Assessing The Benefit and Cost in Transportation Project
Muhammad Halley Yudhistira
Department of Economics, Universitas Indonesia
m.halley@ui.ac.id
May 2021
MPKP FEB UI CBA in Transport May 2021 1 / 14
Content
1 Introduction
Plan of today
Basic understanding
2 CBA Component
Cost
Benefit
Present value
3 Other issues
MPKP FEB UI CBA in Transport May 2021 2 / 14
Introduction Plan of today
Plan of today
● What we have covered
● Urban transportation: VoT, private and public transport, investment
● Intercity transportation: maritime transport, airline and airport industry
● Today we will focus on issues around the benefit and cost in transportation
● Main books:
● O’Sullivan, Urban Economics
● Handbook of transportation economics (2011)
● (Along with various journals)
MPKP FEB UI CBA in Transport May 2021 3 / 14
Introduction Basic understanding
Why we need the assessment
● While the benefit is large, the cost of transport provision is also enormous
● In most cases, need multiple year budgeting
● Need an accurate justification
● Evaluating the economics costs of interventions and the resulting benefits is critically
important for resource allocation
● The presence of market failure
MPKP FEB UI CBA in Transport May 2021 4 / 14
Introduction Basic understanding
A simple illustration
● Consider you want to connect the central
Jakarta to Pandeglang using a
straight-line highway.
● What is the associated benefit and cost?
MPKP FEB UI CBA in Transport May 2021 5 / 14
Introduction Basic understanding
Benefit and cost
Benefit Cost
● Travel time ● Construction
● Land value ● Maintenance
● ??? ● ???
MPKP FEB UI CBA in Transport May 2021 6 / 14
CBA Component Cost
Defining cost
● What is cost? Simple say: trade-offs between uses of resources (VTPI)
● Internal vs external vs social costs
● Construction and maintenance costs are relatively transparent. But how about other
potential economic costs?
● Market vs non-market costs
MPKP FEB UI CBA in Transport May 2021 7 / 14
CBA Component Benefit
Defining benefit
● Any aspects that increase the utility/profits are associated with the benefits
● Direct vs indirect benefits
● Direct: VoT
● Indirect: Agglomeration benefit
● Market vs non-market benefits
MPKP FEB UI CBA in Transport May 2021 8 / 14
CBA Component Benefit
Consumer surplus analysis
MPKP FEB UI CBA in Transport May 2021 9 / 14
CBA Component Benefit
Wider benefit
● Wider benefit is the term given to some
economic impacts that are additional to
user benefits
● Include broader from societal’s point of
view
● Issues in double-counting, measurement
MPKP FEB UI CBA in Transport May 2021 10 / 14
CBA Component Benefit
Types of Wider Benefits: Transport
● Agglomeration impacts
● Output (profit) changes
● Tax impacts from labor changes
MPKP FEB UI CBA in Transport May 2021 11 / 14
CBA Component Present value
Present value
● Some costs/benefits may be accrued in different time. Some also have persistent effects.
● Evaluating those costs/benefits should be undertaken in the same time frame. Make use
of present value analysis.
● Q: What is the interest rate benchmark?
MPKP FEB UI CBA in Transport May 2021 12 / 14
Other issues
Equity
● Related to the costs/benefits incidence.
● Three general types of equity:
● Horizontal (among different stakeholders). Whether each group ”pay what they get”
● Vertical (by income). Progressivity issue
● Vertical equity by mobility need/ability (for disadvantaged group).
● Good transportation project evaluation will provide detailed analysis on this issue.
However, most transportation projects cannot satisfy all equity issuedibs.
MPKP FEB UI CBA in Transport May 2021 13 / 14
Other issues
Measuring non-good market
● Some costs/benefits are associated with non-market goods. Ex: pollution, safety, risk, etc.
● Valuation technique should be used
● Indirect
● Travel cost method
● Hedonic price approach
● Direct
● Contingent valuation
● Attribute based choice modelling
MPKP FEB UI CBA in Transport May 2021 14 / 14
