project evaluation. Quantitatively. HERS (Camus and Weinblatt. recreation).e. 4. only that it be accomplished at the lowest cost.g. so singling them out for inclusion in the evaluation of improvements in the primary market while ignoring losses from diverted travel creates a bias toward overstating bene®ts in the primary market. Among the assumptions in such an analysis is the requirement that related markets adapt instantly and costlessly. added US$ 1 per hour for increased comfort. any combining of impacts in primary markets with those in related markets is largely or entirely double-counting. evaluation is done using impacts on the improved facility only. Travel time savings on undiverted trips is only one of many impacts that may take place in related markets as a result of improvements in the primary market. shopping. primarily because of the numerous differences in how the wage rate is measured (e. . but conceivably the market might be a corridor in which improvements were being made to several facilities. Another reason for avoiding ®ne wage rate distinctions is the suspicion that public money might be directed at saving rich people's time at the expense of the poor. this is in large part due to the opportunity cost of the truck and its cargo. changes in prices and quantities that have no net ef®ciency consequences. and included in very limited ways under second-best conditions. 2. theory has been re®ned and attention focused on more fundamental distinctions: travel time is now regarded has having a pure opportunity cost component (the extent to which preferred activities are precluded) and a disutility component (discomfort and anxiety make the time more costly).4 persons per vehicle. meaning that a trip in one market is not the same as a trip in another. The DOT's guidance on estimating the value of travel time recommends using national averages. Typically. While the wage rate underlies most concepts of travel time valuation. The same logic mitigates against major differences between paid or ªon-the-clockº time and unpaid time. between regions) may be more than due to measurement differences rather than actual income (US DOT. transit in-vehicle. how fringe bene®ts and taxes are handled) mean that measured differences (e. rates of US$ 20±60 per hour are cited for intercity air and rail studies. Lee / Transport Policy 7 (2000) 41±50 47 primary facility under ®rst-best conditions. 3 Although generic travel time values have been 3 Wilbur Smith (1994) started with a base of US$ 5. by allowing changes in ef®ciency distortions in related markets to be counted as bene®ts in the primary market. Each market places different values on its output.
Obviously. improvements in safety allow for higher capacity (higher speeds. convention centers. 4 Another reason is that the relationship between physical design and accidents is not especially strong. 1999). then whatever such resources existed prior to construction had to be replaced in kind. Ef®ciency criteria The ef®ciency goal can be stated in a number of ways: ®nd the alternative that is most worthwhile. FHWA's Highway Economic Requirements System (HERS) model. closer spacing) while holding safety constant. there has been considerable tension created between EPA and public works agencies (DOT. The effect of this is to treat some costs as more valuable than other costs (per dollar). wetlands. a federal grant that goes to one region and not another is likely to be a bene®t to the receiving region. however. however. Alcohol and falling asleep are much clearer causes of accidents. 6. Army Corps of Engineers) over how to control emissions. 5 The notable exception is divided versus undivided highways. In those cases. Don H. that creates the highest net bene®ts for society as a whole. Finally. along the relevant dimension(s) of output. such as loss of habitat. ªAppendix Eº in Camus and Weinblatt. while agencies will not admit they make such choices. which evaluates road improvements for the US DOT's biennial Condition and Performance report to Congress. academic and professional opinion does not generally support this view.e. it is usually necessary to also calculate bene®t±cost ratios. the only relevant criterion is net bene®t. It is preferred that the analyst understand the value of time issues that are relevant to the evaluation being conducted. Enormous strides have been made on the ®rst. it inevitably occurs.) but should be avoided. While the incorporation of emissions costs into the bene®t±cost evaluation does not have major impacts on project feasibility. such ªstandardº values are generally frowned upon. and defend his/her choices on pragmatic grounds rather than resort to authoritative or standard citations. assigning responsibility among possible causes is dif®cult.B. these values are of less signi®cance than those for travel time (US DOT.48 D. injury. 7. where an improvement in safety is signi®cant. and . 5 Third. of course. internal rate of return. They are not recommended in most of the extant guidance. That any responsible person or company could conduct such an analysis was roundly condemned in the press. and property damage have been published. and the decision made in favor of the less-safe position.º and the remaining costs and bene®ts are placed on the bene®t side. 9. unit valuations are useful. One prong is directed at reducing the rate of emissions (primarily by exhaust control devices. For practitioners. or has the highest (net) present value. and promises to offset much of the gain. For variable costs (emissions). The test for ef®ciency is marginal bene®ts equal to marginal costs. For ®xed costs. but the damage done is probably slight. amount to double and triple counting. there is no explicit willingness to trade off safety for money. but the relevant comparison is between the bene®ts of the project in one region versus another. Although politicians and some consultants assert that jobs and economic development are the justi®cation for a project. payback period. Again. Environmental impacts Measurement and valuation of environmental impacts is dif®cult under any circumstances. 8. Multiplier effects. Lee / Transport Policy 7 (2000) 41±50 occasionally published. because accidents occur infrequently under normal conditions. Regional economic impacts Over the past several decades there has been continuing debate over the relevance of indirect economic impacts in project selection. If another route was impossible. 1993. the capital expenditure budget is treated as the constrained ªcost. FHWA. VMT has continued to grow. and made more so by competing advocacy claims. no matter which (lower cost) alternative it is compared against. Bene®t±cost is the analytic framework for evaluating ef®ciency. but this can be done so as to simply indicate the feasibility of the project as opposed to its rank order. ª1997 Status¼º. but this does not stop advocates of publicly supported sports stadiums. etc. but these are operational rather than investment problems. The other prong has been to try to reduce VMT. 4 A famous suit against an automaker revealed that the costs of locating the gasoline tank in a safer place had been compared to the difference in fatalities that would result. Among those knowledgeable about bene®t±cost analysis. For short and long range improvement programs. but also by reformulated gasoline) per vehicle mile. The most ef®cient investment alternative is the one for which incremental bene®ts are greater than incremental costs. and even when calculated they are at best a distraction from more relevant measures. reducing emissions by an order of magnitude per VMT and also improving ambient air quality. bene®ts minus costs. Traf®c safety Empirical studies of the costs of accidents have been conducted and standard unit costs for fatalities (the value of ªlifeº). i. Other criteria are sometimes proposed (return on investment. One reason is that safety often does not vary much between alternatives. it could reduce justi®able projects by perhaps 5%. that makes the most productive use of the resources available. and parks. Pickrell. incorporates emissions estimates into its project evaluation algorithms (US DOT. federal law many years ago imposed the constraint of no net loss. 1994).
. Federal Transit Administration. (Eds. it is too early to expect much in the way of equity analysis (Cameron. H. Federal Certi®cation of the MPO (TMA) Process.W. 64.8 8±40 2. H.B.). DC: US DOT/FHWA. Motor Vehicle Accident Costs. R. 1994. Treatment of equity Not only is the question of aggregate net bene®ts at issue. Highway Economic Requirements System: Technical Report (DRAFT). and more reliance placed on transparency and defensibility independent of the methods or values chosen. DC: US DOT/FTA. 1999.A. pp. Lee. so better to keep them in the analysis but under some control. Highway Economic Requirements System: Technical Report. Ef®ciency and Fairness on the Road: Strategies for Unsnarling Traf®c in Southern California. regional economic impact analysis should be conducted under the equity rubric and the results identi®ed as transfers.4±5. Lyons.. Economic Impacts: Net Bene®ts. An ªadverseº impact is usually a transfer from poor to rich. MA: US DOT/Volpe Center. 201±210. and Income Transfers. DC.. April 1994. Federal Transit Administration.. 1978. Cambridge University Press. Federal Register. 1996. Although relatively new. Federal Highway Administration. G. which otherwise become confused. 104±134.. 1998. 1994. Multiplier Effects. S. prepared for FHWA.. Major Capital Investment Projects. August 1994. S. Oakland. i. G.). Cambridge. Jr. on the one hand. Berardino. (Ed. pp. et al.B. Appendix C: demand elasticities for highway travel. 120±125. A Manual on User Bene®t Analysis of Highway and BusTransit Improvements. Glaister. pp. Washington. or a gain at the expense of a minority or disadvantaged group. Instead of performing ªbene®t±costº tabulations for selected geographic areas or other subsets of the population. Economic Analysis of Investment and Regulatory Decisions: Revised Guide. Washington. November. paper for ACSP. CA: Environmental Defense Fund. Hahn. R. Analysts can provide information regarding monetary and in-kind transfers that will take place if one alternative is implemented rather than another. J.. Guidance on Major Investment Studies. Federal Highway Administration. Induced traf®c and induced demand in bene®t±cost analysis. 1999. 1993. Given that the practice of bene®t±cost is rudimentary at best. January. 1994). Review of the Transportation Planning Process in the Southern California Metropolitan Area. June. Transportation Research Record 1694.2 to 22.. L. G. 1998. Weinblatt. DC: US DOT/FAA. W. the integration of equity concerns into bene®t±cost evaluation has become generally accepted at a broad level while left vague in practice. Federal Highway Administration. the user).W. Bene®t±cost analysis.. 60 755±60 758.. 31 October.01±0. Washington. Cost± bene®t analysis. Lee. and Lives Saved.. Nonetheless. 62. Washington. 10. L. Risks. S. Washington. MA: US DOT/Volpe. Environmental Impacts and Related Procedures: Title 23. and can propose countermeasures to offset adverse impacts.. and Federal Transit Administration. 218. Weinblatt.. August. Federal Aviation Administration. Cambridge. Glaister. Summary of bene®t±cost recommendations It has been emphasized above that in the US there is less interest in standardizing practice and relying on sanctioned parameter values. Lave. Vol. Version 3.W..B.. Part 771.30 49 11.. DC: US DOT. AEI Press. Lee / Transport Policy 7 (2000) 41±50 Table 1 Selected bene®t±cost components Component Discount rate Highway vehicle-price elasticity Value of time (US$/hour) Value of life (US$ million) Personal injury (US$/accident) Property damage (US$/accident) Air pollution (US$/VMT) Economic and development impacts Equity Typical values 7% 20. Layard. D. gambling casinos from claiming economic bene®ts to the region. September 1994. These are presented in Table 1. Assessment of distributional impacts can be combined with an ef®ciency evaluation. Camus. (Eds. R. UK. 1998. Camus. In: Hahn. In: Camus. Cameron. Project Feasibility vs.6 0. M. prepared for US DOT/FTA and FHWA. Technical Advisory T7570. 1994).B. US DOT/VNTSC.02 Not included in BC Separate analysis Range 3±10% 20. Washington. Cambridge. The primary advantage of including equity is to separate ef®ciency from equity issues. Washington. DC: US DOT. there are common tendencies and loosely de®ned agreements on some numbers. Costs. Federal Register. 66. and Federal Transit Administration. Cambridge. In: Layard. Revised Measures for Assessing Major Investments: A Discussion Draft.B. and income transfers on the other (an example is Wilbur Smith.e. Federal Register. Federal Highway Administration.0 5K±500K 2K±5K 0. Government analysis of the bene®ts and costs of regulation. S. the more circuitous the ®nancing (the path from the person paying the costs to the person receiving the bene®t.0 0.. 1987. FTA New Starts Criteria. D.. 1999. and Federal Transit Administration. D. but so is the question of how the costs and bene®ts are distributed among different groups and locations. the transfers can't be ignored and excluded. Intergovernmental grants tend to reinforce the idea that expenditures are bene®ts rather than costs.). MA: US DOT/VNTSC. IV. 1994. the less desirable are the income transfers. Lee. R. 1997. Cambridge.. MA. Journal of Economic Perspectives 12 (4). 1999. DC: American Association of State Highway and Transportation Of®cials.2.. Washington. One analytic response is to expand the ®nancial evaluation framework to include both net bene®ts. but it is for policy makers and the courts to decide what is fair. Lee Jr. DC: US DOT/ FAA. F.D. Rubin. Hoffer. 17 062±17 071. References AASHTO. Smith. In general.. Federal Transit Administration. . 1994. 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