ANNEXURES
Annexure 1 - Transportation Modelling - An
Esoteric Exercise by W.R. Blunden....... 338
Annexure 2 - Cost-Benefit Analysis in the
Kyeemagh-Chullora Road Inquiry
by M.E. Beesley......................... 349
Annexure 3 - Discussion of the Economic
Analysis of Highway Improvements
by W.R. Blunden......................... 372
Annexure
3 - DISCUSSION OF THE ECONOMIC ANALYSIS
OF HIGHWAY IMPROVEMENTS
OF HIGHWAY IMPROVEMENTS
BY
W.R. BLUNDEN
The objects of this paper on the Economic Analysis of
Highway Improvements are twofold, viz:-
Highway Improvements are twofold, viz:-
(a) to provide a brief account of
the
philosophy and scope of the technique
(b) to raise some specific points concerning
the application of it in the submissions
by the D.M.R. and their Consultants on
its application to the Kyeemagh-Chullora
Road alternatives.
philosophy and scope of the technique
(b) to raise some specific points concerning
the application of it in the submissions
by the D.M.R. and their Consultants on
its application to the Kyeemagh-Chullora
Road alternatives.
Economic Analysis - A Brief Backdrop
The technique originated in a straightforward application of
accounting principles to the problem of assessing the merits
of investment of capital in commercial enterprises. It was
straightforward because the capital was raised on the free
money market where the interest rate was well defined and
the benefits from investing it were capable of
representation as real cash flows. There was little
economics in its philosophy - just accountancy.
Its adaptation to public enterprise activities was started
by the U.S. Bureau of Reclamation in the 30's when
Roosevelt's New Deal upset the American tradition of private
investment in major public works. In this context it was
applied to many of the major unemployment relief works
such as the Tennessee Valley Scheme. It was undoubtedly a
useful means of demonstrating that money was being used in
an "economic" manner. The rates of return and benefit-
cost ratios were accepted as valid measures of merit even
though the benefits of putting a dollar value on certain
of the benefits, i.e., effects of flood mitigation,
introduced difficulties and doubts that have with the
expansion of its application in the area of public works
schemes reduced it to a state of impotency as a capital
budgeting tool.
by the U.S. Bureau of Reclamation in the 30's when
Roosevelt's New Deal upset the American tradition of private
investment in major public works. In this context it was
applied to many of the major unemployment relief works
such as the Tennessee Valley Scheme. It was undoubtedly a
useful means of demonstrating that money was being used in
an "economic" manner. The rates of return and benefit-
cost ratios were accepted as valid measures of merit even
though the benefits of putting a dollar value on certain
of the benefits, i.e., effects of flood mitigation,
introduced difficulties and doubts that have with the
expansion of its application in the area of public works
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schemes reduced it to a state of impotency as a capital
budgeting tool.
This is well recognised and clearly stated in the D.M.R.
Transport and Economic Analysis Report, page 29, viz:-
Transport and Economic Analysis Report, page 29, viz:-
"In using the economic indices
developed,
it needs to be bourne in mind that they
do not relect total community costs and
they are only one of many criteria on which
the options should be judged. In no way
should economic criteria be considered.
the overriding criteria. "
it needs to be bourne in mind that they
do not relect total community costs and
they are only one of many criteria on which
the options should be judged. In no way
should economic criteria be considered.
the overriding criteria. "
In the post-war period the technique has been widely
exploited especially in the area of Highway Improvement
Schemes. It has merit in rural applications where the
road user benefits are fairly well defined and the project
itself has a minimal interaction with the land use system
through which it passes. However, in the urban context
the situation is quite different:-
exploited especially in the area of Highway Improvement
Schemes. It has merit in rural applications where the
road user benefits are fairly well defined and the project
itself has a minimal interaction with the land use system
through which it passes. However, in the urban context
the situation is quite different:-
(a) congestion, which gives rise to
a goodly
proportion of the road user benefits, is often
a necessary constraint on the transport system.
proportion of the road user benefits, is often
a necessary constraint on the transport system.
(b) it takes no quantitative
account of land use
benefits or dis-benefits that derive from the
transport innovation.
benefits or dis-benefits that derive from the
transport innovation.
(c) it does not consider the
economic effects of
interaction with the public transport
infrastructure and seldom if ever compares a
road solution with a P.T. alternative.
interaction with the public transport
infrastructure and seldom if ever compares a
road solution with a P.T. alternative.
(Note: this point made strongly by
Mr. Morris
in his submission on behalf of the Public
Transport Commission of N.S.W. {27/11/79).)
in his submission on behalf of the Public
Transport Commission of N.S.W. {27/11/79).)
(d) no account is taken
(quantitatively) of the
social benefits or dis-benefits except in the
case of accidents.
social benefits or dis-benefits except in the
case of accidents.
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Therefore, as admitted by the D.M.R., it has very
limited potential for decision making purposes in the
urban role. In other words, it is not an economic
analysis of the land use,/transport system, not even an
analysis of the total transport system. It might be
claimed that if a decision has been taken to build some
kind of a road (and the analysis itself will not tell
that) then it has use in telling which of a number of
alternative build projects is to be preferred.
This sketchy backdrop to the economic analysis technique
has been given with the principal object of showing that
in spite of its quite prestigious title and early promise
it is no panacea for decision making in the urban land
use and transport scene. Having said this, one should
hasten to add that applied sensibly it does however provide
some means of structuring the analytical evaluation of what
is undoubtedly a complex problem area. With this in mind
we might well take a closer look at the two reports
prepared by and for the D.M.R. in respect of the Kyeemagh-
Chullora Road options.
has been given with the principal object of showing that
in spite of its quite prestigious title and early promise
it is no panacea for decision making in the urban land
use and transport scene. Having said this, one should
hasten to add that applied sensibly it does however provide
some means of structuring the analytical evaluation of what
is undoubtedly a complex problem area. With this in mind
we might well take a closer look at the two reports
prepared by and for the D.M.R. in respect of the Kyeemagh-
Chullora Road options.
Some Comments on the Two Studies
1. The D.M.R. Transport and Economic Analysis. A number
of points will be made:-
of points will be made:-
(a) It is certainly not an overall
economic
analysis of the transport options for
the corridor. It compares the effect on
road traffic (over an extensive area) of
certain road alternative schemes from the
very limited standpoint of running cost, time
cost and accidents for all traffic on the
major road network of the area of the year
1991.
analysis of the transport options for
the corridor. It compares the effect on
road traffic (over an extensive area) of
certain road alternative schemes from the
very limited standpoint of running cost, time
cost and accidents for all traffic on the
major road network of the area of the year
1991.
(b) The area-wide traffic pattern
is obtained
from a 12-year "extrapolation" of road
traffic based on certain generally accepted.
from a 12-year "extrapolation" of road
traffic based on certain generally accepted.
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estimation and modelling methods
for traffic generation,
trip distribution and assignment. Whilst this may
or may not give an accurate picture of the 1991
situation, this in itself does not unduly affect
the economic results as they are comparative only.
trip distribution and assignment. Whilst this may
or may not give an accurate picture of the 1991
situation, this in itself does not unduly affect
the economic results as they are comparative only.
(c) The economic analysis of this
road use pattern,
however, is stereotyped and naive. There are many
aspects that confirm this, viz:-
however, is stereotyped and naive. There are many
aspects that confirm this, viz:-
(i) Except for accidents the road
user
benefits derived mainly from an improvement in
the operating speed of all the vehicle
movements on the entire network in the
A.M. peak. Averaged overall the vehicle
miles of travel these figures calculated
from the D.M.R. Report are:-
benefits derived mainly from an improvement in
the operating speed of all the vehicle
movements on the entire network in the
A.M. peak. Averaged overall the vehicle
miles of travel these figures calculated
from the D.M.R. Report are:-
Base Case 17.632 m.p.h.
Harrow Road 17.693 m.p.h.
Bestic Street 17.693 m.p.h.
Cooks River/
Campsie 17.759 m.p.h.
Cooks River 17.799 m.p.h.
S.W. Option 17.794 m.p.h.
Harrow Road 17.693 m.p.h.
Bestic Street 17.693 m.p.h.
Cooks River/
Campsie 17.759 m.p.h.
Cooks River 17.799 m.p.h.
S.W. Option 17.794 m.p.h.
Estimates of these average running
speeds
to three places of decimals is naive. A
rounding to the nearest m.p.h. would be
realistic in which case the peak hour
benefits from all the options are determined
solely by the difference in the total
vehicle miles over the whole network and as
can be seen the maximum value of this is
about 2000 vehicle miles in 3.5 million,
i.e., less than 0.1%.
to three places of decimals is naive. A
rounding to the nearest m.p.h. would be
realistic in which case the peak hour
benefits from all the options are determined
solely by the difference in the total
vehicle miles over the whole network and as
can be seen the maximum value of this is
about 2000 vehicle miles in 3.5 million,
i.e., less than 0.1%.
(ii) The expansion factors make the
entire exercise
rather misleading for the whole basis of the
annual benefits is thus tied to rush hour
operating conditions. Mere factoring to the
annual figures by the ratio of traffic volumes
rather misleading for the whole basis of the
annual benefits is thus tied to rush hour
operating conditions. Mere factoring to the
annual figures by the ratio of traffic volumes
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implies the same basis for benefits
for shopping trips, social visiting,
teenage jaunting, and so on, as for commuters.
(iii) Giving a money value to time
of private
vehicle occupants needs to be put into
perspective. There is no doubt that time or
some generalised time/cost equivalent is a
vital parameter in the determination of
travel patterns and modal choice, but it has
little if any meaning in any national
economic sense. Time for commercial vehicle
operations may well be taken into the
assessment of benefits but even this is open
to argument. The sensitivity analysis table
shows that all the projects other than the
existing street improvement schemes have
negative present worth (nett P.V.) if private
time is ignored.
vehicle occupants needs to be put into
perspective. There is no doubt that time or
some generalised time/cost equivalent is a
vital parameter in the determination of
travel patterns and modal choice, but it has
little if any meaning in any national
economic sense. Time for commercial vehicle
operations may well be taken into the
assessment of benefits but even this is open
to argument. The sensitivity analysis table
shows that all the projects other than the
existing street improvement schemes have
negative present worth (nett P.V.) if private
time is ignored.
(iv) The sensitivity analysis also
shows that the
N.P.V. becomes negative when off-peak
"benefits" are ignored. Whilst it is not
by any means undesirable to realise off-peak
benefits, the general case for the proposed road
is predicated on the anticipated overloading of
the road system in the peak period in 1991.
N.P.V. becomes negative when off-peak
"benefits" are ignored. Whilst it is not
by any means undesirable to realise off-peak
benefits, the general case for the proposed road
is predicated on the anticipated overloading of
the road system in the peak period in 1991.
2. The De Leuw Cather Report on the Extended Network:-
Although the primary focus of the Inquiry is "the
planned County Road Corridor reservation known as the
Kyeemagh-Chullora Road", the terms of reference permit
consideration to be given to "any alternative regional
road link or combination of road links between the
C.I.A. and the Western and South-Western Sub-regions
of the Sydney Metropolitan Area”. The D.M.R. reports
introduce one such alternative in considering the South
Western Option. In extending the South Western sub-
region to the fringe of the metropolitan area and beyond
planned County Road Corridor reservation known as the
Kyeemagh-Chullora Road", the terms of reference permit
consideration to be given to "any alternative regional
road link or combination of road links between the
C.I.A. and the Western and South-Western Sub-regions
of the Sydney Metropolitan Area”. The D.M.R. reports
introduce one such alternative in considering the South
Western Option. In extending the South Western sub-
region to the fringe of the metropolitan area and beyond
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and introducing the S.W. Freeway Option the De
Leuw Cather Study does in my view extend the scope
of the Inquiry far beyond its primary terms of
reference. In this widened context the economic
analysis itself should have given consideration to
the effects of the new proposals west of RR3 on
public transport in the S.W. Corridor and certain
other matters. Further and notwithstanding the
criticism of the economic analyses contained in
these notes, the De Leuw Cather Report does in fact
support this contention by showing that virtually
all the benefits derived from road developments east
of RR3, (i.e., those resulting from the more "relevant"
alternatives) are only marginal.
Leuw Cather Study does in my view extend the scope
of the Inquiry far beyond its primary terms of
reference. In this widened context the economic
analysis itself should have given consideration to
the effects of the new proposals west of RR3 on
public transport in the S.W. Corridor and certain
other matters. Further and notwithstanding the
criticism of the economic analyses contained in
these notes, the De Leuw Cather Report does in fact
support this contention by showing that virtually
all the benefits derived from road developments east
of RR3, (i.e., those resulting from the more "relevant"
alternatives) are only marginal.
So far as the methodology is concerned the De Leuw
Cather Study is virtually identical with the earlier
D.M.R. Economic Analysis. The only departure
relates to a change in the expansion factors to
convert peak two-hour benefits to an annual figure.
This change is more or less arbitrary and based on
subjective arguments. This change does nothing
to recognise the different basis on which off-peak
and peak benefits accrue
Cather Study is virtually identical with the earlier
D.M.R. Economic Analysis. The only departure
relates to a change in the expansion factors to
convert peak two-hour benefits to an annual figure.
This change is more or less arbitrary and based on
subjective arguments. This change does nothing
to recognise the different basis on which off-peak
and peak benefits accrue
The most significant observation to make relates to
the network speeds resulting from the various options
considered. Although the base case speed is about 1
m.p.h. less than all the others, the differences among
the Extended Base, Cooks River, S.W. and S.W. Freeway
are for all practical purposes non-existent and as a
consequence the marginal benefits are indeed marginal.
Of greater concern, however, is the fact that they are
obtained by subtracting very large number of
approximately the same value.
the network speeds resulting from the various options
considered. Although the base case speed is about 1
m.p.h. less than all the others, the differences among
the Extended Base, Cooks River, S.W. and S.W. Freeway
are for all practical purposes non-existent and as a
consequence the marginal benefits are indeed marginal.
Of greater concern, however, is the fact that they are
obtained by subtracting very large number of
approximately the same value.
Some General Comments
In the above discussion no mention has been made of accident
costs and benefits. There is nothing controversial about
costs and benefits. There is nothing controversial about
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the manner in which they are taken into account except
to note that they result in some cases in an overall
dis-benefit. Further their magnitude is small, even when
compared with the marginal nature of the operating cost
and time benefits.
to note that they result in some cases in an overall
dis-benefit. Further their magnitude is small, even when
compared with the marginal nature of the operating cost
and time benefits.
By way of other comments one might mention: -
(a) there is nothing wrong with the
basic concept of
a benefit/cost analysis if one can define the costs
and benefits (dis-benefits) and having done so
obtain realistic and commensurate measures of them.
Merely taking account of road user benefits in an
urban situation where a road project interacts so
strongly with other roads, other transport, land
use activity and the socio-economic environment
generally is not meaningful. In the rural context
(e.g., the M1 Motorway in Britain) or in certain
urban situations where the project is more "self-
contained", e.g. an airport, the Eastern Suburbs
Railway, a major bridge, the results may be more
meaningful.
a benefit/cost analysis if one can define the costs
and benefits (dis-benefits) and having done so
obtain realistic and commensurate measures of them.
Merely taking account of road user benefits in an
urban situation where a road project interacts so
strongly with other roads, other transport, land
use activity and the socio-economic environment
generally is not meaningful. In the rural context
(e.g., the M1 Motorway in Britain) or in certain
urban situations where the project is more "self-
contained", e.g. an airport, the Eastern Suburbs
Railway, a major bridge, the results may be more
meaningful.
(b) in view of the comments in (a)
it is surprising that
more use has not been made of cost/effectiveness
analysis which was used with such dramatic
success during World War II; with this approach
realistic goals are set either for a new transport
facility, (or a health scheme, an education system) and
the cost of achieving it is minimised by considering
various alternatives open.
more use has not been made of cost/effectiveness
analysis which was used with such dramatic
success during World War II; with this approach
realistic goals are set either for a new transport
facility, (or a health scheme, an education system) and
the cost of achieving it is minimised by considering
various alternatives open.
(c) in the case of the subject
analysis some important
(perhaps the most important) benefits and dis-
benefits have been ignored; these are the benefits
arising from improving the amenity of the land use
transport environment in the vicinity or dis-
benefits such as the dislocation of existing land
uses these have been discussed in subjective
terms, but unless they can be quantified and included
in the economic analysis it has little realism.
(perhaps the most important) benefits and dis-
benefits have been ignored; these are the benefits
arising from improving the amenity of the land use
transport environment in the vicinity or dis-
benefits such as the dislocation of existing land
uses these have been discussed in subjective
terms, but unless they can be quantified and included
in the economic analysis it has little realism.
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(d) even though benefit cost
analysis may be useful in
certain circumstances in assessing the most "profitable"
group of projects to undertake for an arbitrarily given
budget, it is of little use for determining the budget
itself.
certain circumstances in assessing the most "profitable"
group of projects to undertake for an arbitrarily given
budget, it is of little use for determining the budget
itself.
(e) benefit cost analysis is not a
comprehensive planning
tool; the major objective of overall transport planning
should be minimisation of the total transport cost;
methods for doing this based on linear programming are
now available and the accent on energy conservation is
beginning to encourage their use.
tool; the major objective of overall transport planning
should be minimisation of the total transport cost;
methods for doing this based on linear programming are
now available and the accent on energy conservation is
beginning to encourage their use.
- end of Annexures -
- end of Volume II -
