Research 350 - NZ Transport Agency

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<strong>Transport</strong> Interface (LUTI) modelling. These focus on broad measures of economic impact such as employment, income and GDP and lack such specific decision rules. • The inclusion of induced and diverted demand effects within a SCBA effectively captures most of the indirect (or flow-on) effects to the broader economy associated with a transport improvement. So long as a transport SCBA allows for induced and diverted demand effects, the extent to which it ‘misses’ economic benefits will be small to modest. • Even if induced/diverted demand effects are omitted, (i.e. a ‘fixed trip’ travel matrix is used) the degree of benefits underestimation will generally be modest, since induced traffic effects are generally small and transport improvements are unlikely to have a dramatic economic effect on competitive, modern economies such as New Zealand’s. • Technically speaking, the difference between results obtained using fixed and variable trip matrix may be large in extremely congested situations, where allowance for induced traffic may actually reduce benefits to existing users (and thereby total benefits). However, to the extent this occurs, benefits may be overestimated rather than underestimated by use of a fixed trip matrix. • Where strong contextual (and material) evidence exists, consideration of the relevance of additional factors such as additional logistical and agglomeration benefits, property and labour market effects, imperfect competition and specific regional development issues could be considered on a less formal, case by case basis. This could involve consultation with key affected industries and stakeholders. • If these additional effects are not amenable to monetization and incorporation within an SCBA they could be considered in a ‘below the line’ qualitative analysis. • However these factors are only likely to be worth addressing for major projects. Further, it is considered that allowance for such effects will not be an issue in the great majority of such cases. • Allowance for environmental externalities may be made either within an SCBA or ‘below the line’, depending on issues of context and data availability. Question 2.2 • Arguably, ‘alternatives’ to SCBA include macroeconomic approaches such as I-O analysis, CGE modelling or LUTI modelling. These could be used to estimate the economic impacts of transport investment. • However, these approaches produce different ‘raw’ outputs to SCBA (i.e. they report macroeconomic impacts), do not provide clear social decision rules (unlike SCBA), do not measure the economic efficiency of an investment and do not include some of the non-market commodities allowed for by SCBA (such as some non-work travel time savings). Further, unless a nationwide investment scheme is envisaged, these alternatives may constitute something of a ‘blunt instrument’. • As such, undertaking SCBA is fundamental to the appropriate assessment of the benefits and costs of transport investment. • Some attempts have been made to estimate changes in economic welfare associated with a given project (i.e. equivalent to that derived via SCBA) through the use of 8
modified CGE modelling. However, adding up the results of SCBA and CGE modelling, as in ACG’s recent modelling of New Zealand road projects, is wrong. In addition, the use of CGE modelling to derive welfare outcomes, such as advocated by Dwyer et al (2004), still faces investment modelling and non-market transactions issues. Thus, any use of other macroeconomic modelling approaches in combination with SCBA should carefully note issues of double counting and compatibility. In addition, the issue of parsimony, namely the extensive work required to develop and maintain CGE (or, theoretically, LUTI) models in return for modest improvements in SCBA accuracy, should be noted. This is especially true given limited resources in small economies, such as New Zealand’s. • There would therefore not seem to be a strong case for abandoning SCBA for more complex techniques to account for ‘missing benefits’; the proposed alternatives do not provide a reliable substitute and do not appear to be justified on grounds of parsimony. Question 2.3 • It is not possible to derive a direct linkage between the outputs of SCBA and changes in macroeconomic indicators, such as GDP. SCBA provides no direct information on such indicators. Thus, projects which record a negative NPV (BCR below 1.0) may still produce increases in GDP. While it is likely that projects which produce a positive NPV (BCR above 1.0) will be associated with GDP growth, even this is not certain (particularly given that SCBA may include valuations of non-market products such as environmental externalities and some non-work travel time). • In theory, I-O, LUTI and CGE models could be used to complement the results of SCBA. All of these models may provide some form of national macroeconomic information of use to policy makers. Depending on the model, these may include data on employment, income, GDP, land use, investment, trade, consumption, wages and tax. However CGE modelling is the most accurate and reliable methodology and should be preferred if national impacts are to be modelled. I-O analysis may be acceptable (and preferable) within a regional context – see below. • As SCBA does not produce these broader measures as outputs, using SCBA in combination with of these approaches could provide a policymaker with a broader view of the overall impacts of the project. • CGE could also help pinpoint some omitted benefits, such as the impacts of imperfect competition, however there may still be some issues of compatibility with SCBA. • However, it is recommended that SCBA be viewed as the primary decision-making tool in such cases. • Further, given the issues of time and expense and the scepticism expressed regarding the need to develop/maintain such models by governments in larger jurisdictions (such as the UK), it is likely that only the largest New Zealand projects would require development and maintenance of such models This is particularly the case since the average impacts of imperfect competition in New Zealand may be even smaller then those derived by UK studies such as SACTRA (1999). 9
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Research 350 - NZ Transport Agency

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