Research 350 - NZ Transport Agency

APPENDIX E
Appendix E: Facts and Furphies in Benefit-
Cost Analysis: Transport
(Bureau of Transport Economics, Commonwealth of Australia,
Canberra, Australia, 1999)
AE.1
Synopsis
This wide ranging study reviews the current practice of the economic appraisal of transport
projects. Many of the claims regarding whether or not the standard SCBA process is biased
due to ‘omitted benefits’ are examined in some detail.
While the focus is on recent Australian experience, many of the issues are of general
relevance.
Key conclusions include:
• Improvements to transport can induce adaptations beyond transport, such as
expansions of output by regional industries. CBAs tend to measure the benefits from
these adaptations obliquely, inferring their magnitudes from transport outcomes,
particularly induced demand. To add further, more direct, measures of these benefits
will usually result in double counting.
• Improvements to transport often provide a smaller stimulus to regional economies
than is claimed. Many projects reduce regional transport costs by only a small
proportion, and transport costs are only one component of regional production costs
(and generally not a large one).
• Many proponents of public investment in transport infrastructure emphasise job
creation. However, the use of workers on an infrastructure project may reduce the
availability of workers elsewhere in the economy. Estimates of the overall employment
effect of a transport project will generally be speculative because of difficulties in
modelling labour markets.
• Competition within the Australian economy is already very keen. Therefore arguments
that SCBAs underestimate benefits from transport development due to an assumption
of perfect competition are less valid. In addition, the assumption of perfect
competition could result in an over-estimation of benefits using ‘traditional’ SCBA in
some instances.
• SCBAs have tended to omit or measure crudely some of the benefits from logistics
adaptations to transport improvements. The adaptations can include warehouse
consolidation and reductions in inventories. However the available evidence on the
magnitude of these benefits is inconclusive. Further research is required into the value
of travel time.
• Arguments about ‘knowledge spillovers’ and resulting agglomeration benefits may be
overstating the case, particularly as knowledge spillovers in reality may not be as large
as they appear in theory due to divergences between social and private benefits.
• It is not clear that national economic models hold any advantage over the standard
tools of CBA. They are also more costly. Popular macroeconomic indicators, such as
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