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01.03.2015

Managing the insolvable limitations of cost-benefit analysis: results of an interview based study

verfasst von: Niek Mouter, Jan Anne Annema, Bert van Wee

Erschienen in: Transportation | Ausgabe 2/2015

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Abstract

Cost-benefit analysis (CBA) has been an important tool for transport planners for several decades. Despite its popularity it has often been criticized for several reasons, amongst other things, because the tool has some insolvable limitations when it is applied in practice. In this paper we examine and scrutinize the perceptions of 86 key actors in the Dutch appraisal practice for spatial-infrastructure projects with regard to three insolvable CBA limitations: (1) CBA is always incomplete; (2) Effect estimations are always uncertain; (3) Effects that are difficult to estimate have a relatively weak position. We conclude that Dutch key actors were not only able to point out these three CBA limitations and the bad management of these limitations, but they were also able to propose several (pragmatic) solutions to improve the management of CBA limitations. This paper discusses how the proposed solutions relate to solutions addressed in the literature. Moreover, we provide recommendations for further research and discuss policy recommendations that transpired from the results.

Vorheriger Artikel The Hensher equation: derivation, interpretation and implications for practical implementation

Nächster Artikel Why do voters support public transportation? Public choices and private behavior

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This paper defines spatial-infrastructure projects as both the classic infrastructure projects such as ‘highways’ and ‘railroads’ and spatial projects such as ‘integrated land use and transportation projects’ and ‘flood protection projects’.

Besides insolvable CBA limitations, respondents addressed the fact that a limitation of the CBA is that it does not take other elements in the decision-making process into account, other than project effects and efficiency, such as public support and political support issues. We did not consider these issues in this study because we think they are not related to ex-ante evaluation of project effects but to the decision-making process in general.

The OEI-Leidraad (official Dutch CBA Guideline) defines welfare effects of a project as: ‘all financial and non-financial effects of a project for Dutch residents’. Project effects on safety and the environment are used in the guideline as illustrations of non-financial welfare effects.

There is no clear consensus in the Dutch practice that this is an insolvable CBA limitation. Some respondents perceive that this is an insolvable limitation; others perceive that it is currently-or will in the near future be - possible to quantify and monetize all effects that are included in a CBA study equally well. For example, with a more frequent use of insights obtained from experimental economics and behavioral economics.

This position of respondents is more extensively discussed in Sect. 5.

Perceived advantages of key actors in the Dutch practice are discussed in Mouter et al. (2013b).

Mouter et al. (2012) denote the ‘subtle’ use of the CBA, based on Aristotle’s Ethica Nicomachea: ‘virtuous use of the CBA in the decision-making process for spatial-infrastructure projects’. Aristotle defines acting ‘virtuously’ as acting at the balance point between two non-virtuous extremes. Like acting ‘bravely’ is the balance point between acting ‘cowardly’ and acting ‘recklessly’, attributing a ‘virtuous’ value to CBA in a decision-making process is the balance point between assigning absolute value to the CBA and marginalizing the value of CBA.

We cannot say that there is consensus because we have not confronted all actors with all solutions.

Natuurpunten (in Dutch).

The respondent did not discuss this solution in more depth during the interview.

The respondent did not discuss precisely which constraints he had in mind.

One respondent suggests communicating in a specific CBA in which the effects of a new rail connection and a spatial planning project were assessed, that the BCR ratio will only be positive when one assumes that housing prices in the project area will increase by 20,000 euros as a result of the new rail connection.

For some types of projects it might be very difficult to design a flexible investment strategy (for instance, bridges). For other types of projects it might be easier to develop flexible investment strategies (for instance, airport and harbor extensions).

In Mouter et al. (2013b) we discuss empirical results on which we sustain our claim that Dutch key actors perceive CBA as being a useful instrument in the decision-making process.

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Titel: Managing the insolvable limitations of cost-benefit analysis: results of an interview based study
verfasst von: Niek Mouter
Jan Anne Annema
Bert van Wee
Publikationsdatum: 01.03.2015
Verlag: Springer US
Erschienen in: Transportation / Ausgabe 2/2015
Print ISSN: 0049-4488
Elektronische ISSN: 1572-9435
DOI: https://doi.org/10.1007/s11116-014-9539-0

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