C.B.A is a technique for assessing the desirability of a particular project, taking into accounts all of the respective costs and benefits. This is a well-planned strategy for analyzing both of the private and external factors before preceding any public projects e.g. transport infrastructure.
Different from private companies only considering private costs and benefits, government use C.B.A to assess externalities as well. This is a better judgement which take a wider view and therefore more accurate. With respect to transport, private costs always contain engineering costs, building costs, planning design and finance. It is relatively easy to calculate through present values or it could be estimated by borrowing the data from previous projects. On the other hand, private benefits could be obtained by the amount of money that people are able and willing to pay. It could also be exaggerated if we want to take into account of consumer surplus.
In terms of externalities, disruption costs, accidents while construction and environment pollution could be registered as negative externalities. Although it is hard to put a precise figure on each category, certain techniques could be adopted to tackle the problem. For example, there is an official figure for a lose of life and approximate cost for certain amount of noise pollutions. However, on the other hand, there would be less congestion and pollution, fewer accidents and more time saved, which could also be estimated.
As a result, social costs and benefits could are all included, which gives a best picture of how much the whole project costs. In terms of longer view, C.B.A calculates the costs and benefits across a period of time, usually 30 years. This would bring the best rate of return for each project and hence increase the accuracy. Discounting technique is adopted here because the same amount of money would not worth as much as the previous year.
This is usually a 5% rate, but it could vary according to different situation. The rate is linked to various factors which mainly include interest rate, economic growth and confidence of taking a risk. As a result, accumulated revenue across that period of time can be obtained and on the other hand, long run costs like maintainess cost is also being considered. This represents the true and complete costs and benefits for every single project.
Bear the advantage of C.B.A, it can be used to assess the desirability of a project in comparison to other projects, particularly when the funds are limited. C.B.A would even be more appropriate if the certain projects have considerable externalities and would last for quite a long time in nature To conclude, C.B.A is a legitimate technique to help decision making. It is not just looking at the present costs and benefits but also in the long run; it is not only concern with private sector but also includes externalities. C.B.A is a very useful analysis in carrying public projects, and it has been applied for lots of transport infrastructure in resent years.
Use examples, discuss the effectiveness of C.B.A in transport decision making. C.B.A is an analysis for the government to quantify all costs and benefits, including not only private but external factors, in preceding any projects. Specifically for transport, which involves huge investment and later bring significant benefits for society, needs an accurate and well-planned C.B.A before carrying on real projects. During the last a couple of years, government has adopted C.B.A when they were planning to improve underground services and extension of rail way services.