Cost-benefit analysis of transport projects: theoretical framework and practical rules

Abstract

The economic appraisal of transport projects is commonly based on the calculation of time savings, operating cost reduction, avoided accidents, quality improvements, and project costs. This is the change in willingness to pay and resources approach. This paper describes this method for the assessment of the economic effects of any project and then addresses an alternative approach based on the aggregation of changes in surpluses. The analysis is based on a simple model to avoid the mechanical application of rules of thumb from different sources, helping to find some practical ways to avoid common pitfalls and double counting in the measurement of benefits and costs of transport projects. The narrative on how the transport sector works and how the government intervention affects social welfare is supported by an analytical approach from which the rules and criteria of measurement are derived, always explaining the assumptions and conditions under which they hold.