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21 Cards in this Set
- Front
- Back
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What are the two main appraisal techniques in Transport Economics? |
1. Monetary 2. MCA - Multi Criteria Analysis |
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What are the three main Monetary-based techniques in Transport Economics? |
Financial Analysis Cost-Effectiveness Analysis Social Cost-Benefit Analysis |
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What is Financial Analysis? |
Impact on a businesses own costs and revenues. |
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What is Cost-effectiveness Analysis? (CEA) |
Assessing costs of alternate options that all achieve the same objective. Excludes other factors i.e. Health
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What is Social Cost-Benefit Analysis? |
Assessing costs and benefits for all options. Quantitatively evaluates if an option is worth doing or not. Attempts to monetize everything. Selects option with highest-net benefit. |
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Why do we use Discounting and Inflation in Transport Economics? |
Because costs and benefits should be shown in 'real prices', not just current prices. Remember they are two separate concepts. |
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What is Discounting? |
"Deflation" Used to compare costs and benefits across time periods. Idea of the time preference -> people prefer goods/money sooner rather than later. |
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What is Inflation? |
"Compounding" An increase in the general price level over years.
But an increase in wages may counteract this as purchasing power remain equal with no or minimal loss. |
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What is Present Value? |
Places all costs and benefit on an equviliant basis to compare. As we assign more value to goods received now -> so a discount rate calculates how much more we want it. |
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How do we calculate Present Value? |
PVB = Present Value of Benefits R = Discount Rate N = Project Lif PVB = (Sum Of) B(t) / (1+r)t |
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What is Net Present Value? |
NPV Calculates the difference in Costs and Benefits in present value. |
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How do we calculate NPV? |
NPV = PVB - PVC |
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How do we rank projects? |
BCR - B/C > 1 NPV = B-C > 0 IRR - Internal Rate of Return |
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What is Social Time Preference Rate? |
"The value society attaches to present rather than future consumption" We also prefer to defer costs to future generations. |
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What Discount rate does the UK Government use? |
Idea of STPR and that people want money now....but may be prepared to wait if interest rates are good. UK - Uses 3.5% -> World Bank uses 10% Can make a big difference! I.E. 2017 -> 1,000,000 @ 3.5% 30 Years -> £356,000 60 Years -> £174,000 |
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What are Distributional Impacts (DI)? |
Distribution of costs and benefits of interventions across different groups in society. Understanding and fairness of a proposal. Correlation between income and other factors such as health, ethnic group etc. Impact depends on income..... |
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What is the theory of Diminishing Marginal Utility? |
DMU Marginal Utility - Additional utility derived from an additional goods or services. Normally diminishes but higher for someone who has less. Because impacts depend on income...an extra pound will be of greater benefit to someone deprived than someone well off. |
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What are the Outcomes of Distributional Impacts? |
Proposals that deliver greater net benefits to households in lower income quantiles are higher rated than those benefitting higher income quantiles. Relative houshold prosperity is considered -> by size and composition not just income. For example, a couple on £100 per week are worse off than a single person on £100 per week. Better weighting/double benefit is given to the lowest quintiles. |
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What is the issue with Distributional Analysis? |
Requires detailed information about the population. So when DI is not used, it must be highlighted on grounds of: 1) Ease of data collection. 2) Significant impact of DI from the project. |
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Summary What are the attractions of Cost-Benefit Analysis? |
Considers costs and benefits to all members of society - distributional impacts. Impacts valued on one scale - money. Based on established monetary methods -> i.e. time preference. |
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Summary Drawbacks of Cost-Benefit Analysis? |
Not always possible to monetise impacts. Espically environmental and heritage impacts? Hard to account for interactions between impacts. Not always the best measurement for value for money - so should not be the sole basis for decision making. **Especially when their are costs and benefits that cannot be monetized**. BCR - Benefit Cost Ratio BCR = NPV (B-C) / Public Sector Costs |
