Research 350 - NZ Transport Agency

ECONOMIC DEVELOPMENT BENEFITS OF TRANSPORT INVESTMENT
assessments often fall: ‘The result is a bland conclusion: the CBA estimate could be either too
high or too low depending on factors that are beyond the modeller’s knowledge’ (BTE 1999,
p. 127).
2.6.2.2 Adding CGE modelling outputs and SCBA results
An incorrect approach to comparing CGE model outputs and SCBA results, employed by ACG
in estimating the benefits from four proposed New Zealand road projects is to add the direct
benefits of SCBA to those derived by CGE modelling. ACG justifies this approach by indicating
that it is adding the direct ‘non-economic’ benefits not allowed for in the CGE modelling such
as savings in non-work travel time and value of lives saved (ACG 2004, p. 51).
However, O’Fallon (2004) questions whether combining savings in non-work travel time with
the private consumption expenditure constitutes a form of double counting, as non-work
travel time and money saved will be used in other ways (O’Fallon 2004, p. 5). In reality, it is
likely that some non-work travel time will be used for other productive activity (e.g. additional
consumption) while some will be used for pure non-productive ‘leisure’ purposes. Depending
on the ratio of these two effects there is likely to be double counting under the ACG
approach. It is also noted that DfT (2005) appears to make a similar error, apparently
assuming that leisure time savings do not translate into GDP benefits (see Table 2.1).
In addition, while various macro-economic outputs (such as consumption, investment, trade
GDP, real wages and household income tax rate) are provided by ACG’s ESSAM (i.e. CGE)
model, the precise derivation of ACG’s total benefits (or ‘economy wide benefits’) is not
clearly explained. Nor is it clear precisely what these ‘benefits’ represent.
Economy-wide benefits appear to subsume ‘direct benefits’. Direct benefits, in turn, relate to
SCBA outcomes and include allowance for direct economic benefits and direct non-economic
benefits such as (all) non-work travel time, lives lost, and permanent disability.
However it is not clear how the indirect benefits (as opposed to macroeconomic impacts) are
derived from ACG’s CGE modelling, raising the question as to whether these might capture
economic benefits already allowed for in the estimation of direct economic benefits 14 .
Thus, the lack of clarification regarding this process raises further questions regarding
double counting. It is further noted that whereas only one of the four projects passes
Transfund’s ‘hurdle rate’ for road projects under ‘traditional’ SCBA (i.e. BCR = 4.0 at a 10%
discount rate), three do after combining SCBA and CGE results (ACG 2004, p. 52).
This case indicates the ambiguities and dangers involved in ‘mixing and matching’ SCBA and
CGE modelling. The approach adopted by ACG appears to be a response to arguments that
14 For example, the Wellington Regional Land Transport Package is recorded as having economy wide (or
total) benefits of $148.7m, of which $82.1m are direct benefits. It is unclear precisely how the
differential (i.e. $66.6m in indirect benefits) is calculated under ACG’s approach (ACG 2004, pp. 43-45,
50-51, 59-60). It is also unclear what the calculated ‘total benefits’ actually represent.
It is also unclear whether induced/diverted demand effects have been incorporated into the ‘direct
effects’ in some form, though there is a reference to. ‘changes in travel behaviour’ (ACG 2004, p. 60)
resulting in reduced vehicle operating costs. If such effects have been allowed for, this would also raise
issues of double counting.
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