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The economic evaluation of public investment in transportation in underdeveloped countries Griffiths, William Henry 1968

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THE ECONOMIC EVALUATION OF PUBLIC INVESTMENT IN TRANSPORTATION IN UNDERDEVELOPED COUNTRIES by W i l l i a m Henry G r i f f i t h s B. Comm.(Hons.), U n i v e r s i t y of Manitoba, 1962 A Thesis Submitted i n P a r t i a l F u l f i l m e n t of The Requirements f o r the Degree of Master of Business A d m i n i s t r a t i o n i n the Department of Commerce and Business A d m i n i s t r a t i o n We accept t h i s t h e s i s as conforming to the re q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA SEPTEMBER, 196 8 In p r e s e n t i n g t h i s t h e s i s i n p a r t i a l f u l f i l m e n t o f the r e q u i r e m e n t s f o r an advanced deg ree a t the U n i v e r s i t y o f B r i t i s h C o l u m b i a , I ag r ee t h a t the L i b r a r y s h a l l make i t f r e e l y a v a i l a b l e f o r r e f e r e n c e and S t u d y . I f u r t h e r ag ree t h a t p e r m i s s i o n f o r e x t e n s i v e c o p y i n g o f t h i s t h e s i s f o r s c h o l a r l y p u r p o s e s may be g r a n t e d by the Head o f my Depar tment o r by hits r e p r e s e n t a t i v e s . I t i s u n d e r s t o o d t h a t c o p y i n g o r p u b l i c a t i o n o f t h i s t h e s i s f o r f i n a n c i a l g a i n s h a l l no t be a l l o w e d w i t h o u t my w r i t t e n p e r m i s s i o n . Depar tment o f The U n i v e r s i t y o f B r i t i s h Co l umb ia Vancouve r 8, Canada Date ABSTRACT P u b l i c investment i n t r a n s p o r t a t i o n forms a larg e p a r t of the c a p i t a l budget of many developing c o u n t r i e s . In view of the s c a r c i t y of development c a p i t a l , i t i s e s s e n t i a l t h a t the a v a i l a b l e c a p i t a l be used to the best advantage. This i n -d i c a t e s the need f o r c a r e f u l analyses of proposed p u b l i c investments i n t r a n s p o r t a t i o n . U n t i l q u i t e r e c e n t l y , t r a n s p o r t a t i o n investment evalu-a t i o n i n underdeveloped c o u n t r i e s was almost e n t i r e l y w i t h i n the preserve of engineers, w i t h economists t a k i n g l i t t l e a c t i v e i n t e r e s t i n the s p a t i a l aspects of economic a c t i v i t y . Economists have r e c e n t l y taken a much more a c t i v e i n t e r e s t , and new methods of e v a l u a t i o n are c o n s t a n t l y being developed and ol d e r ones im-proved. However, there are s t i l l some unresolved methodological problems i n the e v a l u a t i o n of p u b l i c t r a n s p o r t a t i o n investment, and a number of d e f i c i e n c i e s i n the a p p l i c a t i o n of the concepts and methods which have been developed. The o b j e c t i v e of t h i s t h e s i s i s to describe and evaluate the methods of t r a n s p o r t a t i o n investment a n a l y s i s now i n use, i d e n t i f y the d e f i c i e n c i e s i n the e x i s t i n g methods and i n t h e i r a p p l i c a t i o n s , and to propose methods of overcoming the d e f i c i e n c i e s . The research which has r e s u l t e d i n t h i s t h e s i s has been i n three forms. One was a review of the published l i t e r a t u r e p e r t a i n i n g to p u b l i c investment i n t r a n s p o r t a t i o n i n under-developed c o u n t r i e s . The second was i n the author's experience i n t r a n s p o r t a t i o n investment a n a l y s i s i n Canada and overseas, f o r agencies such as the Government of Canada and the World Bank. This experience presented the opportunity of reviewing unpublished w r i t i n g s on the s u b j e c t , and of reviewing the methodology used and r e s u l t s produced by various consultants and study groups i n a wide range of t r a n s p o r t a t i o n investment analyses i n underdeveloped c o u n t r i e s . Much of t h i s m a t e r i a l , p a r t i c u l a r l y the co n s u l t a n t s ' r e p o r t s , i s held c o n f i d e n t i a l by the World Bank and by the governments of the co u n t r i e s i n -volved, and th e r e f o r e cannot be s p e c i f i c a l l y c i t e d i n references. The t h i r d source of inf o r m a t i o n was i n d i s c u s s i o n s w i t h con-s u l t a n t s working i n t h i s f i e l d , both i n Canada and abroad; wi t h r e p r e s e n t a t i v e s of the governments r e c e i v i n g f o r e i g n a i d f o r t r a n s p o r t a t i o n investments, and wit h the personnel of the World Bank. Chapter I of the t h e s i s i s a general i n t r o d u c t i o n t o the subj e c t . I t deals w i t h the r e l a t i v e importance of transpor-t a t i o n investment i n underdeveloped c o u n t r i e s , and s t a t e s the o b j e c t i v e of the t h e s i s . In Chapter I I the o b j e c t i v e of p u b l i c t r a n s p o r t a t i o n a n a l y s i s i s e s t a b l i s h e d , and some of the p r i n -c i p l e s which are b a s i c to a l l analyses of p u b l i c investment are considered. In co n s i d e r i n g the p r i n c i p l e s , some problems i n t h e i r a p p l i c a t i o n s are i d e n t i f i e d and the recommended procedures are i n d i c a t e d . A l l acceptable analyses of p u b l i c t r a n s p o r t a t i o n i n v e s t -ments must u l t i m a t e l y r e s u l t i n some form of comparison of the costs and b e n e f i t s of the proposed investment or investments. i v In Chapter I I I the methods of measuring costs and b e n e f i t s are d e s c r i b e d , and d e f i c i e n c i e s i n the current methods and t h e i r a p p l i c a t i o n s are i d e n t i f i e d . In the cases of r e l a t i v e l y minor d e f i c i e n c i e s , the c o r r e c t methods and a p p l i c a t i o n s are shown i n Chapter I I I . P o s s i b l e s o l u t i o n s to the major problems i d e n t i f i e d are proposed i n Chapter IV. The major d e f i c i e n c i e s noted i n Chapter I I I are the common f a i l u r e to r e l a t e a proposed t r a n s p o r t a t i o n investment on an i n d i v i d u a l l i n k of the system, to the system as a whole, and the f a i l u r e to r e l a t e the t r a n s -p o r t a t i o n system to the economy of the country. These d e f i c i e n c -i e s w i l l almost i n v a r i a b l y r e s u l t i n the i n c o r r e c t measurement of costs and b e n e f i t s . In Chapter IV, methods of overcoming these d e f i c i e n c i e s are described and evaluated. The most recent published method of conducting a comprehensive a n a l y s i s which takes account of these f a c t o r s i s the Harvard Model, which c o n s i s t s of two p a r t s : a t r a n s p o r t a t i o n model and a macro-economic model. The d i f f i -c u l t y of applying t h i s approach i s considered, and i t i s con-cluded t h a t , although the Harvard Model i s conceptually the best approach which has thus f a r been developed, i t cannot be a p p l i e d as a p r a c t i c a l method of e v a l u a t i o n at t h i s time. An a l t e r n a t i v e approach i s suggested, based on the methodology used i n a recent land t r a n s p o r t a t i o n study of Dahomey, A f r i c a . The a n a l y s i s of t r a f f i c flows i s based on the t r a n s p o r t a t i o n p o r t i o n of the Harvard Model, wh i l e the economic methodology was developed p r i -m a r i l y by the author wh i l e engaged i n the Dahomey study. V The conclusions are presented i n Chapter V. I t i s concluded t h a t t r a n s p o r t a t i o n investment analyses could be g r e a t l y improved, and t h a t most of the necessary improvements are incorporated i n the Harvard Model. However, the Harvard Model has not yet been a p p l i e d s u c c e s s f u l l y , and t h i s w i l l probably be the case f o r at l e a s t the next f i v e to ten years. The methodology used i n the Dahomey study i s recommended f o r use as a l e s s s o p h i s t i c a t e d , but workable a l t e r n a t i v e , which i s a l s o more appropriate to the e v a l u a t i o n of s p e c i f i c i n v e s t -ment proposals. v i TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION . 1 I I . THE OBJECTIVES AND PRINCIPLES OF PUBLIC TRANSPORTATION INVESTMENT ANALYSIS 6 The Objectives of P u b l i c T r a n s p o r t a t i o n Investment A n a l y s i s 6 The P r i n c i p l e s of P u b l i c T r a n s p o r t a t i o n Investment A n a l y s i s 8 Define the Le v e l of Dec i s i o n 9 Evaluate A l l A l t e r n a t i v e s 18 Include A l l Costs and B e n e f i t s 21 Consider the Timing of Costs and B e n e f i t s . . . 28 I I I . THE MEASUREMENT OF COSTS AND BENEFITS 34 T r a f f i c and Economic Forecasts 34 The Measurement of Costs 45 Constr u c t i o n Costs 46 Maintenance Costs 54 V e h i c l e Operating Costs 56 The Measurement of B e n e f i t s 81 Improvement of an E x i s t i n g Road or System of Roads 83 Constr u c t i o n of New Roads to Develop New Areas 96 Summary: the Measurement of Costs and B e n e f i t s . 101 v i i CHAPTER PAGE IV. SYSTEMS ANALYSIS AND NATIONAL INCOME METHODS . . . 104 Systems A n a l y s i s 10 4 N a t i o n a l Income Methods 105 The Harvard Model 107 The Dahomey Method . 121 V. CONCLUSIONS 157 BIBLIOGRAPHY 161 v i i i LIST OF TABLES TABLE PAGE 1. Road Maintenance Costs, and V a r i a t i o n s w i t h T r a f f i c Volumes 58 I I . Values of Rate of Rise and F a l l C o e f f i c i e n t s . . . 62 I I I . F u e l Consumption and Speed 64 IV. Road Surface Factors f o r V e h i c l e Operating Costs 66 V. F u e l Consumption and Curvature of the Road. . . . 68 VI. Engine O i l Consumption and Speed 72 V I I . V e h i c l e Maintenance: Cost of Parts and Hours of Labour 75 i x LIST OF FIGURES FIGURE PAGE 1. Sample Output - Link O p t i m i z a t i o n Program 132 2. Sample Output - Link O p t i m i z a t i o n Program A l l A l t e r n a t i v e s 139 CHAPTER I INTRODUCTION A review of the c a p i t a l budgets of underdeveloped c o u n t r i e s i n d i c a t e s that t r a n s p o r t a t i o n investment plays a very la r g e r o l e i n plans f o r economic development. In the p e r i o d from 1959 to 1962, i t i s estimated t h a t p u b l i c t r a n s -p o r t a t i o n investment accounted f o r 22.5 percent of t o t a l domestic investment i n Mexico, 25.2 percent i n Sudan, 27 per-cent i n P a k i s t a n , 51.5 percent i n N i g e r i a , and 55 percent i n Columbia. Even i n Japan, which has achieved a r e l a t i v e l y high degree of economic development, p u b l i c t r a n s p o r t a t i o n i n v e s t -ment at one p o i n t i n t h i s p e r i o d accounted f o r 34.5 percent of t o t a l p u b l i c investment."'" Over 20 percent of the development loans made by United States and i n t e r n a t i o n a l lending agencies. have been f o r t r a n s p o r t a t i o n investment. There are a number of reasons f o r t h i s emphasis on t r a n s p o r t a t i o n . I t i s an important aspect of economic develop-ment which i s amenable to government a c t i o n even i n the most f r e e - e n t e r p r i s e economies, and i n f a c t , i t i s p r i m a r i l y dependent on government i n i t i a t i v e . The l a r g e investment c h a r a c t e r i s t i c s of road, r a i l w a y , p o r t , and a i r p o r t development are beyond the xGary Fromm, ed., Transport Investment and Economic  Development (Washington: The Brookings I n s t i t u t i o n , 1965), p. 226. 2 c a p a c i t y of p r i v a t e e n t e r p r i s e even i n many advanced economies. I t i s a l s o an a t t r a c t i v e investment f i e l d f o r governments and lending agencies, i n t h a t v i s i b l e r e s u l t s can be obtained i n a r e l a t i v e l y short time, i n the form of highway, r a i l w a y , and p o r t f a c i l i t i e s . In t h i s r e s p e c t , i t has an immediate advantage over investments i n f i e l d s such as education and p u b l i c h e a l t h , where the time p e r i o d between investment and v i s i b l e r e s u l t s i s o f t e n q u i t e long. I t a l s o has the advantage th a t the e f f e c t s of the investment can be measured and f o r e c a s t more e a s i l y than f o r other investments, w i t h education and h e a l t h again p r o v i d i n g examples. There i s a l s o what might be c a l l e d the t r a n s p o r t a t i o n mystique; the i n t u i t i v e f e e l i n g t h a t t r a n s p o r t a t i o n i s the magic key to economic development. These reasons are r e l a t i v e l y unimportant, however, i n comparison w i t h the r e a l reason f o r the emphasis on transpor-t a t i o n i n economic development. There i s l i t t l e question t h a t t r a n s p o r t a t i o n i s a necessary p r e c o n d i t i o n of economic develop-ment, and f u r t h e r , there i s strong evidence t h a t t r a n s p o r t a t i o n i s more than j u s t a permissive element, but o f t e n i s , i n f a c t , the key to economic development. W. Rostow has s t a t e d t h a t 2 "transport i s the most powerful s i n g l e i n i t i a t o r of t a k e - o f f s . " Whether true or not, the mere b e l i e f that t h i s i s the case i s ample exp l a n a t i o n f o r much of the emphasis on t r a n s p o r t a t i o n . Quoted from George W. Wilson,"Transportation Invest-ment and Economic Development i n Underdeveloped Countries," which appeared i n the Papers of the S i x t h Annual Meeting, Tra n s p o r t a t i o n Research Forum, 1965, p. 425. 3 T r a n s p o r t a t i o n alone i s obviously not enough to produce economic development. Other investments, both p u b l i c and p r i v a t e are necessary, u s u a l l y i n primary sectors such as a g r i c u l t u r e , f o r e s t r y and mining, but a l s o i n secondary i n d u s t r y , power, communications and other s e c t o r s . The n a t u r a l resource base f o r these sectors must be present i n some degree. Most impor-t a n t , there must be human resources not only i n terms of numbers, but a l s o i n terms of knowledge and a b i l i t y , h e a l t h and energy, dynamism and a t t i t u d e s ; i n s h o r t , w i t h the a b i l i t y and the w i l l to work f o r economic advancement. These are a l l necessary p r e c o n d i t i o n s of economic develop-ment, and a l l imply investment requirements. The question i s , how much should be inv e s t e d i n each? What combination or "mix" of investment inputs w i l l c o n t r i b u t e most to the economic and s o c i a l o b j e c t i v e s of the population? The problem i s not r e a l l y a problem of economic theory, i n th a t there are l o g i c a l economic p r i n c i p l e s which, i f a p p l i e d , could give reasonable answers. The problem i s a p r a c t i c a l one, and i s seated i n the d i f f i c u l t y , i f not the i m p o s s i b i l i t y , of measuring the fut u r e p r o d u c t i v i t y of p o s s i b l e investments i n t r a n s p o r t a t i o n , communications, power, and other i n t r a - s t r u c t u r e s e c t o r s , i n d i r e c t l y produc-t i v e s e ctors such as a g r i c u l t u r e , f o r e s t r y , mining, manufacturing and other i n d u s t r i e s , and i n education, t e c h n i c a l t r a i n i n g , h e a l t h and w e l f a r e , and s i m i l a r s o c i a l f i e l d s . The answer i s beyond the c a p a b i l i t i e s of e x i s t i n g a n a l y t i c a l techniques, and 4 t h i s w i l l be the case f o r many years to come. However, e x i s t i n g techniques can and do provide v a l u a b l e guidance to the decision-makers who must a l l o c a t e scarce development c a p i t a l , and i t i s v i t a l t h a t these techniques be developed and improved as much as p o s s i b l e . ^ T r a n s p o r t a t i o n e v a l u a t i o n i s among the more h i g h l y -developed t o o l s f o r the measurement and e v a l u a t i o n of p u b l i c investment, p a r t l y because i t has received a great d e a l of a t t e n t i o n , and p a r t l y because i t i s more amenable to measure-ment and q u a n t i f i c a t i o n than are most other p u b l i c investments. This development has taken place over r e l a t i v e l y few years. Economic t h e o r i s t s have t r a d i t i o n a l l y neglected or assumed away the s p a t i a l aspects of economic a c t i v i t y , and p r a c t i c i n g economists have simply not become in v o l v e d i n t r a n s p o r t a t i o n e v a l u a t i o n to any s i g n i f i c a n t degree u n t i l the post-war years. There i s s t i l l a wide gap between the two l e v e l s of transpor-t a t i o n e v a l u a t i o n : the academic l e v e l , where economic theory i s a p p l i e d to t r a n s p o r t a t i o n , and p r i n c i p l e s are evolved which i n d i c a t e how the e v a l u a t i o n should be done, and the p r a c t i c a l l e v e l , where the engineer and economist decide how the e v a l u a t i o n can be done, o f t e n w i t h i n q u i t e l i m i t i n g time and budget cons-t r a i n t s . I t i s u n l i k e l y t h a t the two l e v e l s w i l l ever completely converge, but the gap i s narrowing. There i s a fortunate tendency f o r the "academics"—the professors and researchers--to a l s o become p r a c t i t i o n e r s , w h i l e the p r a c t i t i o n e r s — e n g i n e e r s , and more r e c e n t l y e c o n o m i s t s — a r e making i n c r e a s i n g e f f o r t s to 5 put the p r i n c i p l e s developed to p r a c t i c a l a p p l i c a t i o n , and i n f a c t to make s u b s t a n t i a l c o n t r i b u t i o n s to the t h e o r e t i c a l aspects of t r a n s p o r t a t i o n e v a l u a t i o n . This merging of the academic and p r a c t i c a l approaches i s another f a c t o r which has aided i n the development of e v a l u a t i o n techniques. Despite the s i g n i f i c a n t advances made i n the post-war years, there are s t i l l a number of d e f i c i e n c i e s i n the methods of t r a n s p o r t a t i o n investment e v a l u a t i o n c u r r e n t l y i n use, and i n the s p e c i f i c a p p l i c a t i o n s of the methods. The purpose of t h i s t h e s i s i s to review the methods of t r a n s p o r t a t i o n i n v e s t -ment a n a l y s i s , i d e n t i f y the d e f i c i e n c i e s and problem areas, and propose s o l u t i o n s to the problems. The proposed s o l u t i o n s to the minor problems encountered i n the measurement of the costs and b e n e f i t s of proposed t r a n s p o r t a t i o n investments are presented i n the s e c t i o n s d e a l i n g w i t h the i n d i v i d u a l costs and b e n e f i t s . The proposed s o l u t i o n s to the major conceptual and p r a c t i c a l problems are considered separately i n Chapter IV. Although the t h e s i s concentrates on highway transpor-t a t i o n i n underdeveloped c o u n t r i e s , the p r i n c i p l e s and problems considered are e q u a l l y a p p l i c a b l e to other modes of transpor-t a t i o n and to advanced economies. CHAPTER I I THE OBJECTIVES AND PRINCIPLES OF PUBLIC TRANSPORTATION INVESTMENT ANALYSIS A. The Objectives of P u b l i c T r a n s p o r t a t i o n Investment A n a l y s i s The u l t i m a t e o b j e c t i v e of p u b l i c investment a n a l y s i s i s to a l l o c a t e resources i n such a way that each resource makes the maximum p o s s i b l e c o n t r i b u t i o n to the attainment of the goals of the pop u l a t i o n . The goals may or may not be s t a t e d ; they may be e x p l i c i t or i m p l i c i t . They are p o l i t i c a l l y determined, and whi l e the economist may advise and recommend i n the s e l e c t i o n of g o a l s , he cannot i n h i s r o l e as an economist, determine or e s t a b l i s h the goals. The r o l e of the economist, then, and of economic a n a l y s i s as f a r as p u b l i c investment a n a l y s i s i s concerned, i s to a s s i s t i n the a l l o c a t i o n of resources so that t h e i r use may be optimized i n the attainment of the p o l i t i c a l l y - d e t e r m i n e d o b j e c t i v e s . Under normal circumstances, the most common primary goal of a country i s the economic w e l l - b e i n g of the p o p u l a t i o n , and the most common means of measuring progress toward the goal i s i n terms of N a t i o n a l Income. Thus, the o b j e c t i v e most commonly presented to the t r a n s p o r t a t i o n economist, o r, i n the absence of s p e c i f i c d i r e c t i o n assumed by him, i s the a l l o c a t i o n of r e -sources to and w i t h i n the t r a n s p o r t a t i o n s e c t o r i n such a way 7 t h a t the resources make the maximum c o n t r i b u t i o n to N a t i o n a l Income.^ The a l l o c a t i o n of resources to the t r a n s p o r t a t i o n s e c t o r i m p l i e s a number of important d e c i s i o n s i n economic planning. Since i t i s not the purpose of t h i s t h e s i s to delve i n t o the com p l e x i t i e s of general economic planning, some s i m p l i f y i n g assumptions are made. I t i s assumed t h a t the a l l o c a t i o n of resources between p u b l i c and p r i v a t e uses has been determined, and a p u b l i c budget e s t a b l i s h e d , however approximate. I t i s assumed th a t a c a p i t a l budget has been formulated f o r the p u b l i c s e c t o r , and tha t general p r i o r i t i e s have been e s t a b l i s h e d among the various sub-sectors, such as a g r i c u l t u r e , i n d u s t r y , education, h e a l t h , t r a n s p o r t a t i o n , and a l l of the other claimants to p u b l i c investment funds. This i s not to imply t h a t t r a n s p o r t a t i o n a n a l y s i s s t a r t s at t h i s p o i n t ; indeed, i t plays an important r o l e i n general economic planning and i n establishment of p r i o r i t i e s . I d e a l l y , the a l l o c a t i o n of funds t o the p u b l i c s e c t o r , and to sub-sectors such as t r a n s p o r t a t i o n , i s based on the c o n t r i b u -t i o n to n a t i o n a l goals t h a t the funds can make i n the various a l t e r n a t i v e uses. The a l l o c a t i o n of funds to p u b l i c investment i n t r a n s p o r t a t i o n would i d e a l l y be based on the net returns these funds w i l l produce when employed i n t r a n s p o r t a t i o n , compared wi t h the returns they would produce i n a l t e r n a t i v e N a t i o n a l Income as used here may a l s o be taken to inc l u d e concepts such as p r o v i n c i a l , s t a t e , or r e g i o n a l income, appropriate to the area and l e v e l of d e c i s i o n i n any p a r t i c u l a r case. 8 uses. The net r e t u r n from employment i n t r a n s p o r t a t i o n i s i d e a l l y determined by economic a n a l y s i s of a l l p o s s i b l e t r a n s -p o r t a t i o n investments. While t h i s i d e a l l y would be the case, i t i s obv i o u s l y i m p r a c t i c a l to attempt to measure the returns from a l t e r n a t i v e uses of p u b l i c funds through an i n d i v i d u a l a n a l y s i s of every p o s s i b l e p u b l i c investment i n each s e c t o r , and i n p r a c t i c e general p r i o r i t i e s are e s t a b l i s h e d on the ba s i s of broad, aggregated economic, p o l i t i c a l , s o c i a l and m i l i t a r y c o n s i d e r a t i o n s i n v o l v i n g a great d e a l of personal and group judgement, as w e l l as on the b a s i s of formal economic surveys and analyses. The assumption th a t a p u b l i c budget has been e s t a b l i s h e d , and an a l l o c a t i o n of c a p i t a l funds to the t r a n s p o r t a t i o n s e c t o r has been made, provides a convenient s t a r t i n g p o i n t f o r the i n t r o d u c t i o n of t r a n s p o r t a t i o n investment a n a l y s i s ; a p o i n t where the o b j e c t i v e s of the a n a l y s i s can be st a t e d q u i t e pre-c i s e l y . Ignoring p o l i t i c a l , s o c i a l and m i l i t a r y c o n s i d e r a t i o n s f o r the moment, the o b j e c t i v e of p u b l i c t r a n s p o r t a t i o n i n v e s t -ment a n a l y s i s assumed i n t h i s t h e s i s i s to determine the a l l o c a t i o n of p u b l i c funds w i t h i n the t r a n s p o r t s e c t o r i n such a way t h a t they w i l l produce the maximum p o s s i b l e c o n t r i b u t i o n to N a t i o n a l Income. B. The P r i n c i p l e s of P u b l i c T r a n s p o r t a t i o n Investment A n a l y s i s The problem of a l l o c a t i o n of funds w i t h i n the tr a n s p o r t s e c t o r i s again one of determining the net r e t u r n on funds i n -vested i n one use or p r o j e c t , compared wi t h the net r e t u r n from 9 a l t e r n a t i v e p r o j e c t s . In a l l but the most e l ementary methods o f a n a l y s i s , the p r o c e d u r e s used i n v o l v e the measurement o f the c o s t s and the b e n e f i t s o f v a r i o u s a l t e r n a t i v e u s e s , and the a p p l i c a t i o n o f some c r i t e r i o n to s e l e c t the p r e f e r a b l e p r o j e c t or c o m b i n a t i o n o f p r o j e c t s . In the measurement o f c o s t s and b e n e f i t s , t h e r e are a number o f p r i n c i p l e s which are b a s i c to a competent a n a l y s i s . These r u l e s r e p r e s e n t l i t t l e more than e lementary common sense and economic l o g i c , y e t i n p r a c t i c e they are f r e q u e n t l y neg -l e c t e d . The a p p l i c a t i o n o f these p r i n c i p l e s appears throughout the f o l l o w i n g c h a p t e r s o f t h i s t h e s i s which d e a l w i t h c o s t and b e n e f i t measurement and p r o j e c t s e l e c t i o n c r i t e r i a , and they are o u t l i n e d here so t h a t r e p e a t e d r e f e r e n c e s to them w i l l not be r e q u i r e d i n the f o l l o w i n g s e c t i o n s . A l t h o u g h the p r i n c i p l e s are d e a l t w i t h here i n t h e i r a p p l i c a t i o n to p u b l i c t r a n s p o r -t a t i o n inves tment a n a l y s i s , they a p p l y e q u a l l y to a l l p u b l i c inves tment a n a l y s i s , r e g a r d l e s s o f the s e c t o r , and a l s o t o most p r i v a t e inves tment a n a l y s i s . The o r d e r i n which the p r i n c i p l e s are l i s t e d does no t imply a judgement as to t h e i r p r i o r i t y or r e l a t i v e i m p o r t a n c e . 1 . D e f i n e the L e v e l o f D e c i s i o n P u b l i c inves tment a n a l y s i s may be c a r r i e d out a t a number o f l e v e l s , r a n g i n g from the i n t e r n a t i o n a l l e v e l down through n a t i o n a l , r e g i o n a l , and s u b - r e g i o n a l l e v e l s , t o the l e v e l o f s i n g l e government o f m u n i c i p a l department and an i n d i -v i d u a l p r o j e c t . The l e v e l on which the a n a l y s i s i s c a r r i e d out 10 h a s an i m p o r t a n t e f f e c t i n d e t e r m i n i n g w h i c h b e n e f i t s and c o s t s s h o u l d be m e a s u r e d and how t h e y s h o u l d be m e a s u r e d , and may a l s o i n f l u e n c e t h e c h o i c e o f c r i t e r i a f o r p r o j e c t s e l e c t i o n a nd r a n k i n g . The l e v e l o f d e c i s i o n may be b a s e d on a g e o g r a p h i -c a l l y o r p o l i t i c a l l y - d e f i n e d a r e a , o r i t may r e f l e c t t h e v i e w p o i n t o f a s i n g l e g o v e r n m e n t d e p a r t m e n t , d e p e n d i n g on t h e t e r m s o f r e f e r e n c e e s t a b l i s h e d f o r a s p e c i f i c a n a l y s i s and t h e i n t e r e s t s o f t h e b o d y c o m m i s s i o n i n g t h e s t u d y . S t u d i e s a t an i n t e r n a t i o n a l l e v e l o f d e c i s i o n w i l l n o r m a l l y be c o m m i s s i o n e d by t h e g o v e r n m e n t s a f f e c t e d b y t h e p r o p o s e d i n v e s t m e n t s , as f o r e x a m p l e , t h e S t . L a w r e n c e Seaway, o r t h e y may be c o m m i s s i o n e d by t h e g o v e r n m e n t s i n c o o p e r a t i o n w i t h an i n t e r n a t i o n a l a g e n c y s u c h as t h e I n t e r n a t i o n a l Bank f o r R e c o n s t r u c t i o n a n d D e v e l o p m e n t . A t t h e n a t i o n a l l e v e l , t h e d e c i s i o n - m a k i n g b o d y i s n o r m a l l y t h e g o v e r n m e n t o f t h e c o u n t r y i n v o l v e d , a l t h o u g h i n t e r n a t i o n a l d e v e l o p m e n t and l e n d i n g a g e n c i e s may a l s o p l a y an i m p o r t a n t p a r t i n e s t a b l i s h i n g t e r m s o f r e f e r -e n c e and a p p r a i s i n g t h e e c o n o m i c a c c e p t a b i l i t y o f t h e p r o p o s e d i n v e s t m e n t . The r e g i o n a l l e v e l may be r e p r e s e n t e d by a p r o v i n c e o r s t a t e , b y a g e o g r a p h i c a r e a s u c h as a r i v e r v a l l e y w i t h p o -t e n t i a l f o r d e v e l o p m e n t , by a m u n i c i p a l a r e a , o r any o f a number o f s i m i l a r c r i t e r i a . The n e c e s s i t y o f e s t a b l i s h i n g t h e a p p r o p r i a t e l e v e l o f d e c i s i o n a t t h e b e g i n n i n g o f an a n a l y s i s c a n be i l l u s t r a t e d b y t h e r e l a t i v e l y s i m p l e c a s e o f t h e p o s s i b i l i t y o f i m p r o v i n g t h e A l a s k a H i g h w a y w h i c h e x t e n d s f r o m e a s t - c e n t r a l B r i t i s h C o l u m b i a , n e a r t h e A l b e r t a b o r d e r , t h r o u g h t h e Y u k o n T e r r i t o r y a nd i n t o 11 A l a s k a . A l t h o u g h th e highway does n o t e x t e n d d i r e c t l y i n t o t h e U n i t e d S t a t e s s o u t h o f Canada, a l a r g e p r o p o r t i o n o f t h e t r a f f i c u s i n g t h e highway i s t h r o u g h t r a f f i c between the U n i t e d S t a t e s p r o p e r and A l a s k a . The a r e a s most d i r e c t l y a f f e c t e d by the highway are n o r t h - w e s t e r n U n i t e d S t a t e s , the p r o v i n c e s o f A l b e r t a and B r i t i s h C o lumbia, the Yukon T e r r i t o r y , and t h e S t a t e o f A l a s k a , a l t h o u g h t h e o t h e r p a r t s o f Canada and the U n i t e d S t a t e s would be a f f e c t e d t o some e x t e n t . The e v a l u a t i o n o f t h e p u b l i c i n v e s t m e n t r e q u i r e d t o improve the highway w i l l be approached from a number o f l e v e l s o f d e c i s i o n t o i l l u s t r a t e the d i f f e r e n c e s i n t h e form and c o n t e n t o f the a n a l y s i s w h i c h would r e s u l t . The f i r s t approach i s from the i n t e r n a t i o n a l l e v e l , and i t i s n e c e s s a r y t o make some r a t h e r u n r e a l i s t i c assumptions f o r t h e sake of t h e i l l u s t r a t i o n . I t i s assumed t h a t t h e d e c i s i o n -making body i s a s u p r a - n a t i o n a l one whose o b j e c t i v e i s t o maximize the n e t b e n e f i t s t o the whole a r e a w h i c h would be a f f e c t e d by t h e improvement, w i t h o u t r e g a r d t o n a t i o n a l , s t a t e o r p r o v i n c i a l b o u n d a r i e s . Assuming t h a t none of t h e e f f e c t s of t h e proposed improvement would e x t e n d beyond Canada and the U n i t e d S t a t e s , and t h a t t h e o b j e c t i v e o f t h e a u t h o r i t y i s t o make the maximum p o s s i b l e c o n t r i b u t i o n t o the combined N a t i o n a l Incomes of t h e U n i t e d S t a t e s and Canada, the o b j e c t i v e s o f t h e a n a l y s i s would be t o d e t e r m i n e the c o n t r i b u t i o n t o N a t i o n a l Income t h a t v a r i o u s p o s s i b l e l e v e l s o f improvement would make, s e l e c t the most d e s i r a b l e improvement, and compare i t s c o n t r i -b u t i o n w i t h t h a t o f p o s s i b l e a l t e r n a t i v e uses of the i n v e s t m e n t 12 funds r e q u i r e d . The a n a l y s i s w i l l not be t r a c e d i n d e t a i l here, but only d e s c r i b e d t o the exte n t t h a t i t w i l l be a f f e c t e d by the l e v e l of d e c i s i o n . The f i r s t aspect t o be noted i s t h a t a comprehensive a n a l y s i s would r e q u i r e t h a t a l l c o s t s and b e n e f i t s must be i n c l u d e d , r e g a r d l e s s of t h e i r l o c a t i o n , and there would be no d i f f e r e n t i a t i o n between c o s t s and b e n e f i t s t o Canada and the U n i t e d S t a t e s ; between A l b e r t a , B r i t i s h Columbia, the Yukon T e r r i t o r y and A l a s k a . The d i s t r i b u t i o n of the b e n e f i t s may be noted, but the d i s t r i b u t i o n among p o l i t i c a l d i v i s i o n s would not a f f e c t the magnitude of the b e n e f i t s or the d e s i r -a b i l i t y of the investment. E f f e c t s o u t s i d e of the d i r e c t area of i n f l u e n c e of the highway would be analysed. For example, i f many of the b e n e f i t s t o A l a s k a and the Yukon were d e r i v e d from t o u r i s t and r e c r e a t i o n a l a c t i v i t i e s which would otherwise have taken p l a c e i n the Maritime p r o v i n c e s and e a s t - c o a s t s t a t e s , then the l o s s e s or d i s b e n e f i t s to the l a t t e r areas would be deducted from the b e n e f i t s of the former areas. Thus, the d e f i n i t i o n of the l e v e l of d e c i s i o n determines Which c o s t s and b e n e f i t s should be counted; w i t h an i n t e r n a t i o n a l l e v e l of d e c i s i o n , i t would be concluded t h a t a l l c o s t s and b e n e f i t s should be co n s i d e r e d . The l e v e l of d e c i s i o n a l s o a f f e c t s how c o s t s and b e n e f i t s are to be measured. In the f o l l o w i n g chapter on the measurement of c o s t s and b e n e f i t s , a d i s t i n c t i o n w i l l be made between economic c o s t s and f i n a n c i a l c o s t s . The f i n a n c i a l c o s t s are g e n e r a l l y the c o s t s as r e f l e c t e d by market p r i c e s , 13 while economic costs represent the r e a l costs to the economy i n terms of resources used, and include adjustments to market prices to correct for the e f f e c t of unemployed or under-employed resources, and to remove transfer costs. Transfer costs normally consist of tax and duty items, which are merely transfers of wealth, and do not represent the use of economic resources. In the economic evaluation of public transportation investments at an international l e v e l of decision, adjustments would be made for a l l unemployed resources and transfer items. Thus, i n ca l c u l a t i n g the economic costs of improving the Alaska Highway, i f i t i s assumed that part of the labour required would otherwise be unemployed i n Canada or the United States, then the market prices paid for the labour would be reduced to r e f l e c t the true costs to the economy, which may be very low i f there i s a high l e v e l of unemployment. This may not be a s i g n i f i c a n t adjustment i n the case of the Alaska Highway, but i n a s i m i l a r case involving underdeveloped countries, i t could be an important factor. S i m i l a r l y , a l l taxes and duties levied by Canada and the United States on resources used i n the high-way improvement would be removed from t h e i r market pr i c e s , since they do not represent true costs to the economy. Similar adjustments would be made to the benefits of the improvements. A large part of the benefits from the improvement of the exis-ti n g highway i s i n the form of savings i n vehicle operating costs. One of the savings may be i n the form of vehicle crew time, which i n the long run implies fewer man-hours u t i l i z e d . If these crews would be otherwise unemployed, then the f i n a n c i a l 14 savings must be adjusted downward to r e f l e c t t h i s s i t u a t i o n . V e h i c l e operating cost savings would a l s o be adjusted down-ward to remove the taxes and d u t i e s l e v i e d on v e h i c l e s , p a r t s , f u e l , and other components of operating c o s t s . At the i n t e r -n a t i o n a l l e v e l of d e c i s i o n , a l l of these adjustments would be made regardle s s of where the unemployed or underdeveloped resources are l o c a t e d and regardless of which government or l e v e l of government l e v i e s the taxes and d u t i e s . The l e v e l of d e c i s i o n i s a l s o a f a c t o r i n the s e l e c t i o n of the methodology and e v a l u a t i o n c r i t e r i a used. At the i n t e r n a t i o n a l l e v e l of d e c i s i o n , the methodology must be capable of d e a l i n g w i t h a l a r g e number of v a r i a b l e f a c t o r s , w i t h a high degree of interdependence among the v a r i a b l e f a c t o r s , and l a r g e q u a n t i t i e s of input data. The c o m p l e x i t i e s of each of the v a r i o u s r e l a t i o n s h i p s may be no greater at the higher l e v e l s , but the sheer volume of input data and the interdependence among the various f a c t o r s may d i c t a t e a more s o p h i s t i c a t e d methodology than would s u f f i c e f o r an a n a l y s i s at a lower l e v e l . This p o i n t w i l l be considered i n more d e t a i l i n a l a t e r chapter; i t i s s u f f i c i e n t to s t a t e here th a t the l e v e l of d e c i s i o n must be e s t a b l i s h e d at the beginning of the a n a l y s i s i n order t h a t appropriate methodology and c r i t e r i a may be s e l e c t e d . The second approach to the e v a l u a t i o n of Alaska Highway improvements i s at the n a t i o n a l l e v e l of d e c i s i o n . The d e c i s i o n -making body i s assumed to be the Government of Canada, and the o b j e c t i v e of the government to maximize the c o n t r i b u t i o n of the 15 highway investment to the N a t i o n a l Income of Canada. For the sake of s i m p l i c i t y , i t i s assumed t h a t there w i l l be no con-s u l t a t i o n between the Governments of Canada and the U n i t e d S t a t e s , and t h a t o n l y the n a t i o n a l i n t e r e s t s of Canada w i l l be c o n s i d e r e d . The f i r s t departure from the format of the a n a l y s i s as i t would be a t the i n t e r n a t i o n a l l e v e l of d e c i s i o n i s i n the d e t e r m i n a t i o n of what w i l l be c o n s i d e r e d as c o s t s and b e n e f i t s , i . e . what w i l l be measured. In the p r e v i o u s case, i t was s t a t e d t h a t a l l c o s t s and b e n e f i t s would be i n c l u d e d , r e g a r d -l e s s of t h e i r l o c a t i o n . A t the n a t i o n a l l e v e l , t h i s i s no longer t r u e . The c o s t of improving the p o r t i o n of the highway w i t h i n A l a s k a would no longer be c o n s i d e r e d , s i n c e i t i s o u t s i d e the sphere of i n f l u e n c e of the decision-making body, under the assumptions adopted. S i m i l a r l y , b e n e f i t s i n the form of a c c e l e r a t e d economic development t a k i n g p l a c e w i t h i n A l a s k a would not be c o n s i d e r e d , nor would savings i n the o p e r a t i n g c o s t s of v e h i c l e s b e l o n g i n g to n o n - r e s i d e n t s of Canada, except to the e x t e n t t h a t the b e n e f i t s c o u l d be recovered i n the form of t o l l s , l i c e n s e s or s p e c i a l p e r m i t s . The b e n e f i t s to Canada i n the form of i n c r e a s e d t o u r i s t and r e c r e a t i o n a l a c t i v i t i e s would s t i l l be counted, and o f f s e t as b e f o r e by any concomitant d i s b e n e f i t s t o other p a r t s of Canada, but d i s b e n e f i t s t o areas i n the U n i t e d S t a t e s would no longer be deducted. In s h o r t , any e f f e c t s i n the form of c o s t s and b e n e f i t s o c c u r r i n g o u t s i d e of Canada would no longer be c o n s i d e r e d , except to the e x t e n t 16 t h a t the costs could be i n f l i c t e d upon the r e s i d e n t s of Canada, or the b e n e f i t s could be recovered by Canada. This i s f a r from a complete treatment of items which would no longer be incl u d e d i n the a n a l y s i s at the lower l e v e l of d e c i s i o n , and i s intended merely to i l l u s t r a t e the p o i n t that the d e f i n i t i o n of the l e v e l of d e c i s i o n has an important impact on what i s to be measured. The determination of how the various cost and b e n e f i t items are to be measured i s a l s o a f f e c t e d by the change i n l e v e l of d e c i s i o n . Here, i t i s assumed that although the improvements would be financed and c a r r i e d out by the Govern-ment of Canada, some of the labour, equipment and m a t e r i a l s used would be of United States o r i g i n . As before, the market p r i c e s of Canadian resources would be adjusted to r e f l e c t the degree of unemployment and any d i s t o r t i o n s which cause market p r i c e s to r e f l e c t other than economic values. However, no adjustments would be made to the a c t u a l p r i c e s p a i d f o r United States resources used. The f a c t that American labour might otherwise be unemployed, f o r example, does not a f f e c t the economic cost to Canada of the American labour. Adjustments would s t i l l be made to remove the e f f e c t of Canadian taxes and d u t i e s l e v i e d on m a t e r i a l s and equipment i n order to a r r i v e at the true economic c o s t s , but any taxes and du t i e s l e v i e d by the United States on American m a t e r i a l s and equip-ment used, p r i o r to t h e i r export to Canada, would now be considered to be economic costs at the n a t i o n a l l e v e l of 17 d e c i s i o n . The same i s true of savings i n v e h i c l e operating c o s t s . Assuming th a t a l l of the v e h i c l e s i n v o l v e d were of Canadian or American o r i g i n , a l l taxes and d u t i e s would be deducted from the costs at an i n t e r n a t i o n a l l e v e l of d e c i s i o n . At the n a t i o n a l l e v e l , only taxes and d u t i e s l e v i e d by Canadian governments would be deducted. In the next step downward i n the l e v e l s of d e c i s i o n , i t i s assumed that the decision-making a u t h o r i t y i s the Government of B r i t i s h Columbia, and i t i s assumed th a t at t h i s r e g i o n a l l e v e l , the d e c i d i n g a u t h o r i t y i s operating completely independently of the Government of Canada and other p r o v i n c i a l governments, and t h a t the s o l e o b j e c t i v e i s to evaluate the p o s s i b l e improvement of the highway i n the l i g h t of P r o v i n c i a l Income. S i m i l a r c o n s i d e r a t i o n s to those o u t l i n e d above w i l l p r e v a i l : only those costs and b e n e f i t s o c c u r r i n g w i t h i n B r i t i s h Columbia w i l l be considered. Ben-e f i t s accruing to B r i t i s h Columbia, nor would o f f s e t t i n g d i s b e n e f i t s to areas outside of B r i t i s h Columbia be considered. V e h i c l e cost savings to n o n - B r i t i s h Columbia r e s i d e n t s , except to the extent t h a t these could be recaptured by B r i t i s h Columbia, would not be included i n the a n a l y s i s . Resources from outside B r i t i s h Columbia would be valued at market p r i c e s , regardless of unemployment or under-employment. As the lower l e v e l s of d e c i s i o n are reached, i t may a l s o be found t h a t l e s s complex and s o p h i s t i c a t e d methods of a n a l y s i s can be used wi t h s a t i s f a c t o r y r e s u l t s , perhaps r e -!8 s u i t i n g i n the t r a n s i t i o n from a computerized a n a l y s i s to a manual a n a l y s i s . Only a f t e r the l e v e l of d e c i s i o n has been determined can the probable scope and complexity of the a n a l y s i s be estimated and d e c i s i o n s made regarding the method-ology to be used. For a number of reasons, then, only some of which have been i n d i c a t e d here, i s i t considered that the d e f i n i t i o n of the l e v e l of d e c i s i o n appropriate to the a n a l y s i s i s an impor-ta n t p r i n c i p l e of p u b l i c t r a n s p o r t a t i o n investment a n a l y s i s . 2. Evaluate A l l A l t e r n a t i v e s There are very few o b j e c t i v e s which can be a t t a i n e d by one means only. A question which should always be considered t h e r e f o r e , i s whether t r a n s p o r t a t i o n investment i s the only or the best s o l u t i o n to a p a r t i c u l a r problem, or the best path to a s t a t e d o b j e c t i v e . An advantage which may be claimed f o r improved t r a n s p o r t a t i o n i s that i t extends market areas and thus helps e s t a b l i s h economies of s c a l e , permits s p e c i a l i z a t i o n and d i v i s i o n of labour, and i n general helps to promote an exchange economy. However, these same advantages may be e q u a l l y a t t a i n e d by immigration and other means of i n c r e a s i n g the popu-l a t i o n of an area, by t r a n s f e r payments designed to increase consumption, by various means of i n c r e a s i n g disposable income, or any number of a l t e r n a t i v e methods. Transportation i s merely a means to an end, and i t should not be assumed th a t transpor-t a t i o n investment i s the only s o l u t i o n , at the cost of excluding 19 c o n s i d e r a t i o n o f a l t e r n a t i v e means t o a t t a i n t he o b j e c t i v e . I n many c a s e s , pe rhaps m o s t , t h e t r a n s p o r t a t i o n a n a l y s t i s n o t r e q u i r e d t o c o n s i d e r t h i s a s p e c t and i n d e e d may be p r e c l u d e d f rom c o n s i d e r i n g i t and r a t h e r be p r e s e n t e d w i t h an e x t e r -n a l l y s t i p u l a t e d t a r g e t r a t e o f r e t u r n , t h e " o p p o r t u n i t y c o s t o f c a p i t a l , " w h i c h w i l l be c o n s i d e r e d i n t h e n e x t c h a p t e r . Whenever p o s s i b l e , howeve r , t h e a n a l y s i s s h o u l d i n c l u d e an i n v e s t i g a t i o n o f p o s s i b l e a l t e r n a t i v e s t o t r a n s p o r t a t i o n i n v e s t -men t , even i f each p o s s i b i l i t y i s n o t t o be f o r m a l l y e v a l u a t e d . W i t h i n t r a n s p o r t a t i o n i t s e l f , a l l p o s s i b l e a l t e r n a t i v e s s h o u l d be c o n s i d e r e d , i n c l u d i n g where a p p r o p r i a t e , l a n d , w a t e r and a i r t r a n s p o r t a t i o n , and t h e v a r i o u s modes o f l a n d t r a n s -p o r t a t i o n . No t o n l y s h o u l d each mode o f t r a n s p o r t a t i o n and p o s s i b l e c o m b i n a t i o n s o f modes be c o n s i d e r e d , b u t d i f f e r e n t p o s s i b l e s t a n d a r d s o f t he modes s h o u l d be i n c l u d e d i n t he a n a l y s i s . I t i s n o t s u f f i c i e n t t o show t h a t t h e r e i s a s a t i s -f a c t o r y r a t e o f r e t u r n on a p r o p o s e d f o u r - l a n e h i g h w a y , w h i c h may be t h e s t a n d a r d s e l e c t e d b e c a u s e i t i s "good e n g i n e e r i n g p r a c t i c e " under c e r t a i n c o n d i t i o n s and t r a f f i c v o l u m e s . The g o a l i s a lways o p t i m i z a t i o n , and i t i s n e c e s s a r y t o show t h a t t h i s i s a b e t t e r s o l u t i o n t h a n a t w o - l a n e paved r o a d , o r p e r -haps t h a n a t w o - l a n e g r a v e l r o a d now, f o l l o w e d by p a v i n g i n f i v e o r t e n y e a r s , and p o s s i b l e f u t u r e w i d e n i n g . U n f o r t u n a t e l y , i t i s o f t e n t h e c a s e t h a t s t a n d a r d s w h i c h a r e a p p r o p r i a t e i n one c o u n t r y o r s e t o f c i r c u m s t a n c e s a r e a p p l i e d t o o t h e r c o u n t r i e s and i n o t h e r c i r c u m s t a n c e s , w i t h o u t c o n s i d e r a t i o n o f t h e l o g i c o r r e a s o n i n g b e h i n d t he s t a n d a r d s . A l l r e a s o n a b l e 2 0 standards and c o n f i g u r a t i o n s should be considered. This does not mean tha t every remote p o s s i b i l i t y must be f o r m a l l y analysed, but they should be r e j e c t e d only f o r good and s u f f i -c i e n t reasons c l e a r l y s t a t e d . There i s one f i n a l a l t e r n a t i v e that i s o f t e n neglected: the "do nothing" a l t e r n a t i v e . A "problem" or "undesirable" s i t u a t i o n i s noted, f o r example, t r a f f i c congestion on a road l i n k , and a d e c i s i o n i s made, o f t e n p o l i t i c a l l y , to remedy the s i t u a t i o n . Various schemes are suggested, perhaps i n c l u d i n g the c o n s t r u c t i o n of a bypass or a l t e r n a t i v e route, or the widening of the e x i s t i n g r oute, and the best of the remedies 2 i s s e l e c t e d as a d e s i r a b l e p r o j e c t f o r investment. This i s not s u f f i c i e n t to e s t a b l i s h the economic v i a b i l i t y of the investment; the most economical course of a c t i o n may be to allow the congestion to p e r s i s t f o r some p e r i o d of time, i . e . to do nothing. I t i s q u i t e p o s s i b l e t h a t the savings i n congestion costs would be considerably smaller than the cost of the investment r e q u i r e d t o avoid them. This i s not to suggest t h a t the economic e v a l u a t i o n should be the only or even the r u l i n g f a c t o r ; p o l i t i c a l , s o c i a l or m i l i t a r y consid-e r a t i o n s may l e g i t i m a t e l y o v e r r u l e the economics, but even here, the economic e v a l u a t i o n of the "do nothing" a l t e r n a t i v e A r e p o r t d e a l i n g w i t h proposed new crossings of Burrard I n l e t i n Vancouver provides an example of a s i m i l a r s i t u a t i o n . A number of a l t e r n a t i v e schemes were considered, w i t h the ob-j e c t i v e of r e l i e v i n g congestion on the e x i s t i n g c r o s s i n g s , but the "do nothing" a l t e r n a t i v e was not among those analysed i n the o r i g i n a l r e p o r t . The re p o r t has not been p u b l i c l y r eleased. should be done, i n order t h a t the res p o n s i b l e a u t h o r i t i e s have an i n d i c a t i o n of the cost of the p o l i t i c a l , s o c i a l , or m i l i -t a r y b e n e f i t s t o be deri v e d . In summary, a l l a l t e r n a t i v e s should be given at l e a s t p r e l i m i n a r y c o n s i d e r a t i o n , i n c l u d i n g non-transport a l t e r n a -t i v e s , a l t e r n a t i v e modes w i t h i n t r a n s p o r t a t i o n , v a r i o u s standards w i t h i n the modes, and various p o s s i b i l i t i e s regar-ding the tim i n g or st a g i n g of the investments. Those not c l e a r l y i n a p p r o p r i a t e from i n s p e c t i o n and reasonable judge-ment should be analysed i n s u f f i c i e n t d e t a i l to permit e v a l u a t i o n w i t h i n the r e q u i r e d l e v e l of confidence. 3. Include A l l Costs and B e n e f i t s Many e r r o r s i n investment a n a l y s i s are a t t r i b u t a b l e to the neglect of t h i s p r i n c i p l e . The costs and b e n e f i t s to be included i n an a n a l y s i s must be determined i n r e l a t i o n to the appropriate l e v e l of d e c i s i o n as noted above. The measurement of costs and b e n e f i t s i s covered i n the next chapter; here only the most common e r r o r s and omissions are considered. Perhaps the most common f a u l t c o n s i s t s of a t t r i b u t i n g b e n e f i t s t o a s p e c i f i c t r a n s p o r t a t i o n investment without i n -c l u d i n g other investment c o s t s , both t r a n s p o r t and non-transport, 3 r e q u i r e d to r e a l i z e the b e n e f i t s . In a number of highway 3 Hans A. A d l e r , Sector and P r o j e c t Planning i n Tran s p o r t a t i o n (Washington: World Bank S t a f f Occasional Papers Number Four, 1967), p. 42. This p o i n t has a l s o been made by other World Bank personnel who are re s p o n s i b l e f o r e v a l u a t i n g c o n s u l t a n t s ' r e p o r t s . analyses, s u b s t a n t i a l b e n e f i t s have been c r e d i t e d to the p r o j e c t s i n the form of increased a g r i c u l t u r a l production, without mention of such costs as a g r i c u l t u r a l equipment, i r r i g a t i o n , land c l e a r i n g , f e r t i l i z e r , labour, and a l l of the other f a c t o r s which are r e q u i r e d i n a d d i t i o n to the highway investment to b r i n g f o r t h the increased production. Not only should these associated costs be i n c l u d e d , but a l s o i t should be shown th a t there i s a reasonable p r o b a b i l i t y t h a t the investments w i l l a c t u a l l y be made; otherwise, the b e n e f i t s w i l l be t h e o r e t i c a l or "paper" b e n e f i t s which may not be r e a l i z e d . S i m i l a r l y , a s s ociated t r a n s p o r t a t i o n investments are o f t e n neglected, i n c l u d i n g such things as feeder roads, l o a d i n g , unloading and storage f a c i l i t i e s , and other necessary p a r t s of the d i s t r i b u t i o n process. The c a p i t a l cost of the v e h i c l e s expected to use new or improved highway f a c i l i t i e s i s normally included i n the cost component of whether the country i n question w i l l have the f o r e i g n exchange r e q u i r e d f o r the purchase of the v e h i c l e s i m p l i e d i n the t r a f f i c f o r e c a s t s . Apart from the problem of a s s o c i a t e d investments, there i s l i t t l e u n c e r t a i n t y regarding which costs are to be included once the l e v e l of d e c i s i o n has been defined. The b e n e f i t s to be i n c l u d e d are considerably l e s s c e r t a i n , and t h i s aspect of investment e v a l u a t i o n has probably been at the root of more disagreement and e r r o r than any other. One of the most common e r r o r s i s to a t t r i b u t e , as b e n e f i t s to a p r o j e c t , a c t i v i t i e s which have merely t r a n s f e r r e d t h e i r l o c a t i o n s as a r e s u l t of the p r o j e c t . For example, a b e n e f i t o f t e n a t t r i b u t e d to ,highway p r o j e c t s c o n s i s t s of a g r i c u l t u r a l , i n d u s t r i a l or commercial development which i s -expected to take place along the highway. For t h i s to be a v a l i d b e n e f i t , i t i s necessary to show that t h i s development does not represent a t r a n s f e r of a c t i v i t i e s which are already i n progress at other l o c a t i o n s i n s i d e the area i m p l i e d by the l e v e l of d e c i s i o n , or which would have been conducted at other l o c a t i o n s i n the f u t u r e , i n the absence of the highway p r o j e c t . There i s undoubtedly some b e n e f i t a t t r i b u t a b l e to the p r o j e c t even i f t h i s develop-ment i s only a t r a n s f e r of a c t i v i t y which would have occurred i n any case i n other l o c a t i o n s ; otherwise, there would be no i n c e n t i v e t o l o c a t e along the new highway. However, the b e n e f i t s i n t h i s case are considerably smaller than the net value of the production, which would be the appropriate measure of b e n e f i t i f the development would not have occurred i n the absence of the highway. A s i m i l a r e r r o r a r i s e s i n e s t i m a t i n g the economic growth which w i l l take place i n the area a f t e r c o n s t r u c t i o n of a new highway, and a t t r i b u t i n g the growth to the highway, without deducting the growth which would have occurred i n any case, whether the highway were b u i l t or not. In t h i s i n s t a n c e , the cause of the e r r o r i s the a p p l i c a t i o n of a "before and 4 I b i d . , pp. 45, 46. 24 a f t e r " approach r a t h e r than the proper "with and without" approach to investment e v a l u a t i o n . The proper t e s t asks what growth w i l l occur w i t h and without the investment, r a t h e r than comparing growth before and a f t e r the investment. Hans A d l e r gives a f u r t h e r example of an erroneous 5 "before and a f t e r " approach. In the e v a l u a t i o n of a new expressway i n Japan, the r e s p o n s i b l e a u t h o r i t i e s determined th a t the operating costs of a truck on the e x i s t i n g highway i n 1958 were the e q u i v a l e n t of about f i f t e e n cents per k i l o -meter, exc l u d i n g taxes. The costs on the new expressway, scheduled to open i n 1969, were estimated at eleven cents, or a saving of four cents per truck k i l o m e t e r . This saving was then a p p l i e d to the estimated truck t r a f f i c f o r the years 1969 to 1979 to d e r i v e the b e n e f i t of the new expressway i n the form of operating cost savings to truck t r a f f i c . As A d l e r p o i n t s out, the comparison of costs on the e x i s t i n g highway i n 1958 w i t h those on the expressway i n 1969 f a i l s t o take account of the f a c t t h a t the i n c r e a s i n g congestion on the e x i s t i n g highway would have increased operating costs to considerably more than the 1938 l e v e l by 1969. Furthermore, the operating costs on the e x i s t i n g highway would have continued to increase a f t e r 1969, while those on the new expressway could be expected to remain r e l a t i v e l y s t a b l e u n t i l 1979, and the increase t h e r e a f t e r would be l e s s pronounced than on the e x i s t i n g high-5 I b i d . , pp. 45, 46. 25 way. A d l e r c o r r e c t l y concludes t h a t the b e n e f i t s of the new expressway were underestimated. However, he f a i l s to mention the p o s s i b i l i t y of generated t r a f f i c i n t h i s s i t u a t i o n . I t i s probable t h a t the r e d u c t i o n i n operating cost w i l l r e s u l t i n an increase i n the t o t a l volume of t r a f f i c , which means th a t the savings i n v e h i c l e operating costs would be somewhat smaller than Adler i m p l i e s , since the o r i g i n a l t r a f f i c w i l l be operating under c o n d i t i o n s of higher t o t a l volumes. Here again, the "with and without" approach which would measure the t o t a l costs w i t h the investment and the t o t a l costs without the investment, would give the c o r r e c t measurement of the savings i n truck operating costs f o r the o r i g i n a l or "normal" t r a f f i c , assume proper account was taken of generated t r a f f i c . The a p p l i c a t i o n of the "with and without" approach i s s u f f i -c i e n t l y important t h a t i t could by i t s e l f be considered a p r i n c i p l e of investment a n a l y s i s . I t i s e s s e n t i a l t h a t a l l costs and b e n e f i t s associated w i t h the investment be included i n the a n a l y s i s . I t i s e q u a l l y important t h a t they be i n c l u d e d only once. E r r o r s of double counting are most common i n the measurement of b e n e f i t s , although they do occur o c c a s i o n a l l y i n cost measurement. One p o s s i b l e example would be the i n c l u s i o n of the cost of land purchase f o r highway or r a i l w a y right-of-way i n the c o n s t r u c t i o n c o s t s , and the i n c l u s i o n of a d i s b e n e f i t c o n s i s t i n g of the There w i l l a l s o be an a d d i t i o n a l b e n e f i t , to the generated t r a f f i c . attendent l o s s i n net value of production r e s u l t i n g from t a k i n g the land out of a g r i c u l t u r a l or other use, i n the c a l c u l a t i o n of economic b e n e f i t s . Problems of t h i s k i n d applying to cost c a l c u l a t i o n s are r a r e , however. Double counting of b e n e f i t s occurs i n a number of forms. One i s i n c a l c u l a t i n g the savings i n v e h i c l e operating costs r e s u l t i n g from a new or improved highway, and adding to t h i s the increase i n land values r e s u l t i n g from the t r a n s p o r t a t i o n improvement. In most cases, a l a r g e p a r t i f not a l l of the increase i n land value i s the d i r e c t r e s u l t of the reduced cost of access to the land, and t h i s b e n e f i t has already been counted i n the form of reduced t r a n s p o r t a t i o n cost. I t has even been suggested t h a t non-user b e n e f i t s should never be added to user b e n e f i t s ; t h a t double counting w i l l always 7 r e s u l t . This i s an extreme stand, as many examples could be c i t e d of cases where the t o t a l b e n e f i t s of a p r o j e c t are reasonably estimated to be greater than the user b e n e f i t s g alone, but the p o i n t t h a t double-counting may r e s u l t i s a v a l i d one. Another instance of double counting i n v o l v e s the e s t i -mation of b e n e f i t s to generated t r a f f i c . This i s t r a f f i c 7 R.M. Z e t t e l , The Incidence of Highway B e n e f i t s (Highway Research Board, S p e c i a l Report 56, 1959). g Peter Lewis, Notes on the Economic Assessment of  Road P r o j e c t s (Bangkok: Royal Highway Department of Thailand, 1965), p. 7. which would not have moved i n the absence of the new or improved f a c i l i t y , and i t u s u a l l y represents the transpor-t a t i o n of goods which would not otherwise have been produced, goods which would have been produced but not t r a n s p o r t e d , goods which were p r e v i o u s l y produced and t r a n s p o r t e d , but w i l l now be transported greater d i s t a n c e s , or more u s u a l l y , a combination of these. The measurement of b e n e f i t s to generated t r a f f i c i s very imprecise, as w i l l be explained i n the next chapter, but an approximation i s p o s s i b l e . The double counting occurs when the estimated b e n e f i t s to generated t r a f f i c are added to the net b e n e f i t s of increased production a t t r i b u t a b l e to the highway. A t h i r d example of the double counting of b e n e f i t s i s the a d d i t i o n of increased road user tax revenue to the other b e n e f i t s of a highway investment. This has appeared i n a 9 number of investment f e a s i b i l i t y s t u d i e s , yet no examples of the reverse s i t u a t i o n have been found i n the s t u d i e s reviewed. This would be a case such as a new road l i n k which r e s u l t e d i n a s i g n i f i c a n t decrease i n distance t r a v e l l e d by v e h i c l e s between an o r i g i n and d e s t i n a t i o n , which would i n t u r n r e s u l t i n decreased road user tax revenue. 1 0 I f increases i n user 9 This was done i n two c o n f i d e n t i a l c o n s u l t a n t s 1 r e -ports reviewed by the author i n Thailand, and subsequent d i s c u s s i o n w i t h World Bank personnel confirmed that i t i s not an uncommon e r r o r . 1<~lAssuming generated t r a f f i c does not o f f s e t the reduced d i s t a n c e . 28 tax revenue are to be considered as economic b e n e f i t s , then s u r e l y decreases should be economic l o s s e s . In f a c t , i t i s i n c o r r e c t to consider e i t h e r i n the economic e v a l u a t i o n of an investment. Road user taxes represent only a t r a n s f e r of wealth from the p r i v a t e to the p u b l i c s e c t o r , and are not i n themselves b e n e f i t s of the investment. They are v a l i d f a c t o r s i n the a n a l y s i s of the f i n a n c i a l e f f e c t s of the p r o j e c t , but not i n the a n a l y s i s of the economic e f f e c t s . Although t h i s i s o f t e n considered a case of double counting of b e n e f i t s , i t i s a c t u a l l y more a case of counting non-existent b e n e f i t s . In summary, a l l costs and b e n e f i t s appropriate to the l e v e l of d e c i s i o n should be counted, they should be counted only once, they should be d i r e c t l y a t t r i b u t a b l e to the i n v e s t -ment, and a reasonable b a s i s should be e s t a b l i s h e d f o r b e l i e v i n g that the b e n e f i t s w i l l a c t u a l l y be r e a l i z e d . 4. Consider the Timing of Costs and B e n e f i t s There are three c o n s i d e r a t i o n s i n the t i m i n g of costs and b e n e f i t s : the time p e r i o d of the a n a l y s i s , the time stream of costs and b e n e f i t s w i t h i n the p e r i o d , and the d i s c o u n t i n g of costs and b e n e f i t s to a common p o i n t i n time. In determining the appropriate time pe r i o d f o r an investment a n a l y s i s , a number of f a c t o r s must be considered. The f i r s t i s the p h y s i -c a l l i f e of the f a c i l i t y . There i s f a r from complete agreement regarding the p h y s i c a l l i v e s of major t r a n s p o r t a t i o n f a c i l i t i e s , and even i f there were rough agreement on average l i v e s , these would vary considerably w i t h s o i l and c l i m a t i c c o n d i t i o n s , 29 methods of c o n s t r u c t i o n , l e v e l s of maintenance and volumes of t r a f f i c . Furthermore, the p h y s i c a l l i v e s of component parts of a f a c i l i t y may be q u i t e d i f f e r e n t . In the case of a high-way f o r example, the right-of-way could be considered to e x i s t i n p e r p e t u i t y , earthworks w i l l l a s t f o r perhaps f i f t y years, but p o s s i b l y more or l e s s under d i f f e r e n t c o n d i t i o n s , the wearing surface may have a l i f e of from f i v e to twenty years, and the base course from f i v e to t h i r t y y e a r s . 1 1 Any of these very rough approximations could vary g r e a t l y depending on the c o n d i t i o n s . Therefore, the p h y s i c a l l i f e of a f a c i l i t y i s of t e n d i f f i c u l t to estimate, and i n any case, i t provides a guide only t o what the maximum pe r i o d of the a n a l y s i s might be. When the l i f e of a f a c i l i t y under favourable environmental c o n d i t i o n s and wit h conscientious maintenance could be greater than f i f t y years, the r i s k of t e c h n o l o g i c a l obsolescence becomes very r e a l , as does the p o s s i b i l i t y of changing t r a v e l h a b i t s and d i s t r i b u t i o n p a t t e r n s , and other f a c t o r s which could make the economic l i f e of the f a c i l i t y s h o r t e r than i t s poten-t i a l p h y s i c a l l i f e . In p r a c t i c e , the l i m i t i n g f a c t o r which probably more than any other determines the time p e r i o d of the a n a l y s i s i s the a b i l i t y of the a n a l y s t to f o r e c a s t future economic and demographic trends and t r a f f i c flows. The per i o d f o r which a f o r e c a s t can reasonably be made depends on a number of f a c t o r s , i n c l u d i n g the q u a l i t y and q u a n t i t y of the h i s t o r i c data a v a i l a b l e , the consistency of past trends, the resources 1 1 P e t e r Lewis, op. c i t . , pp. 12-13. 30 a v a i l a b l e t o c a r r y o u t f i e l d w o r k t o d e t e r m i n e t h e p r o d u c t i o n p o t e n t i a l s o f v a r i o u s s e c t o r s o f t h e e c o n o m y a n d t h e p l a n s f o r t h e i r d e v e l o p m e n t , a n d s i m i l a r c o n s i d e r a t i o n s w h i c h v a r y f r o m c o u n t r y t o c o u n t r y a n d p r o j e c t t o p r o j e c t . P e r h a p s t h e b e s t i n d i c a t i o n o f t h e r e l i a b i l i t y o f t h e e c o n o m i c a n d t r a f f i c f o r e c a s t s m a d e i n t r a n s p o r t a t i o n s t u d i e s i n u n d e r d e v e l o p e d c o u n t r i e s , a n d o f t h e l e n g t h o f t i m e f o r w h i c h f o r e c a s t s c a n b e m a d e w i t h r e a s o n a b l e c o n f i d e n c e , w o u l d b e g a i n e d b y a c o m -p a r i s o n o f f o r e c a s t s m a d e a t v a r i o u s t i m e s i n t h e p a s t w i t h t h e a c t u a l s i t u a t i o n a t t h e p r e s e n t t i m e . T h e l i t e r a t u r e r e v i e w c o n d u c t e d i n t h e p r e p a r a t i o n o f t h i s t h e s i s f a i l e d t o 12 d i s c l o s e t h e p u b l i c a t i o n o f s u c h c o m p a r i s o n s . T h e r e v i e w d i d i n d i c a t e t h a t m o s t o f t h e s t u d i e s a d o p t a t i m e h o r i z o n o f f i f t e e n t o t w e n t y - f i v e y e a r s , w i t h a t w e n t y - y e a r p e r i o d b e i n g t h e m o s t c o m m o n . N o s t a n d a r d g u i d e c a n b e e s t a b l i s h e d f o r a p p l i c a t i o n t o a l l c a s e s , a n d i t m u s t t h e r e f o r e b e l e f t t o t h e a n a l y s t t o d e t e r m i n e t h e p e r i o d o f t i m e o v e r w h i c h f o r e c a s t s c a n b e r e a s o n a b l y m a d e i n e a c h c a s e , c o n s i d e r i n g t h e d a t a a n d r e -s o u r c e s a v a i l a b l e t o h i m . H a v i n g e s t a b l i s h e d t h i s , i t w o u l d t h e n s e e m p r u d e n t t o a d o p t a s t h e p e r i o d o f t h e a n a l y s i s t h e p h y s i c a l o r e c o n o m i c l i f e o f t h e f a c i l i t y o r t h e l e n g t h o f t i m e o v e r w h i c h f o r e c a s t s m a y b e r e a s o n a b l y m a d e , w h i c h e v e r i s t h e s h o r t e r . I f i t i s c o n s i d e r e d n e c e s s a r y t o r e c o g n i z e a 12 A c c o r d i n g t o M r . J a n d e W e i l l e o f t h e W o r l d B a n k , t h e B a n k i s n o w c o n s i d e r i n g u n d e r t a k i n g a s t u d y o f t h i s n a t u r e . p h y s i c a l l i f e which i s longer than a reasonable f o r e c a s t p e r i o d , salvage values at the end of the p e r i o d , p r o p e r l y discounted, may be deducted from the c o s t s . This should be done wi t h extreme c a u t i o n , however. In the case of a highway f o r example, a t t r i b u t i n g a salvage value to anything but the right-of-way r e a l l y i m p l i e s a t r a f f i c f o r e c a s t extending be-yond the p e r i o d of the a n a l y s i s , since a highway i s of value only i n i t s f u n c t i o n as a t r a n s p o r t a t i o n f a c i l i t y . A l s o , the cost of c l e a r i n g the right-of-way so th a t i t may be returned to other uses may p a r t l y or completely o f f s e t any salvage value. In any case, the cost of c a p i t a l i n most developing c o u n t r i e s i s considered to be i n the range of from e i g h t to 13 . . twelve percent. In many cases i t i s probably above twelve percent. At these high r a t e s , assumptions regarding events t o take place twenty years i n the fu t u r e have a r e l a t i v e l y small impact when the values are discounted to present worth'. Once the p e r i o d of the a n a l y s i s has been e s t a b l i s h e d , the time stream of costs and b e n e f i t s w i t h i n the p e r i o d must be considered. The usual c h a r a c t e r i s t i c s of a t r a n s p o r t a t i o n investment i n c l u d e a l a r g e i n i t i a l c a p i t a l investment followed by annual b e n e f i t s which increase each year as t r a f f i c volumes inc r e a s e . This p a t t e r n i m p l i e s a s i g n i f i c a n t time d i f f e r e n c e i n the incidence of costs and b e n e f i t s , and since money now i s Hans A. A d l e r , op_. c i t . , p. 40. worth more than money l a t e r , t h i s d i f f e r e n c e must be recog-n i z e d . Assuming a three-year c o n s t r u c t i o n p e r i o d f o r a f a c i l i t y , the costs should be a l l o c a t e d s p e c i f i c a l l y to the year i n which they w i l l occur. S i m i l a r l y , maintenance costs should be c a l c u l a t e d f o r s p e c i f i c years i f there i s any reason to expect t h a t they w i l l vary from year to year i n a p r e d i c t a b l e way. A common p a t t e r n i n highway maintenance i s to have r e l a t i v e l y low but i n c r e a s i n g annual costs i n the e a r l y years, followed by a larg e expenditure when major r e s u r f a c i n g i s r e q u i r e d , followed again by a r e l a t i v e l y low but i n c r e a s i n g annual c o s t . The use of an average annual maintenance c o s t , as a p p l i e d i n some of the st u d i e s reviewed, does not take f u l l account of these c h a r a c t e r i s t i c s , and should be avoided i f the costs are reasonably p r e d i c t a b l e . B e n e f i t s should a l s o be a l l o c a t e d to s p e c i f i c years. Where b e n e f i t s are p r i m a r i l y i n the form of v e h i c l e operating cost savings, the annual b e n e f i t s normally increase as t r a f f i c i n c r e a s e s , r e s u l t i n g i n annual b e n e f i t s i n the l a t e r years which are considerably l a r g e r than those i n the e a r l y years. When b e n e f i t s are i n the form of new or increased a g r i c u l t u r a l p r o d u c t i o n , there may be a considerable time l a g between the completion of the p r o j e c t and the r e a l i z a t i o n of the b e n e f i t s , as land i s s e t t l e d , c l e a r e d , perhaps i r r i g a t e d , and otherwise made ready f o r production. Again, the use of an average annual b e n e f i t r a t h e r than a l l o c a t i n g b e n e f i t s to s p e c i f i c years f a i l s to take account of these time d i f f e r e n c e s , which 33 may be p a r t i c u l a r l y important when high discount r a t e s are used. This does not imply t h a t separate and d e t a i l e d analyses must be done f o r each year over the per i o d of the a n a l y s i s , but the t i m i n g of b e n e f i t s should be considered i n d e t a i l f o r per-haps the f i r s t f i v e years, and at f i v e - y e a r i n t e r v a l s there-a f t e r . A l l costs and b e n e f i t s o c c u r r i n g over the p e r i o d of the a n a l y s i s must then be brought to comparable values at a common po i n t i n time. The r e s u l t s of the a n a l y s i s w i l l not be a f f e c -ted by the p o i n t s e l e c t e d , although the conventional approach i s to discount a l l values to the f i r s t year i n which an expen-d i t u r e on the p r o j e c t i s made. There are many other p o i n t s or r u l e s which could reasonably be in c l u d e d among the p r i n c i p l e s of p u b l i c t r a n s -p o r t a t i o n investment a n a l y s i s . The above p r i n c i p l e s have been s e l e c t e d because they are considered to be the most impor-t a n t , and because they are the ones most oft e n neglected or misapplied i n p r a c t i c e . The examples used i n i l l u s t r a t i n g some of the p r i n c i p l e s have a l s o served to i n d i c a t e a number of d e f i c i e n c i e s i n the a p p l i c a t i o n of e x i s t i n g methods of investment e v a l u a t i o n . There are no se r i o u s conceptual problems i n v o l v e d i n the p r i n c i p l e s ; the problems are p r i m a r i l y i n t h e i r a p p l i c a t i o n . Thus, although the d e f i c i e n c i e s i d e n t i -f i e d may be q u i t e important i n t h e i r e f f e c t on investment e v a l u a t i o n s , they are r e l a t i v e l y simple to remedy through the use of the procedures-recommended above. CHAPTER I I I THE MEASUREMENT OF COSTS AND BENEFITS A. T r a f f i c and Economic Forecasts A l l of the studie s reviewed i n the pr e p a r a t i o n of t h i s t h e s i s made f o r e c a s t s of the t r a f f i c volumes expected to use the proposed f a c i l i t i e s or improvements which were being eva-l u a t e d . Most of them a l s o made economic f o r e c a s t s of some kin d i n the course of the a n a l y s i s . That these f o r e c a s t s are necessary i n the economic e v a l u a t i o n of proposed t r a n s p o r t a t i o n investments i s obvious. However, t r a f f i c and economic f o r e -c a s t i n g are complete stud i e s i n themselves, and a d e t a i l e d treatment of them i s beyond the scope of t h i s t h e s i s . They w i l l be considered here only to the extent necessary to support the f o l l o w i n g s e c t i o n s on the measurement of costs and b e n e f i t s , and to i d e n t i f y the major d e f i c i e n c i e s i n the methods commonly used. In the f o r e c a s t i n g of t r a f f i c , d i s t i n c t i o n s should be made among normal, d i v e r t e d and generated t r a f f i c . Normal t r a f f i c occurs only on a f a c i l i t y which was p r e v i o u s l y i n ex i s t e n c e , and c o n s i s t s of the t r a f f i c volume which would use the f a c i l i t y r e g a r d l e s s of whether i t were improved or not. Diverted t r a f f i c i s t r a f f i c which d i v e r t s from i t s e x i s t i n g route to a new or improved f a c i l i t y . The o r i g i n s and d e s t i -nations and mode of t r a n s p o r t a t i o n of t h i s t r a f f i c may or may not be the same a f t e r the d i v e r s i o n . Generated t r a f f i c i s t r a f f i c which would not have e x i s t e d without the a d d i t i o n of or improvement to the f a c i l i t y and t h e r e f o r e v a r i e s according to the a d d i t i o n or improvement proposed. These d i s t i n c t i o n s are important i n the a n a l y s i s of s i n g l e t r a n s p o r t a t i o n l i n k s or very simple networks, but they are very d i f f i c u l t to d i s -t i n g u i s h i n a complex network where many s i n g l e improvements and combinations of improvements are p o s s i b l e . However, the concept t h a t there are these d i f f e r e n t types of t r a f f i c i s no l e s s v a l i d i n a complex systems a n a l y s i s , and since the b e n e f i t s to the d i f f e r e n t types of t r a f f i c are measured d i f f e r e n t l y , the d i s t i n c t i o n w i l l be r e t a i n e d throughout t h i s t h e s i s . T r a f f i c f o r e c a s t s are made by a number of methods, ranging from a simple e x t r a p o l a t i o n of past trends to sophis-t i c a t e d models which attempt to simulate the movements of i n d i v i d u a l products and of people, d i s t r i b u t e them on the b a s i s of a l i n e a r program, g r a v i t y model or some s i m i l a r technique, and assign them to s p e c i f i c routes, modes of t r a n s -p o r t a t i o n , and v e h i c l e types. In a l l cases, the f i r s t task i s to determine the e x i s t i n g or base-year t r a f f i c as a c c u r a t e l y as p o s s i b l e . This i s normally done by o r i g i n - d e s t i n a t i o n surveys and t r a f f i c counts, supplemented by records and data regarding past surveys and counts where these are a v a i l a b l e , and seldom presents any d i f f i c u l t problem as long as s u f f i c i e n t time and resources are a v a i l a b l e . The p r o j e c t i o n of f u t u r e t r a f f i c i s not so simple. I t i s here that the g r e a t e s t problems a r i s e , and the g r e a t e s t d e f i c i e n c i e s are found i n p r a c t i c e . One of the most serious d e f i c i e n c i e s found i n the s t u d i e s reviewed was 36 the f a i l u r e t o r e l a t e s p e c i f i c investment proposals and t h e i r attendant t r a f f i c , to the economies of the areas a f f e c t e d . In some cases, the economic environment of the p r o j e c t i s not considered at a l l . Rather, the base-year t r a f f i c i s estimated, p r o j e c t e d i n t o the f u t u r e , and the whole investment i s analysed on the ba s i s of savings to t h i s t r a f f i c . The p r o j e c t i o n s are often made on the b a s i s of past trends i n t r a f f i c , v e h i c l e r e g i s t r a t i o n s , motor f u e l consumption, and other general i n d i -c ators of growth which apply to the country as a whole or t o s p e c i f i c p a r t s of the country, and which may bear l i t t l e r e l a -t i o n s h i p to the s p e c i f i c l i n k or l i n k s being s t u d i e d . This was the case i n a study made i n 1966 to assess the economic f e a s i b i l i t y of improving a road between Bangkok and S r i r i c h a i n Thailand. The t r a f f i c volumes f o r the base year, 1965 , were deri v e d from counts made by the Royal Highway Depart-ment, supplemented by a b r i e f t e s t count made by the consultant. On the ba s i s of counts made by the Royal Highway Department i n 1959 and 1 9 6 1 , i t was estimated that truck and automobile t r a f f i c was growing at a r a t e of seventeen percent per year, w h i l e bus t r a f f i c was growing at two percent per year. The consultant assumed th a t bus t r a f f i c would continue to grow at two percent over the p e r i o d of the a n a l y s i s , but tha t the growth r a t e of other t r a f f i c would d e c l i n e to seven percent per year by 19 84. This assumption was based on f o r e c a s t s made by another consultant studying another highway i n a d i f f e r e n t p a r t of the country. A b e n e f i t - c o s t r a t i o was then c a l c u l a t e d f o r 37 the proposed investment, based e n t i r e l y on the re d u c t i o n i n v e h i c l e operating costs which were expected to r e s u l t from the proposed highway improvement. This example i s not claimed to be one of the b e t t e r s t u d i e s of t r a n s p o r t a t i o n investment, but n e i t h e r i s i t the worst, and i t serves to i l l u s t r a t e some of the d e f i c i e n c i e s which are o f t e n encountered. No attempt was made to r e l a t e the base-year or fu t u r e t r a f f i c to the movements of the com-modities and people which were expected to produce the t r a f f i c . Not only was futu r e t r a f f i c not r e l a t e d to the f a c t o r s which were expected to produce the t r a f f i c ; i t was f o r e c a s t using growth rates appropriate to a d i f f e r e n t p a r t of the country, and may p o s s i b l y have borne no r e l a t i o n s h i p at a l l to fu t u r e growth i n the area of the Bangkok-Sriricha road. No consider-a t i o n was given to the e f f e c t of the proposed road improvement on the volume of t r a f f i c . The "consumption" of t r a n s p o r t a t i o n , l i k e that of most goods and s e r v i c e s , v a r i e s w i t h the p r i c e , and an improvement of t r a n s p o r t a t i o n f a c i l i t i e s which has the e f f e c t of reducing the cost to the consumer w i l l normally r e s u l t i n an increase i n the q u a n t i t y consumed. In the case of a highway, t h i s i s manifested i n an increase i n t r a f f i c volumes, or "generated" t r a f f i c , which w i l l be considered f u r t h e r i n a l a t e r p a r t of the t h e s i s . The f a c t that a d d i t i o n a l t r a f f i c would be generated by the road improvement means that the o r i g i n a l t r a f f i c w i l l now be operating under c o n d i t i o n s of higher t o t a l volumes, w i t h an attendant increase i n operating 38 cost due to the e f f e c t of t r a f f i c congestion."'" This would to some extent o f f s e t the b e n e f i t s to the o r i g i n a l t r a f f i c . In developing the b e n e f i t - c o s t r a t i o , the consultant considered only the b e n e f i t s accruing to the o r i g i n a l t r a f f i c . No c o n s i d e r a t i o n was given to the p o s s i b l e e f f e c t of the road improvement on the economic development of the area. This p o i n t i s r e l a t e d to some extent to the f a i l u r e to consider generated t r a f f i c , and i t too w i l l be considered more f u l l y i n a l a t e r p a r t of the t h e s i s . F i n a l l y , no account was taken of the i n t e r a c t i o n between t h i s road and other roads i n the area and i n the country as a whole. Except i n the most unusual cases, each road l i n k i s a p a r t of a t o t a l network, and a change i n an i n d i v i d u a l l i n k can be expected to have an e f f e c t on some or a l l of the other l i n k s . Many of these d e f i c i e n c i e s i n the a n a l y s i s can be a t t r i b u t e d to the incomplete t r a f f i c s t u d i e s and f o r e c a s t and to the t o t a l l a c k of economic stud i e s and f o r e c a s t s . Even i f they could not be thus a t t r i b u t e d , comprehensive t r a f f i c and economic stud i e s and f o r e c a s t s are 2 necessary to remedy the d e f i c i e n c i e s . -••Above some l e v e l of t r a f f i c , e a c h a d d i t i o n a l v e h i c l e added to the t r a f f i c stream increases the operating cost of a l l v e h i c l e s i n the stream. These congestion e f f e c t s u s u a l l y begin at q u i t e low t r a f f i c volumes. See H.D. Mohring and M. Harwitz, Highway B e n e f i t s , an A n a l y t i c a l Framework (Chicago: Northwestern U n i v e r s i t y Press, 1962), p. 76. 2 In f a i r n e s s to the consultants i n these s t u d i e s , i t should be noted t h a t i n reviewing t h e i r r e p o r t s , no i n d i c a t i o n of the time and budget c o n s t r a i n t s imposed on the consultants was a v a i l a b l e . To a large extent, the d e f i c i e n c i e s may be a t t r i b u t a b l e to these c o n s t r a i n t s , or to unduly r e s t r i c t i v e terms of reference. 39 In a second example, the problem i s i n the f a i l u r e to d i r e c t l y r e l a t e the economic studi e s and f o r e c a s t s to the t r a f f i c s t u d i e s and f o r e c a s t s . In a study of a proposed road improvement i n B r a z i l i n 1967, comprehensive economic f o r e c a s t s were made, c o n s i d e r i n g i n d i v i d u a l i n d u s t r i e s and products. These were then aggregated to a r r i v e at the general c o n c l u s i o n that the whole area could s u s t a i n an economic growth r a t e of e i g h t percent per year over the per i o d of the a n a l y s i s . This growth r a t e was then a p p l i e d to the base-year l o c a l truck t r a f f i c to produce a f o r e c a s t of l o c a l truck t r a f f i c . This procedure i m p l i c i t l y assumes th a t the t r a n s p o r t a t i o n requirements of the area w i l l i ncrease at p r e c i s e l y the same r a t e as the general economy of the area, which i s not n e c e s s a r i l y t r u e . In a d d i t i o n , although t h i s study mentions b e n e f i t s other than those accruing to highway users, these b e n e f i t s are not q u a n t i f i e d and i n -cluded i n the economic a n a l y s i s . The consultant s t a t e s t h a t "... the a c t u a l c a l c u l a t i o n s of b e n e f i t s ... are l i m i t e d s o l e l y to q u a n t i f i a b l e b e n e f i t s as any attempt to incl u d e non-user b e n e f i t s might unduly enhance the r e s u l t s and d e t r a c t from the f a c t t h a t user b e n e f i t s alone are enough to j u s t i f y completion of the p r o j e c t . " This i m p l i e s t h a t non-user b e n e f i t s are not q u a n t i f i a b l e , which again i s not n e c e s s a r i l y t r u e . The f a c t i s tha t no economic and t r a f f i c f o r e c a s t s were made which took f u l l account of the e f f e c t of the proposed road improve-ment, and t h i s being the case, not only were the non-user b e n e f i t s not q u a n t i f i a b l e , but a l s o some of the user costs and 40 b e n e f i t s , r e l a t e d to generated t r a f f i c , were not q u a n t i f i e d . In the economic e v a l u a t i o n of the Thonburi-Paktho Highway i n Thailand i n 1966 , an attempt was made to r e l a t e the proposed investment to the economy of the area i n which i t was 3 to be l o c a t e d . The production and consumption of the major a g r i c u l t u r a l and other commodities was estimated f o r a number of zones i n t o which the area was d i v i d e d , and p o p u l a t i o n den-s i t i e s and concentrations were i d e n t i f i e d . These were r e l a t e d to the base-year t r a f f i c by r e g r e s s i o n a n a l y s i s , t a k i n g i n t o account the cost and s e r v i c e c h a r a c t e r i s t i c s of the transpor-t a t i o n f a c i l i t i e s . The economic and demographic f a c t o r s were then f o r e c a s t , and used as the b a s i s f o r t r a f f i c f o r e c a s t s , using the r e l a t i o n s h i p s e s t a b l i s h e d i n the base year. Two economic and t r a f f i c f o r e c a s t s were made, one assuming no major changes i n the t r a n s p o r t a t i o n f a c i l i t i e s , and the other assum-i n g t h a t the proposed new highway would be i n operation at the beginning of 1970 . This permitted the e s t i m a t i o n of generated t r a f f i c , and the b e n e f i t s i n the form of economic development. However, although t h i s method was an improvement over the methods used i n the other s t u d i e s noted, the measurement of 3 General Engineering Company L t d . , F e a s i b i l i t y Report, Thonburi Paktho Highway, Kingdom of Thailand (Toronto: 1 9 6 7 ) . This r e p o r t , l i k e the others reviewed, has not been p u b l i c l y r e l e a s e d . The comments on t h i s study are from the author's personal knowledge, gained while a c t i n g as the p r o j e c t d i r e c t o r f o r the economic f e a s i b i l i t y p o r t i o n of the study. 41 t o t a l b e n e f i t s was s t i l l based p r i m a r i l y on the savings to road users, and no account was taken of the p o s s i b l e e f f e c t s of the new road on t r a n s p o r t a t i o n f a c i l i t i e s outside of the immediate area nor on economic development e f f e c t s outside of the immediate area. These e x t e r n a l e f f e c t s could have been s i g n i f i c a n t , s i n c e much of the t r a f f i c expected to use the new road was through t r a f f i c , w i t h o r i g i n s and d e s t i n a t i o n s outside of the area considered. The f i r s t of the above examples would not g e n e r a l l y be considered a good economic e v a l u a t i o n study. However, personnel of the World Bank advise that the l a t t e r two are considered by the Bank to be among the best of the reports the Bank has r e c e i v e d , i n s p i t e of the d e f i c i e n c i e s o u t l i n e d here. The major problem which has been i d e n t i f i e d i n c o n s i d e r i n g the f o r e c a s t i n g methods used i n the s t u d i e s reviewed i s the f a i l u r e to r e l a t e the proposed investments to the economy as a whole. This r e s u l t s i n p l a c i n g undue emphasis on v e h i c l e operating cost savings, and the neglect or complete e x c l u s i o n of the other economic e f f e c t s of the investment. That t h i s i s a se r i o u s and common problem i s confirmed by the comments of some of the personnel of the World Bank. Vincent Hogg, a t r a n s p o r t a t i o n economist w i t h the Bank, s t a t e s : While i t i s appreciated t h a t consultants have to work w i t h i n s p e c i f i c terms of reference f o r a s p e c i f i c p r o j e c t , f a r too o f t e n s t u d i e s are c a r r i e d out.as i f the p r o j e c t being considered were divorced from the r e s t of the economy. . . . A major defect i n some study reports i s the f a i l u r e to r e l a t e the sometimes voluminous q u a n t i t y of 42 general economic informa t i o n about the country and i t s t r a n s p o r t system to the s p e c i f i c pro-j e c t under review. . . . A s t i l l f u r t h e r weakness of many f e a s i b i l i t y s t u d i e s i s t h a t f u t u r e t r a f f i c i s not estimated on the b a s i s of c l e a r l y i d e n t i f i e d increases i n r e a l output i n the s e r v i c e area of the p r o j e c t or r e s u l t i n g from i t . Future t r a f f i c on a p a r t i c u l a r road, f o r example, may be d e r i v e d from an u n c r i t i c a l trend p r o j e c t i o n of t o t a l v e h i c l e r e g i s t r a t i o n i n the country, or a c o r r e l a t i o n between G.N.P. or some other aggregate economic data.4 In h i s book e n t i t l e d Q u a n t i f i c a t i o n of Road User Savings, Jan de W e i l l e s t a t e s , On the b e n e f i t s i d e , most analyses of the economic d e s i r a b i l i t y of investments i n road c o n s t r u c t i o n put g r e a t , i f not e x c l u s i v e , emphasis i n p r a c t i c e , on the road user savings aspect.5 This common f a i l u r e to r e l a t e s p e c i f i c investment pro-posals t o the economy i s perhaps the most important d e f i c i e n c y of the methods c u r r e n t l y i n use, and i t i l l u s t r a t e s the n e c e s s i t y of comprehensive t r a f f i c and economic studi e s and f o r e c a s t s which take account of the interdependence between the s p e c i f i c l i n k s under e v a l u a t i o n and the whole transpor-t a t i o n system, and between the t r a n s p o r t a t i o n system and the economy. These interdependencies cannot be f u l l y considered i n a s i n g l e t r a f f i c and economic f o r e c a s t ; a s e r i e s of f o r e -casts i s r e q u i r e d . W.V. Hogg, F e a s i b i l i t y S t u d i e s , an I n t e r n a t i o n a I Lender's  View (A paper prepared f o r p r e s e n t a t i o n to the Conference on C i v i l Engineering Problems Overseas, sponsored by The I n s t i t u t i o n of C i v i l Engineers, London, 1966), pp. 38,39. 5 Jan de W e i l l e , Q u a n t i f i c a t i o n of Road User Savings (Washington: World Bank S t a f f Occasional Papers Number Two, 1966) . 43 The i n i t i a l economic, demographic and t r a f f i c f o r e c a s t s should be based on the e x i s t i n g t r a n s p o r t a t i o n system i n the re g i o n , and on the assumption th a t there w i l l be no b a s i c changes i n the system over the pe r i o d of the a n a l y s i s . However, the o b j e c t i v e of the a n a l y s i s i s to evaluate p o s s i b l e improve-ments or a d d i t i o n s t o the t r a n s p o r t a t i o n system, and these improvements and a d d i t i o n s w i l l a f f e c t the volumes and the patterns of production, consumption and t r a f f i c i n a l l but the most unusual circumstances. Thus, f o r each proposed change or group of changes i n the t r a n s p o r t a t i o n system, r e v i s e d economic and demographic f o r e c a s t s must be made. The changes i n economic and demographic f a c t o r s i n tu r n have e f f e c t s on t r a f f i c volume n e c e s s i t a t i n g a new t r a f f i c f o r e c a s t which i n tu r n may suggest f u r t h e r changes i n the t r a n s p o r t a t i o n system. Thus, r a t h e r than a s i n g l e economic and t r a f f i c f o r e c a s t , a s e r i e s of f o r e c a s t s i s r e q u i r e d , implying an i t e r a t i v e pro-cedure which continues u n t i l a s t a t e of e q u i l i b r i u m i s reached. The review of past t r a n s p o r t a t i o n s t u d i e s f a i l e d t o d i s c l o s e any instances where such a procedure had been success-f u l l y a p p l i e d , and the major problems noted above solved. These problems w i l l be considered f u r t h e r i n the f o l l o w i n g chapter, where a p o s s i b l e s o l u t i o n w i l l be proposed. Before proceeding to the measurement of s p e c i f i c costs and b e n e f i t s of p u b l i c t r a n s p o r t a t i o n investments, some f u r t h e r comments on t r a f f i c f o r e c a s t i n g should be made. In a number of the st u d i e s reviewed, the d i f f e r e n t , v e h i c l e types i n the t r a f f i c streams were aggregated i n t o one or two "average" v e h i c l e types, p r i m a r i l y f o r ease of c a l c u l a t i o n . I t i s p r e f e r a b l e t h a t a d i s t i n c t i o n be made among the va r i o u s v e h i c l e types i n the t r a f f i c stream. The d i f f e r e n t v e h i c l e types have d i f f e r e n t operating and cost c h a r a c t e r i s t i c s , and these must be recognized i n the a n a l y s i s . Furthermore, the v e h i c l e mix w i l l normally change s i g n i f i c a n t l y over a twenty-year p e r i o d i n an underdeveloped country, w i t h important i m p l i c a t i o n s f o r t r a n s p o r t a t i o n c o s t s . The use of an average v e h i c l e w i t h average operating and cost c h a r a c t e r i s t i c s does not take account of these d i f f e r e n c e s , nor does i t take account of d i f f e r e n t v e h i c l e mixes on d i f f e r e n t l i n k s of the highway network. I t i s f a r p r e f e r a b l e to recognize at l e a s t four v e h i c l e groups: automobile and l i g h t t r u c k s , medium-weight trucks and buses, heavy t r u c k s , and s p e c i a l v e h i c l e s such as tank t r u c k s . The c l a s s i f i c a t i o n s adopted i n any p a r t i c u l a r case w i l l depend on the c h a r a c t e r i s t i c s of the v e h i c l e f l e e t , and i n many cases i t may even be found that b i c y c l e s and motorcycles form a s i g n i f i c a n t p a r t of the t o t a l t r a f f i c . In most cases a great deal of inf o r m a t i o n on the v e h i c l e f l e e t may be gained from v e h i c l e r e g i s t r a t i o n records, but these should be supplemented w i t h data from a t r a f f i c count or o r i g i n - d e s t i n a t i o n survey, since the v e h i c l e mix i n the r o l l i n g f l e e t on any l i n k may be q u i t e d i f f e r e n t from the mix i n the r e g i s t e r e d f l e e t i n the country. 4 5 A f i n a l note on t r a f f i c f o r e c a s t i n g concerns the cost concepts which are appropriate t o the f o r e c a s t i n g , d i s t r i b u -t i o n and assignment of t r a f f i c . Throughout t h i s paper, the emphasis w i l l be on the economic cost of t r a n s p o r t a t i o n , which i s the cost net of taxes and d u t i e s and using shadow p r i c e s to a r r i v e at the r e a l economic cost of such things as labour and f o r e i g n exchange. These economic costs may be q u i t e d i f f e r e n t from the cost upon which the shipper w i l l base h i s s e l e c t i o n of mode, route and c a r r i e r . Therefore, i n forecas-t i n g , d i s t r i b u t i n g and a s s i g n i n g t r a f f i c , the appropriate costs are the costs as perceived by the shipper, i n c l u d i n g a l l taxes and d u t i e s plus any p r o f i t which may be earned by the c a r r i e r , and i n c l u d i n g such as loading and unloading, time c o s t s , and p r o b a b i l i t y of l o s s and damage; i n s h o r t , the t o t a l cost of d i s t r i b u t i o n as seen by the shipper of the goods. In the f o l l o w i n g parts of t h i s chapter, which are con-cerned w i t h the measurement of s p e c i f i c costs and b e n e f i t s of p u b l i c t r a n s p o r t a t i o n investments, i t i s assumed th a t the necessary t r a f f i c and economic f o r e c a s t s have been made. B. The Measurement of Costs The example of highway t r a n s p o r t a t i o n w i l l be used to i l l u s t r a t e the cost concepts to be i l l u s t r a t e d , p r i m a r i l y because highway t r a n s p o r t a t i o n i s the mode most o f t e n found appropriate to the s i t u a t i o n i n underdeveloped c o u n t r i e s . The d e l i n e a t i o n between costs and b e n e f i t s i s not always c l e a r , since b e n e f i t s o f t e n c o n s i s t of reductions i n c o s t s ; however, f o r the sake of an o r d e r l y p r e s e n t a t i o n , they are t r e a t e d s e p a r a t e l y . Every cost which w i l l be encountered i n every s i t u a t i o n cannot be considered i n d e t a i l , as many minor v a r i -a t i o n s are p o s s i b l e under d i f f e r e n t c o n d i t i o n s and circum-stances, but the major costs encountered i n most s i t u a t i o n s are covered. 1. C o n s t r u c t i o n Costs In any a n a l y s i s of highway t r a n s p o r t a t i o n investments, highway c o n s t r u c t i o n costs are one of the major elements to be considered. The degree of accuracy r e q u i r e d i n cost estimates depends upon the nature of the a n a l y s i s . In a comprehensive t r a n s p o r t a t i o n a n a l y s i s designed to optimize the t r a n s p o r t a t i o n system, there i s a l a r g e number of a l t e r n a t i v e p o s s i b i l i t i e s to be considered. Each e x i s t i n g l i n k i n the road network may be considered f o r abandonment, to be l e f t at i t s present standard, or f o r upgrading to a number of p o s s i b l e higher standards. C o n s t r u c t i o n costs must the r e f o r e be estimated f o r each r e a -sonable stage of improvement. In a d d i t i o n , cost estimates f o r new l i n k s which may be considered f o r a d d i t i o n to the system must be made, again f o r a number of p o s s i b l e road standards. Even assuming a r e l a t i v e l y simple system w i t h only one hundred l i n k s , t h i s i m p l i e s up to three hundred estimates of con-s t r u c t i o n c o s t s , and i t would be most unusual to have the time or budget a v a i l a b l e to permit i n d i v i d u a l cost c a l c u l a t i o n s f o r each l i n k . In such a case, the most reasonable procedure i s 47 to f i r s t c l a s s i f y each e x i s t i n g l i n k as to i t s present standard using perhaps s i x standards from a one-lane earth t r a c k to a two-lane paved highway, or p o s s i b l y to a four-lane paved high-way i n some cases. For each standard of e x i s t i n g road, t y p i c a l costs per mile f o r upgrading to the next two or three higher standards may be developed, w i t h v a r i a t i o n s i n the t y p i c a l costs f o r a v a r i e t y of s o i l s and t e r r a i n c o n d i t i o n s . S i m i l a r l y , t y p i c a l costs per mile f o r the c o n s t r u c t i o n of new roads to various standards, f o r a v a r i e t y of s o i l s and t e r r a i n condi-t i o n s , may a l s o be developed. The r e s u l t i n g c o n s t r u c t i o n cost t a b l e s can then be used throughout the f i r s t stages of the a n a l y s i s , modified only t o allow f o r major s t r u c t u r e s such as bridges which may be req u i r e d on i n d i v i d u a l l i n k s . In l a t e r stages of the a n a l y s i s , as the range of p o s s i b l e p r o j e c t s i s narrowed down, more accurate cost estimates can be made f o r those p r o j e c t s s t i l l under c o n s i d e r a t i o n . ^ The major elements of cost e s t i m a t i n g , such as e a r t h -work q u a n t i t i e s and c o s t s , s t r u c t u r a l requirements and s i m i l a r items are normally the r e s p o n s i b i l i t y of the highway engineer, and w i l l not be considered here. However, the economist has an important p a r t to play i n many aspects of cost e s t i m a t i n g . One aspect i n v o l v e s the d i s t i n c t i o n between economic costs and f i n a n c i a l c o s t s . Economic costs represent the r e a l cost to the This method of es t i m a t i n g c o n s t r u c t i o n and improvement costs on a large-number of highway l i n k s was used i n the land t r a n s p o r t study of Dahomey, A f r i c a , which i s s t i l l i n progress at the time of w r i t i n g . 48 economy of the resources used, and may be q u i t e d i f f e r e n t from the p r i c e s a c t u a l l y paid f o r the resources. These are the costs which are used i n the economic a n a l y s i s of the t r a n s p o r t a t i o n investment. The f i n a n c i a l costs represent the p r i c e s a c t u a l l y p a i d f o r the resources. In preparing a budget f o r the c o n s t r u c t i o n of the highway and i d e n t i f y i n g sources of funds, the f i n a n c i a l costs are the appropriate ones to use i n c a l c u l a t i n g the amount of funds which w i l l be r e q u i r e d . A n t i c i p a t e d i n f l a t i o n i s u s u a l l y omitted from the economic a n a l y s i s , on the assumption t h a t i t w i l l have a s i m i l a r e f f e c t on both costs and b e n e f i t s and w i l l t h e r e f o r e not have a s i g n i f i c a n t e f f e c t on the outcome of the a n a l y s i s . A major exception to t h i s i s the case of s e c t o r a l or s p e c i f i c i n f l a t i o n where there i s reason to b e l i e v e that c e r t a i n e l e -ments of costs or b e n e f i t s w i l l be more a f f e c t e d than others, 7 which r e a l l y xndxcates a change m r e l a t i v e economic values. In a l l cases, i n f l a t i o n should be i n c l u d e d i n the c a l c u l a t i o n of f i n a n c i a l c o s t s . (a) Engineering and design costs These costs are mentioned simply because they are o f t e n omitted i n cost c a l c u l a t i o n s f o r economic a n a l y s i s , yet they are j u s t as much a cost of the road as i s the cost of the a c t u a l c o n s t r u c t i o n . They are normally c a l c u l a t e d as a percent Hans A. A d l e r , Sector and P r o j e c t Planning i n Trans-p o r t a t i o n (Washington: World Bank S t a f f Occasional Papers Number Four, 1967), p. 41. 49 of the estimated c o n s t r u c t i o n c o s t , u s u a l l y about f i v e per-cent. I t should be noted here th a t the cost of economic f e a s i b i l i t y s t u d i e s are not included w i t h the highway costs used i n the economic a n a l y s i s , since these are sunk costs at the time t h a t the d e c i s i o n i s made to proceed w i t h the design and c o n s t r u c t i o n . (b) Right-of-way costs In e s t i m a t i n g right-of-way c o s t s , a d i s t i n c t i o n must be made between the economic and f i n a n c i a l costs of a c q u i s i t i o n . The economic costs represent the a c t u a l cost t o the economy of t a k i n g land out of i t s present and probable fu t u r e use, and are best c a l c u l a t e d on the ba s i s of t h e m e t value of the production which w i l l be foregone when the land i s converted to highway use. I f la c k of data prevents such a c a l c u l a t i o n , the most s u i t a b l e s u b s t i t u t e i s the p r i c e s p a i d i n recent p r i v a t e pur-chases of s i m i l a r l a n d , but care must be taken that these p r i c e s have not been d i s t o r t e d by unusual circumstances, such as knowledge or s p e c u l a t i o n t h a t the land may be re q u i r e d f o r a highway. Any taxes i n c l u d e d i n the s a l e p r i c e should be removed from the estimated c o s t , since these represent only t r a n s f e r e s of wealth, and are not r e a l costs t o the economy. The economic costs are then used i n the economic e v a l u a t i o n of the t r a n s p o r t a t i o n investment. The f i n a n c i a l costs represent the amounts which w i l l a c t u a l l y be paid f o r the land by the a u t h o r i t y b u i l d i n g the highway, whether the land i s acquired by normal purchase or by e x p r o p r i a t i o n , and i n c l u d i n g l e g a l costs and taxes i f these 50 are a c t u a l l y p a i d . In cases where t i t l e to the land i s already g vested i n the a u t h o r i t y , the f i n a n c i a l cost w i l l be zero. The f i n a n c i a l cost of the land i s used i n the f i n a n c i a l a n a l y s i s of the p r o j e c t , where sources of funds are i d e n t i f i e d and a c o n s t r u c t i o n budget i s prepared. (c) Cost of c o n s t r u c t i o n The major task of the economist i n the e s t i m a t i n g of a c t u a l c o n s t r u c t i o n costs i s ensuring that a d i s t i n c t i o n i s maintained between economic and f i n a n c i a l costs of c o n s t r u c t i o n , and between the domestic and f o r e i g n components of the c o s t s . The d i s t i n c t i o n between f i n a n c i a l and economic costs r e s t s p r i m a r i l y on the deduction of a l l tax and duty items and other t r a n s f e r payments from the f i n a n c i a l c o s t s , i n c l u d i n g costs of m a t e r i a l s , equipment, f u e l and s u p p l i e s , and s i m i l a r items. I t should be noted t h a t the equipment cost included should be only t h a t p o r t i o n of the t o t a l cost of the equipment which i s chargeable to the s p e c i f i c p r o j e c t , i . e . the d e p r e c i a t i o n on the equipment which i s a t t r i b u t a b l e to the p r o j e c t . The d i s -t i n c t i o n may a l s o depend on the economic value of the labour employed i n the c o n s t r u c t i o n . I f much of the labour used would otherwise be unemployed or underemployed, as i s o f t e n the case i n underdeveloped c o u n t r i e s , the economic cost may be s i g n i f i -c a n t l y lower than the f i n a n c i a l cost of the labour. This g Note, however, t h a t there w i l l s t i l l be an economic co s t , unless the land i s unused and would remain so over the p e r i o d of the a n a l y s i s i f the highway were not b u i l t . 51 f a c t o r should a l s o be considered i n the determination of the various combinations of inputs to be used i n c o n s t r u c t i o n . Labour and equipment are to some extent s u b s t i t u t a b l e , and the l e a s t - c o s t combination appropriate to North American c o n d i t i o n s i s not n e c e s s a r i l y appropriate i n an underdeveloped country, and should not be adopted merely because th a t i s "the way i t i s done." At the same time, merely because a p r o j e c t takes place i n an underdeveloped country, i t should not a u t o m a t i c a l l y be assumed th a t labour i s unemployed or underemployed. Many categ o r i e s of personnel-entrepreneurs, u n i v e r s i t y graduates, s k i l l e d t e c h n i c i a n s , to name a few—may have a very high economic value which i s not f u l l y r e f l e c t e d i n s a l a r y or i n -come l e v e l s , and a "shadow p r i c e " e v a l u a t i o n of t h e i r economic worth which i s higher than the p r e v a i l i n g wage ra t e s may be appropriate. The d i s t i n c t i o n between the domestic and f o r e i g n com-ponents of c o n s t r u c t i o n costs i s necessary to planning the f i n a n c i n g of the p r o j e c t , and i n cases where i n t e r n a t i o n a l a i d or lending agencies are i n v o l v e d , i t i s necessary i n the determination of the p r o p o r t i o n of the cost which w i l l be financed by the i n t e r n a t i o n a l agency. In most cases, the agencies finance only t h a t p o r t i o n of the cost r e q u i r i n g f o r e i g n exchange. The f o r e i g n components of c o n s t r u c t i o n cost should a l s o be adjusted to remove the e f f e c t of a r t i f i -c i a l l y maintained exchange r a t e s which may d i s t o r t not only the estimates of economic c o s t s , but a l s o the optimum combin-a t i o n of domestic and f o r e i g n i n p u t s . I t i s common p r a c t i c e to in c l u d e a contingency item i n c o n s t r u c t i o n c o s t s , u s u a l l y about f i f t e e n to twenty percent of the t o t a l c o s t s . This i s a l e g i t i m a t e item f o r i n c l u s i o n i n the economic a n a l y s i s as long as i t represents an adjustment f o r probable underestimation of the costs of c o n s t r u c t i o n , and low estimates are i n f a c t q u i t e common. Care should be taken, however, to ensure th a t t h i s item does not i n c l u d e an adjustment to allow f o r p o s s i b l e i n f l a t i o n between the time the estimate i s made and the expected time of a c t u a l con-9 s t r u c t i o n . Separate cost estimates should be made f o r each s e c t i o n of highway which can be i d e n t i f i e d and analysed as a s i n g l e p r o j e c t . In examining the economic f e a s i b i l i t y of paving a gra v e l - s u r f a c e highway, f o r example, a s i n g l e cost estimate covering the whole length of the highway i s i n s u f f i c i e n t i f t r a f f i c volumes w i l l be d i f f e r e n t on d i f f e r e n t s e c t i o n s of the highway. In such a case, the whole p r o j e c t may show a s a t i s -f a c t o r y r a t e of r e t u r n , when i n f a c t the s e c t i o n w i t h high t r a f f i c volumes may have an e x c e l l e n t r a t e of r e t u r n , while the other s e c t i o n has a very low, unacceptable r a t e . In ana l y s i n g the whole length of the highway, one s e c t i o n i s i n Hans A. A d l e r , op. c i t . , p. 41. e f f e c t s u b s i d i z i n g another; The same comment could a l s o hold i n a case where an e x i s t i n g highway i s to be improved i n more than one respect; f o r example, an improved s u r f a c e , improved alignment, and a reduced r a t e of r i s e and f a l l . Here again, unless the various types of improvement are analysed indepen-d e n t l y as f a r as p o s s i b l e , the o v e r a l l r a t e of r e t u r n may in c l u d e improvements which are i n f a c t economically unaccep-t a b l e . The timing of the c o n s t r u c t i o n costs should a l s o be determined. With r e l a t i v e l y high costs of c a p i t a l i n under-developed c o u n t r i e s , i t may make a s i g n i f i c a n t d i f f e r e n t i f the costs of c o n s t r u c t i o n w i l l be spread over a three-year c o n s t r u c t i o n p e r i o d r a t h e r than i n c u r r e d a l l i n a s i n g l e year, since i t w i l l a f f e c t the present value of the t o t a l economic cost of c o n s t r u c t i o n . The tim i n g of the c o n s t r u c t i o n cost a l s o has important i m p l i c a t i o n s f o r the f i n a n c i a l budgeting f o r the p r o j e c t . Therefore, not only the t o t a l cost of c o n s t r u c t i o n , but a l s o the amount to be expended i n each year, should be c a l c u l a t e d . This s e c t i o n has been presented as though the s e l e c t i o n of standards and e s t i m a t i n g of c o n s t r u c t i o n costs are e n t i t i e s i n themselves. In f a c t , there i s a wide range of combinations and s u b s t i t u t i o n s p o s s i b l e among c o n s t r u c t i o n c o s t s , main-tenance c o s t s , v e h i c l e operating c o s t s , and other cost and b e n e f i t f a c t o r s such as the e f f e c t of d i f f e r e n t alignments on a g r i c u l t u r a l development. The f i n a l estimate of c o n s t r u c t i o n cost cannot be prepared u n t i l the f i n a l stages of the a n a l y s i s are reached and the optimum combinations are determined; u n t i l then, any costs developed must be considered only as p r e l i m i n a r y estimates f o r use i n the o p t i m i z a t i o n a n a l y s i s . 2. Maintenance Costs The development of highway maintenance costs i s again p r i m a r i l y the r e s p o n s i b i l i t y of the engineer, w i t h the r o l e of the economist being t o maintain the d i s t i n c t i o n between f i n a n c i a l and economic c o s t s , and between the domestic and f o r e i g n components of the c o s t s . Although maintenance costs are r e l a t i v e l y s m a ll over the l i f e of the highway i n comparison w i t h c o n s t r u c t i o n costs and v e h i c l e operating c o s t s , the lack of funds f o r continuous maintenance i s ofte n a very r e a l pro-blem i n underdeveloped c o u n t r i e s , and inadequate maintenance can have a severe e f f e c t on v e h i c l e operating c o s t s ; t h e r e f o r e the problem of maintenance i s of t e n greater than the costs alone would imply. The d i s t i n c t i o n among the various cost c l a s s i f i c a t i o n s - -economic and f i n a n c i a l , domestic and f o r e i g n — a r e the same as f o r c o n s t r u c t i o n c o s t s , and the f a c t o r of timing i s s i m i l a r i n th a t the expenditure i n each year should be estimated. However, the timing of maintenance costs can be very important from the p o i n t of view of economic a n a l y s i s and f i n a n c i a l budgeting. The normal p a t t e r n of maintenance f o r a paved road i s one of r e l a t i v e l y low but i n c r e a s i n g annual costs i n the years f o l l o w i n g c o n s t r u c t i o n , followed by a year or two of high 55 costs as major r e s u r f a c i n g becomes necessary, then r e v e r t i n g to low but i n c r e a s i n g annual c o s t s . When d i s c o u n t i n g t o present v a l u e s , t h i s a c t u a l p a t t e r n may give q u i t e d i f f e r e n t r e s u l t s than would be derived from the use of an average annual maintenance co s t . The i m p l i c a t i o n s f o r f i n a n c i a l budgeting are obvious: p r o v i s i o n must be made f o r the f u t u r e high-cost years when r e s u r f a c i n g becomes necessary. In a country w i t h extensive paved highways b u i l t at d i f f e r e n t times i n the past, the problem i s l e s s acute, since r e s u r f a c i n g w i l l be done continuously and there w i l l not l i k e l y be any s i n g l e year w i t h unusually high c o s t s , but i n c o u n t r i e s w i t h only one or two major paved highways, r e s u r f a c i n g costs may r e q u i r e an unusu-a l l y high maintenance expenditure i n a s p e c i f i c year, and p r o v i s i o n must be made f o r t h i s p r o b a b i l i t y . An important f a c t o r i n e s t i m a t i n g maintenance costs i s the r e l a t i o n s h i p between maintenance costs and t r a f f i c volumes. There i s very l i t t l e data a v a i l a b l e on t h i s r e l a t i o n s h i p i n underdeveloped c o u n t r i e s , e s p e c i a l l y i n the case of lower-class roads such as one- and two-lane t r a c k s surfaced w i t h l o c a l m a t e r i a l s . 1 0 The maintenance costs may vary g r e a t l y under d i f f e r e n t c l i m a t i c c o n d i t i o n s , s o i l s c o n d i t i o n s , and the road m a t e r i a l s and c o n s t r u c t i o n methods and standards used. They 1 This lack of data became evident i n a l i t e r a t u r e search conducted i n conjunction w i t h the Dahomey Land Transport Study r e f e r r e d to e a r l i e r . 56 may a l s o vary w i t h v e h i c l e axle loads and operating speeds. Some r e l a t i o n s h i p s were e s t a b l i s h e d i n a recent t r a n s p o r t a t i o n a n a l y s i s i n West A f r i c a , commissioned by the United Nations Development Programme and the I n t e r n a t i o n a l Bank f o r Recon-s t r u c t i o n and Development, and some of the r e s u l t s are shown i n Table I . The maintenance costs shown i n the t a b l e are economic c o s t s , and are net of taxes and d u t i e s . In a l l cases, there i s a constant maintenance cost which i s a t t r i b u t a b l e to environ-ment c o n d i t i o n s such as water and wind e r o s i o n , and which w i l l be i n c u r r e d regardless of the volume of t r a f f i c , and a v a r i a b l e c o s t , depending on the volume of t r a f f i c . I t should be noted t h a t these are included only as an i n d i c a t i o n of the type of r e l a t i o n s h i p which may be developed, and tha t they are v a l i d only f o r the v e h i c l e mixes, axle loads, c l i m a t i c and s o i l s c o n d i t i o n s , and other f a c t o r s encountered i n tha t p a r t i c u l a r study. 3. V e h i c l e Operating Costs V e h i c l e operating costs are one of the most important f a c t o r s i n the e v a l u a t i o n of highway t r a n s p o r t a t i o n investments. They are normally f a r greater i n magnitude than the t o t a l costs of c o n s t r u c t i o n and maintenance over the peri o d of the a n a l y s i s . In many cases, savings i n v e h i c l e operating costs are the primary, i f not the only, b e n e f i t a t t r i b u t e d to a highway investment. Even i n the case of a new highway b u i l t to open an area f o r economic development where there are i n e f f e c t no "savings" i n t r a n s p o r t a t i o n c o s t s , v e h i c l e operating costs 57 are an important f a c t o r i n the economic e v a l u a t i o n . In s p i t e of t h e i r importance, however, there has been a s u r p r i s i n g l y small amount of e m p i r i c a l research on v e h i c l e operating costs i n the c o n d i t i o n s encountered i n underdeveloped c o u n t r i e s , and much of the published i n f o r m a t i o n i s based on i l l - d e f i n e d and vaguely-defined concepts and unsubstantiated assumptions."''"'" The s t u d i e s reviewed i n the pre p a r a t i o n of t h i s t h e s i s showed a wide v a r i e t y of methods of c a l c u l a t i n g v e h i c l e operating c o s t s , w i t h many i n c o r r e c t or incomplete treatments of the subject. In de W e i l l e ' s words: The c a l c u l a t i o n of .... road user savings ... tends to be made on an ad hoc, case-by-case b a s i s . Both the methodology used i n the c a l c u l a t i o n s and the q u a n t i f i c a t i o n of the impact of the various r e l e v a n t f a c t o r s at work, d i f f e r considerably from study to study and appear to depend h e a v i l y on the s u b j e c t i v e preferences and judgements of the i n d i v i d u a l authors.12 Because of the la r g e number of stu d i e s i n which these costs have played a p a r t , and because of the wide v a r i e t y of methods used i n attempting t o q u a n t i f y v e h i c l e operating costs no attempt w i l l be made here to describe the methods used i n the past and to i d e n t i f y t h e i r d e f i c i e n c i e s . Instead, the data which are considered to be the best a v a i l a b l e at t h i s time and the methods of c a l c u l a t i o n which are considered t o be the c o r r e c t ones, w i l l be presented. H j a n de W e i l l e , op. c i t . , p. 8. 1 2 l b i d . , pp. 3-4. TABLE I ROAD MAINTENANCE COSTS, AND VARIATIONS WITH TRAFFIC VOLUMES Type of Road 2-lane paved road 2-lane l a t e r i t e - s u r f a c e d road 2-lane earth road 1-lane paved road 1-lane l a t e r i t e - s u r f a c e d road 1-lane earth road Maintenance Cost* 176,000 + 34 n 22,000 + 870 n 22,000 + 530 n 154,500 + 105 n 17,700 + 870 n 9,100 + 530 n n = the number of v e h i c l e s per day * The costs shown are i n C.F.A. francs per ki l o m e t e r per year. One thousand C.F.A. francs are approximately e q u i v a l e n t to four U.S. d o l l a r s . These are economic c o s t s , net of taxes and d u t i e s . Source: Dahomey Land Transport Study, Technical Memorandum  No. 9, Road Maintenance Methods and Costs, 1968, pp. 9.4, 9.4. Although the lack of e m p i r i c a l data r e l a t i n g to condi-t i o n s i n underdeveloped c o u n t r i e s i s a s e r i e s problem, there i s some evidence t h a t the t e c h n i c a l r e l a t i o n s h i p s r e l e v a n t to v e h i c l e operation do not vary g r e a t l y from country to country, so t h a t much of the research done i n the United States may 13 reasonably be a p p l i e d to other c o u n t r i e s . This i s the approach adopted i n what i s probably the most comprehensive published treatment of the s u b j e c t , Q u a n t i f i c a t i o n of Road User Savings, by Jan de W e i l l e of the I n t e r n a t i o n a l Bank f o r 14 Reconstruction and Development. De W e i l l e uses p r i m a r i l y the t e c h n i c a l c o e f f i c i e n t s developed i n the United States and adapts them to cost c o n d i t i o n s t y p i c a l l y encountered i n under-developed c o u n t r i e s , and compares the r e s u l t s w i t h those of a c t u a l s t u d i e s made i n B r a z i l , I n d i a , Japan and other c o u n t r i e s . There are many components of v e h i c l e operating c o s t s , and the components vary i n d i f f e r e n t ways i n r e l a t i o n to f a c t o r s such as v e h i c l e speed, road s u r f a c e , road curvature, gradients and s i m i l a r f a c t o r s . In the f o l l o w i n g paragraphs, each major cost c l a s s i f i c a t i o n w i l l be considered i n d i v i d u a l l y to i n d i -cate the most important r e l a t i o n s h i p s and f a c t o r s which should be considered i n developing v e h i c l e operating costs to be used T i l l o E. Kuhn, Economic Analyses f o r Highway Im-provements i n Developing Countries (A paper prepared f o r pr e s e n t a t i o n to the Ninth Pan American Highway Congress, Organization of American S t a t e s , Washington: 1963), p. 7. 14 Jan de W e i l l e , l o c . c i t . 60 i n t r a n s p o r t a t i o n investment analyses. The r e l a t i o n s h i p s shown i n the formulae included i n the se c t i o n s on the various costs are those used i n a recent t r a n s p o r t a t i o n study of Dahomey, A f r i c a . They are based p r i m a r i l y on de W e i l l e ' s work, but i n many cases they incorporate the f i n d i n g s of other st u d i e s done i n A f r i c a and elsewhere, as w e l l as those of the Dahomey study. (a) F u e l Fuel consumption depends on a number of f a c t o r s , i n c l u d i n g : 1. V e h i c l e c h a r a c t e r i s t i c s and the weight of the load; 2. Speed; 3. Road surface; 4. Road g r a d i e n t s ; and 5 . Road curvature. The v e h i c l e c h a r a c t e r i s t i c s having the gr e a t e s t e f f e c t are the engine type (gasoline or d i e s e l ) and the weight of the v e h i c l e . The weight of the load i s added to the curb weight of the v e h i c l e to represent the t o t a l e f f e c t of weight on f u e l consump-t i o n . The r e s u l t s shown i n the de W e i l l e p u b l i c a t i o n do not i n d i c a t e the e f f e c t of v a r i a t i o n s i n v e h i c l e load on f u e l con-sumption, but data on t h i s r e l a t i o n s h i p are a v a i l a b l e from a 15 study by C. S a a l . The r e l a t i o n s h i p between t o t a l weight and f u e l consumption used i n the Dahomey study i s based on Saal's C. S a a l , Time and Gasoline Consumption i n Motor Truck  Operation (Highways Research Board Research Report 9-A, 1950). 61 r e p o r t , and i n c l u d e s the e f f e c t o f ro a d g r a d i e n t : r W + (P x L f ) ,K5 . F = K4 x [ — ] , where 16 F = g a s o l i n e consumption i n g a l l o n s p e r m i l e , K4 and K5 = e m p i r i c a l l y - d e t e r m i n e d c o n s t a n t s r e l a t e d t o t h e r a t e o f r i s e and f a l l o f the r o a d , W = c u r b w e i g h t o f t h e v e h i c l e i n pounds, P = maximum p a y l o a d o f t h e v e h i c l e i n pounds, and T £ , -, , a c t u a l l o a d . L f = l o a d f a c t o r ( = ; -5-) maximum p a y l o a d The v a l u e s o f K4 and K5 f o r v a r i o u s r a t e s o f r i s e and f a l l were d e r i v e d from S a a l ' s r e p o r t , m o d i f i e d t o a p p l y t o a l l o f t h e v e h i c l e c l a s s i f i c a t i o n s used i n the Dahomey s t u d y , and are shown i n T a b l e I I . I t i s e s t i m a t e d t h a t f u e l consumption f o r d i e s e l - p o w e r e d v e h i c l e s averaged between t h i r t y - f i v e and f o r t y p e r c e n t below t h a t f o r comparable g a s o l i n e - p o w e r e d v e h i c l e s ; t h e r e f o r e , t h e v a l u e o f F, which i s r e p r e s e n t a t i v e o f g a s o l i n e consumption, must be a d j u s t e d a c c o r d i n g l y f o r 17 d i e s e l - p o w e r e d v e h i c l e s . The r e l a t i o n s h i p between f u e l consumption and speed shown by de W e i l l e i s i n t h e form o f a U-shaped c u r v e , w i t h the l o w e s t f u e l consumption p e r k i l o m e t e r o c c u r r i n g a t speeds o f from 40 t o 64 k i l o m e t e r s p e r hour, depending on t h e v e h i c l e 16 A d j u s t e d t o l i t r e s p e r k i l o m e t e r f o r use i n Dahomey. 17 R.B. S a w h i l l and J.C. F i r e y , Highways Research Board B u l l e t i n 276, 1960, p. 54. 62 TABLE I I VALUES OF RATE OF RISE AND FALL COEFFICIENTS Rate of Rise and F a l l * (Meters per i meters) K 1 K 2 K 4 K 5 0.0 1.16 0.0006 0.0180 0.620 1.3 1.16 0.0011 0.0178 0.660 2.3 1.16 0.0025 0.0156 0.736 3.2 1.16 0.0035 0.0154 0.775 4.0 1.16 0.0050 0.0162 0.793 5.0 1.16 0.0070 0.0144 0.881 6.4 1.16 0.0100 0.0177 0.907 * Rate of r i s e and f a l l i s the t o t a l r i s e and f a l l of a s e c t i o n of highway i n meters, d i v i d e d by the length of the s e c t i o n i n hundreds of meters. Source: Derived from C. S a a l , Time and Gasoline Consumption  i n Motor Truck Operation, Highway Research Board Report 9-A, 1950. 63 type. The v a r i a t i o n s of f u e l consumption w i t h speed are shown i n Table I I I . The fr e e speed of the v e h i c l e on a l e v e l tan-gent paved road, assuming no other v e h i c l e s a f f e c t i n g the speed, i s r e l a t e d t o the gross weight and power of the v e h i c l e and the r a t e of r i s e and f a l l of the road: MPM = K l + K2 [ W + ( P X L f ) ], where HP MPM = t r a v e l time i n minutes per m i l e , K l and K2 = emp i r i c a l l y - d e t e r m i n e d constants r e l a t e d to the r a t e of r i s e and f a l l , W, P and Lf are as defined p r e v i o u s l y , and HP = v e h i c l e horsepower (S.A.E.). The values of K l and K2 are shown i n Table I I . This formula r e l a t e s speed to v e h i c l e , l o a d , and r a t e of r i s e and f a l l , but does not take account of t r a f f i c e f f e c t s or the road s u r f a c e . The speed of a v e h i c l e i s i n f l u e n c e d by the amount of other t r a f f i c u s ing the road. Since l a r g e veh-i c l e s have a greater e f f e c t on other t r a f f i c than smaller ones, a l l v e h i c l e s except automobiles are m u l t i p l i e d by a f a c t o r t o express t o t a l t r a f f i c i n terms of equ i v a l e n t automo-18 b i l e s , and the speed adjusted f o r the e f f e c t of t r a f f i c volumes i s determined as f o l l o w s : The f a c t o r s vary depending on the c h a r a c t e r i s t i c s of the v e h i c l e f l e e t i n a country or on a p a r t i c u l a r road. Commonly-used values are 1 l i g h t t ruck = 2 automobiles, and 1 heavy truck = 3 automobiles. 64 TABLE I I I FUEL CONSUMPTION AND SPEED (Index Numbers: f u e l consumption at 6 4 km. p.h Speed Average T r u c k s (km.p.h.) Car I I I I I I IV 24 116 107 113 176 143 32 104 97 104 138 116 40 98 93 99 116 103 48 95 93 98 104 98 56 97 95 98 101 97 64 100 100 100 100 100 72 105 108 104 103 108 80 111 120 109 109 120 88 120 136 117 126 139 97 131 160 128 154 155 105 146 195 133 113 165 258 Average car: average of the weight, power and other r e l e v a n t features of a Volkswagen and a Chevrolet. Truck I : pickup or panel w i t h payload of approximately 1 ton. Truck I I : s i n g l e u n i t , w i t h payload of approximately 3.5 tons. Truck I I I : t r a c t o r and s e m i - t r a i l e r , payload approximately 15 tons, average gross weight about 18 tons, g a s o l i n e -powered . Truck IV: t r a c t o r and s e m i - t r a i l e r , payload approximately 18 tons, average gross weight about 22.5 tons, g a s o l i n e or d i e s e l . Source: Jan de W e i l l e , Q u a n t i f i c a t i o n of Road User Savings (World Bank S t a f f Occasional Papers No. 2, 1966)..' 65 S = V x (1 - .315 EQVOLj r w h e r e S = s p e e d i n m i l e s p e r h o u r , a d j u s t e d f o r t h e e f f e c t o f t r a f f i c v o l u m e s , V = f r e e s p e e d , d e r i v e d f r o m MPM d e v e l o p e d i n t h e p r e v i o u s f o r m u l a , EQVOL = t o t a l d a i l y 1-way v e h i c l e v o l u m e e x p r e s s e d i n e q u i v a l e n t a u t o m o b i l e s , and C = an e m p i r i c a l l y - d e t e r m i n e d v a l u e r e p r e s e n t i n g t h e c a p a c i t y o f t h e r o a d . The v a l u e o f C i s b a s e d on t h e maximum d a i l y v o l u m e , i n e q u i -v a l e n t a u t o m o b i l e s w h i c h c a n m a i n t a i n a n a v e r a g e s p e e d o f 19 t w e n t y - f i v e m i l e s p e r h o u r i n t h e p e a k h o u r . The t y p e o f r o a d s u r f a c e a f f e c t s a number o f f a c e t s o f v e h i c l e o p e r a t i o n , i n c l u d i n g s p e e d . The r e l a t i o n s h i p s b e t w e e n s u r f a c e t y p e s and o p e r a t i n g c h a r a c t e r i s t i c s a r e l i s t e d i n T a b l e I V . The e f f e c t s o n f u e l c o n s u m p t i o n o f v e h i c l e c h a r a c t e r -i s t i c s , l o a d , s p e e d a nd r a t e o f r i s e a n d f a l l a r e i n c l u d e d i n t h e a b o v e s e c t i o n s . The r o a d s u r f a c e t y p e a l s o h a s a n e f f e c t on f u e l c o n s u m p t i o n . The r e l a t i o n s h i p s b e t w e e n s u r f a c e t y p e s and f u e l c o n s u m p t i o n f o r a r a n g e o f v e h i c l e s r e p r e s e n t a t i v e o f t h e Dahomey v e h i c l e f l e e t a r e shown i n T a b l e I V . The e f f e c t o f r o a d c u r v a t u r e o n f u e l c o n s u m p t i o n i s d e r i v e d d i r e c t l y f r o m de W e i l l e ' s p u b l i c a t i o n a n d i s shown i n T a b l e V. - ^ T h i s r e l a t i o n s h i p was d e v e l o p e d b y Mi.R. S e e k i n g s , a nd i s shown i n Dahomey L a n d T r a n s p o r t S t u d y T e c h n i c a l Memorandum  No. 8, H i g h w a y O p e r a t i n g C o s t s , 1968 ( u n p u b l i s h e d ) . 66 TABLE IV ROAD SURFACE FACTORS FOR VEHICLE OPERATING COSTS Road Surface Type 1 2 3 4 5 Fuel V e h i c l e Class 1 3.40 1.70 1.52 1.23 1. 00 2 2.90 1.45 1.35 1.16 1. 00 3 3.40 1.70 1.52 1.23 1. 00 4 2.64 1.32 1.24 1.11 1. 00 5 2.84 1.42 1.31 1.14 1. 00 O i l 3.00 1.50 1.35 1.15 1. 00 T i r e s 2.65 1.30 0.85 0.24 -0. 05 Maintenance 5.20 2.60 2.10 1.40 1. 00 De p r e c i a t i o n 3.20 1.60 1.37 1.10 1. 00 Speed 0.47 0.63 0.84 0.90 1. 00 V e h i c l e c l a s s e s are re p r e s e n t a t i v e of v e h i c l e s i n Dahomey : Curb Weight (kg) Horse-power (SAE) Pay-load (kg) V e h i c l e Class 1 10500 210 16700 2 4450 120 4900 3 12000 240 14500 4 1450 75 1100 5 850 53 460 Class 1 represents v e h i c l e s used on a s p e c i f i c route where a l l through shipping i s c o n t r o l l e d by the s t a t e r a i l w a y . Class 2 i s the prevalent general cargo truck used i n Dahomey, and i s most c l o s e l y represented by a B e r l i e t L.62 Class 3 represents tank t r u c k s . 67 TABLE IV (Continued) Class 4 represents the average p u b l i c passenger v e h i c l e commonly used i n Dahomey. Class 5 represents p r i v a t e automobiles. The road surface types are: 1. 1-lane t r a c k , l o c a l m a t e r i a l 2. 1-lane l a t e r i t e - s u r f a c e d road 3. 2-lane l a t e r i t e - s u r f a c e d road 4. 1-lane paved road 5. 2-lane paved road. Sources: d e r i v e d from J . de W e i l l e , Q u a n t i f i c a t i o n of Road  User Savings, 1966, and M.R. Seekings, Dahomey  Land Transport Study T e c h n i c a l Memorandum No. 8, Highway Operating Costs, 1968. 68 TABLE V FUEL CONSUMPTION AND CURVATURE OF THE ROAD (i n percent increase from consumption on a tangent paved road) Passenger Car Truck I Degree of curvature (km.p.h.) 2 4 6 8 10 15 20 25 30 24 , , , 32 — 3 40 — 4 8 13 48 — 4 9 20 38 56 — 2 3 10 22 44 — 64 — 2 3 6 18 42 — 72 — 2 3 6 10 32 — 80 — 3 5 10 17 — 88 — 4 8 15 26 — 97 2 6 12 22 37 — 105 3 8 17 30 --113 4 10 22 — Degree of curvature (km.p.h.) 1 2 4 6 8 10 15 20 25 30 24 32 40 -- 3 7 12 48 — -- 4 9 19 36 56 -- 2 3 9 22 44 — 64 — — 3 6 20 45 — 72 — 2 4 7 12 40 — 80 — 3 7 12 17 — 88 — 2 5 11 21 36 — 97 — 3 8 16 32 52 — 105 2 4 11 26 47 — 113 2 5 15 38 — TABLE V (Continued) Truck I I Speed Degree Of Curvature  (km.p.h.) 1 2 4 6 8 10 15 20 25 30 24 32 — — 2 40 — 2 7 10 48 — 3 7 56 — 2 7 18 64 — -3 5 16 72 3 6 10 80 -- 2 5 10 17 88 — 4 9 16 27 97 ~ 2 6 13 105 — 3 8 18 Truck I I I Speed Degree of Curvature  (km.p.h.) 1 2 4 6 8 10 15 20 25 30 24 — 2 3 4 4 4 3 3 3 32 — 2 3 3 3 3 3 5 7 40 2 2 2 3 8 21 29 48 — 2 2 3 9 22 46 86 56 2 3 4 7 22 64 — 3 5 10 17 51 72 — 2 5 10 19 33 80 — 3 8 18 36 63 88 2 5 13 30 97 3 7 — — Truck IV Speed Degree of Curvature ' (km.p.h.) 1 2 4 6 8 10 15 20 25 30 24 — 2 4 5 5 4 4 3 3 32 — 2 3 3 3 3 3 5 8 40 2 2 2 4 8 24 34 48 — 2 2 3 12 25 53 100 56 -- 2 3 4 7 15 64 3 5 9 16 50 72 2 4 9 17 29 80 — 3 7 15 29 49 88 2 4 11 24 97 3 6 17 TABLE V (Continued) V e h i c l e types are the same as those shown i n Table I I I . Degree of curvature i s the t o t a l number of degrees of curves f o r any curved s e c t i o n of highway, d i v i d e d by the length of s e c t i o n i n hundreds of f e e t . Source: Jan de W e i l l e , Q u a n t i f i c a t i o n of Road User Savings (World Bank S t a f f Occasional Papers Number Two, 1966) . From the above r e l a t i o n s h i p s i t i s p o s s i b l e to develop f u e l consumption f o r a range of v e h i c l e types and c l i m a t i c c o n d i t i o n s . I t i s then a r e l a t i v e l y simple matter to apply the cost of ga s o l i n e and d i e s e l i n the country to the consumption f i g u r e s to de r i v e f u e l c o s t , maintaining the d i s t i n c t i o n between the f i n a n c i a l and economic cost of f u e l . (b) O i l The c o s t of o i l i s a r e l a t i v e l y minor item i n t o t a l v e h i c l e operating c o s t s , but i t i s included f o r the sake of completeness. O i l consumption v a r i e s p r i m a r i l y w i t h speed and surface type. O i l consumption and the r e l a t i o n s h i p s between consumption and speed f o r various types of v e h i c l e s are shown i n Table V I , w h i l e the e f f e c t of the road surface type i s incl u d e d w i t h the other road surface f a c t o r s i n Table IV. (c) T i r e s T i r e wear v a r i e s w i t h the road s u r f a c e , v e h i c l e speed, t o t a l v e h i c l e weight, road curvature and temperature. There i s not s u f f i c i e n t data a v a i l a b l e to the author to e s t a b l i s h the e f f e c t of the l a t t e r three f a c t o r s , although they are probably important determinants of t i r e wear. The r e l a t i o n -20 s h i p between t i r e wear, speed and road surface i s as f o l l o w s : Derived from J . de W e i l l e , Q u a n t i f i c a t i o n of Road User  Savings, and shown i n the above form i n Dahomey Land Transport Study T e c h n i c a l Memorandum No. 8 , Highway Operating Costs, p . 4 . 5 . 72 TABLE VI ENGINE OIL CONSUMPTION AND SPEED ( l i t e r s of o i l per 1,000 kilometers on l e v e l tangent paved roads) Passenger cars Trucks Ipeed European Average American I I I I l l IV [km.p.h.) car car car 24 0 .6 1.4 2 .0 1.8 2 .6 3 .8 7 .9 32 0 .6 1.2 1.7 1.6 2 .4 3 .4 7 .0 40 0 .6 1.1 1.6 1.5 2 .2 3 .2 6 .4 48 0 .6 1.1 1.6 1.5 2 .1 3 .0 6 .0 56 0 .6 1.1 1.5 1.4 1.9 2 .8 5 .6 64 0 .6 1.1 1.5 1.4 1.8 2 .6 5 .1 72 0 .6 1.1 1.5 1.3 1.6 2 .4 4 .4 80 0 .5 1.0 1.5 1.2 1.5 2 . 3 3 .9 88 0 .5 0 .9 1.4 1.1 1.6 2 . 5 4 .1 97 0 .6 1.0 1.4 1.1 1.8 2 .8 4 . 5 105 0 .7 1.2 1.6 1.1 2 .1 — — 113 0 .9 1.7 1.9 1.3 — V e h i c l e types are the same as those shown i n Table I I I , w i t h the a d d i t i o n of the European and American car s . Source: Jan de W e i l l e , Q u a n t i f i c a t i o n of Road User Savings (World Bank S t a f f Occasional Papers Number Two, 1 9 6 6 ) . T = L x (Sp + RSFT x 100), where T = number of t i r e s used per m i l e ; L = the increase i n the percentage of one t i r e used per mile f o r a 1 mph. increase i n speed; Sp = speed adjusted f o r road and t r a f f i c c o n d i t i o n s , and RSFT = the road surface f a c t o r f o r t i r e s , as shown i n Table IV. The values of L are shown below f o r the v e h i c l e types used i n the Dahomey Land Transport Study. V e h i c l e Class 1 2 3 4 5 L = .00067 .00033 .00067 .00021 .00025 The r e s u l t i n g value of T, m u l t i p l i e d by the cost per t i r e i n any given area, gives the t o t a l t i r e cost f o r any v e h i c l e c l a s s f o r a given speed and road surface type. (d) V e h i c l e maintenance Maintenance cost i s normally d i v i d e d i n t o two compo-nents, p a r t s and labour. Some s u b s t i t u t i o n between the two i s p o s s i b l e , but there i s very l i t t l e data a v a i l a b l e on the range of p o s s i b l e s u b s t i t u t i o n and the advantages of various combinations of parts and labour. For t h i s reason, the com-b i n a t i o n s assumed i n de W e i l l e ' s study, based on a wide range of American c o n d i t i o n s , are accepted here. De W e i l l e ' s assumptions regarding the interdependence and s u b s t i t u t a b i l i t y between maintenance and d e p r e c i a t i o n , and the r e l a t i v e l y small impact of t h i s on the t o t a l operating c o s t s , i s a l s o accepted 74 f o r l a c k of data to i n d i c a t e the r e l a t i o n s h i p more p r e c i s e l y . Maintenance c o s t s were found t o vary w i t h speed and road s u r f a c e . The maintenance c o s t per k i l o m e t e r i n the f o l l o w i n g formula i s Cp + C l , i . e . c o s t of p a r t s p l u s c o s t of labo u r . The c o s t of p a r t s , Cp, = Pk x RSFM x cv , where 1000 Cp = c o s t of p a r t s per k i l o m e t e r , i n d o l l a r s (or other monetary u n i t s ) on l e v e l tangent paved roads; P.K = c o s t o f p a r t s per 1000 km. , expressed as a per c e n t of the value of the v e h i c l e ; RSFM = the road s u r f a c e f a c t o r f o r maintenance, and Cv = the c a p i t a l c o s t of the v e h i c l e . Values f o r Pk f o r v a r i o u s v e h i c l e types are shown i n Table V I I , and v a l u e s f o r RSFM are shown i n Table IV. The c o s t of lab o u r , C l , = x RSFM X W, where 1000 C l = c o s t of labour per k i l o m e t e r , i n d o l l a r s (or other monetary u n i t s ) on l e v e l tangent paved roads; Lh = hours of labour per 1000 k i l o m e t e r s ; RSFM = the road s u r f a c e f a c t o r f o r maintenance, and W = wage r a t e per hour f o r maintenance l a b o u r . Values f o r Lh are shown i n Table V I I , and those f o r RSFM i n Table IV. TABLE VII VEHICLE MAINTENANCE: COST OF PARTS AND HOURS OF LABOUR (cost of pa r t s as a percent of the value of the v e h i c l e per 1000 k i l o m e t e r s , and hours of labour per 1000 kilometers) ipeed 'km.p.h.) Passenger car I I I Trucks I I I IV I . Cost < of Part s 24 0. .07 0 .09 0. 20 0. .08 0, .05 32 0. .08 0 .10 0. 21 0. .09 0. .06 40 0. .08 0 .10 0. 22 0. .09 0. .06 48 0. .09 0 .11 0. 24 .10 0. .06 56 0. .09 0 .11 0. 25 0. .11 0. .07 64 0. .10 0 .12 0. 27 0. .12 0. .07 72 0. .10 0 .12 0. 30 0. .12 0. .07 80 0, .11 0 .13 0. 32 0. .14 0. .08 88 0. .11 0 .14 0. 35 0. .15 0. .09 97 0. .12 0 .15 0. 37 0. .16 0. .10 105 0. .12 0 .16 0. 40 — --113 0. .14 0 .17 -I I . Hours of Labor 24 0. .45 0 .56 1. 55 2, .48 2. .32 32 0, .48 0 .58 1. 62 2, .59 2. .42 40 0, .50 0 .62 1. 72 2, .75 2. .57 48 0. .53 0 .65 1. 85 2, .96 2, .75 56 0. .56 0 .68 2. 00 3. .20 2. .98 64 0. .59 0 .72 2. 17 3. .47 3. .22 72 0. .63 0 .76 2. 35 3. .76 3. .49 80 0 , .66 0 .80 2. 54 4, .07 3. .77 88 0. .70 0 .85 2. 74 4. .39 4. ,06 97 0. .73 0 .89 2. 94 4, .70 4. .35 105 0. .78 0 .95 3. 14 -- — 113 0. .83 1 . 02 -Source: Jan de W e i l l e , Q u a n t i f i c a t i o n of Road User Savings (World Bank S t a f f Occasional Papers Number Two, 1966) . (e) D e p r e c i a t i o n and i n t e r e s t D e p r e c i a t i o n . The e f f e c t s of various operating f a c t o r s on v e h i c l e d e p r e c i a t i o n are r a t h e r obscure, and f o r t h i s reason some studie s omit c o n s i d e r a t i o n of v e h i c l e d e p r e c i a t i o n e n t i r e l y on the assumption t h a t changes i n highway standards w i l l not have a s i g n i f i c a n t e f f e c t on d e p r e c i a t i o n . D e p r e c i a t i o n i s an important element i n t o t a l operating c o s t s , however, and there i s l i t t l e question that changes i n operating speeds, v e h i c l e u t i l i z a t i o n and road surfaces w i l l have some e f f e c t on v e h i c l e d e p r e c i a t i o n . There i s some e m p i r i c a l evidence on the e f f e c t of road surface types on d e p r e c i a t i o n ; f o r the e f f e c t of speed, de W e i l l e has used reasonable assumptions ra t h e r than a c t u a l evidence or study. The l i f e t i m e d e p r e c i a t i o n of a v e h i c l e should cover i t s purchase p r i c e , l e s s t i r e s , which are included elsewhere. Assuming no scrap value, average d e p r e c i a t i o n per kilom e t e r i s determined by the value of the v e h i c l e , d i v i d e d by i t s l i f e t i m e mileage. L i f e t i m e mileage i s a f u n c t i o n of years of s e r v i c e and annual mileage, but these f a c t o r s are i n t e r r e l a t e d : a higher annual mileage shortens the l i f e t i m e of the v e h i c l e , but l e s s than p r o p o r t i o n a t e l y . De W e i l l e assumes that speed a f f e c t s d e p r e c i a t i o n i n the f o l l o w i n g way: (i) a higher road speed i s speed r e f l e c t e d i n higher annual mileage, implying a constant r a t e of u t i l i z a t i o n i n hours per year. This seems rea-sonable i n underdeveloped c o u n t r i e s , where commercial v e h i c l e s normally account f o r the bulk of the t o t a l v e h i c l e operating costs.21 This assumption may not be v a l i d i n a case where a road improvement r e s u l t s i n a small time saving f o r each of a number of v e h i c l e s . 77 ( i i ) a c u r v i l i n e a r relationship exists between annual mileage and t o t a l years of service, such that at high annual mileages, the l i f e t i m e of the vehicle i s two-thirds of the average number of years of service. Thus, higher speeds r e s u l t i n correspondingly higher annual mileages and a less than proportionate increase i n t o t a l l i f e t i m e mileage. De Weille tested the results for s e n s i t i v i t y to these assumptions, and found that the effects of changing the assumptions were r e l a t i v e l y minor. De Weille's results were adapted for use i n the Dahomey study, and the following formula was developed: _ C v v r 3 x RSFD T . D = — x [ ] t where 1000 Mv x 1 + 2 xsi-Sa D = cost of depreciation per kilometer; Cv = c a p i t a l cost of the vehicle (less t i r e s ) ; RSFD = road surface factor for depreciation; Mv = average l i f e t i m e mileage for the vehicle class; S i = average speed on the s p e c i f i c highway l i n k ; and Sa = average year-round operating speed for the vehicle type. Speeds and mileages may be i n terms of kilometers or miles. The road surface factors for depreciation are shown i n Table IV. Values of Mv and Sa applicable to the vehicles and con-di t i o n s found i n Dahomey are shown below. 78 V e h i c l e Class 1 2 Mv(in km.) 500,000 400,000 500,000 250,000 150,000 S a ( i n kmh) 50 50 50 55 60 I n t e r e s t . I n t e r e s t i s not normally a larg e p a r t of the t o t a l v e h i c l e c o s t s , although the r e l a t i v e l y long v e h i c l e l i v e s i n some underdeveloped c o u n t r i e s (up to 14 years) and the high i n t e r e s t r a t e s o f t e n encountered can make t h i s an important f a c t o r . Again f o l l o w i n g de W e i l l e , i t i s assumed tha t the average age of the v e h i c l e s i s h a l f of t h e i r t o t a l l i f e , and the average value i s h a l f of the new value. F o l l o w i n g the assumption t h a t l i f e t i m e mileage v a r i e s w i t h speed, the f o l l o w -i n g r e l a t i o n s h i p i s developed: Cv v , i x Sa > , I = =— x ( ) t where 1000 200 x s i x Mva I = cost of i n t e r e s t per ki l o m e t e r ; Cv = c a p i t a l cost of the v e h i c l e ; i = r a t e of i n t e r e s t ; Sa = average year-round operating speed; S i = average speed on the s p e c i f i c highway l i n k ; and Mva = average annual mileage. The values of Mva found i n Dahomey were: V e h i c l e Class 1 2 3 4 5 Mva(km.) 75000 60000 75000 50000 30000 In the c a l c u l a t i o n of economic c o s t s , Cv i s the c a p i t a l cost of the v e h i c l e s l e s s taxes and d u t i e s , and i represents the opportunity cost of c a p i t a l . In c a l c u l a t i n g f i n a n c i a l or "perceived" c o s t s , Cv i s the a c t u a l p r i c e p a i d by the purchaser and i i s the r a t e of i n t e r e s t a c t u a l l y p a i d i n the f i n a n c i n g of the v e h i c l e . (f) Occupants' time The cost of occupants' time per v e h i c l e k i l o m e t e r v a r i e s w i t h the number of occupants, the speed of the v e h i c l e , and the value per hour of the occupants' time. The average number of occupants per v e h i c l e i s normally determined by a v e h i c l e sur-vey, and the speed i s determined from the c a l c u l a t i o n s per-formed above i n determining f u e l consumption. The value per hour of occupants' time i s much more d i f f i c u l t to determine, and there i s no generally-agreed c r i t e r i a f o r use i n a l l cases. In the case of d r i v e r s and crews of commercial v e h i c l e s , the hourly wage r a t e i s most commonly used. This may or may not be reasonable, depending on the s k i l l s of the personnel i n v o l v e d , and t h e i r r e l a t i v e s c a r c i t y i n the country. In Thailand, f o r example, i t was found th a t the truck d r i v e r s were a l s o s k i l l e d mechanics, able to perform major r e p a i r s i n the event of 22 v e h i c l e breakdowns. In such a case, i t i s p o s s i b l e t h a t 22 General Engineering Company L t d . , op_. c i t . , p. 8-13. 80 w a g e r a t e s d o n o t f u l l y r e c o g n i z e t h e s c a r c i t y o f s u c h s k i l l e d p e r s o n n e l . T h e r e s t o f t h e t r u c k c r e w s , h o w e v e r , w e r e n o r m a l l y c o m m o n l a b o u r e r s , a n d t h e i r v a l u e i n a n e c o n o m y w i t h a f a i r l y h i g h d e g r e e o f u n e m p l o y m e n t o r u n d e r e m p l o y m e n t w a s p r o b a b l y o v e r s t a t e d b y t h e p r e v a i l i n g w a g e r a t e s . T h e r e f o r e , a l t h o u g h w a g e r a t e s m a y p r o v i d e a r e a s o n a b l e v a l u e o f t i m e f o r p e r s o n s t r a v e l l i n g w h i l e e n g a g e d i n t h e i r o c c u p a t i o n s , i t s h o u l d b e m o d i f i e d a c c o r d i n g t o c i r c u m s t a n c e s . T h e v a l u e o f t i m e f o r o t h e r t h a n v e h i c l e c r e w w i l l b e c o n s i d e r e d i n t h e n e x t c h a p t e r d e a l i n g w i t h b e n e f i t s . ( g ) O t h e r c o s t s T h e v e h i c l e o p e r a t i n g c o s t s n o t e d a b o v e a r e t h e m a j o r o n e s n o r m a l l y c o n s i d e r e d i n h i g h w a y i n v e s t m e n t a n a l y s i s . T h e c o s t o f i n s u r a n c e s h o u l d b e a d d e d t o t h e s e , e x c e p t i n t h o s e c a s e s w h e r e a s e p a r a t e a n a l y s i s o f t h e c o s t o f a c c i d e n t s i s m a d e . U n l e s s a s p e c i f i c a c c i d e n t s t u d y i s m a d e , i t i s d i f f i c u l t t o p r e d i c t t h e e f f e c t o f r o a d c h a n g e s o n t h e i n c i d e n c e a n d c o s t p e r k i l o m e t e r , b a s e d o n a n n u a l i n s u r a n c e p r e m i u m s a n d a v e r a g e a n n u a l v e h i c l e m i l e a g e , i s c o n s i d e r e d a c c e p t a b l e . T h e c o s t s s h o w n d o n o t i n c l u d e i t e m s s u c h a s l i c e n s i n g , o v e r h e a d a n d p r o f i t . T o t h e e x t e n t t h a t v e h i c l e l i c e n s i n g r e p r e s e n t s a s e r v i c e r a t h e r t h a n a t a x , i t s h o u l d b e i n c l u d e d w i t h e c o n o m i c c o s t s . T h e c o s t o f o v e r h e a d i n u n d e r d e v e l o p e d c o u n t r i e s i s o f t e n i n s i g n i f i c a n t , e s p e c i a l l y i n c a s e s w h e r e t h e m a j o r i t y o f t h e v e h i c l e s a r e o w n e r - d r i v e n , w i t h t h e o w n e r h a v i n g o n l y a s i n g l e v e h i c l e . I n c a s e s o f m u l t i - v e h i c l e 81 ownership, there are presumably some economies which j u s t i f y the overhead i n v o l v e d , i n which case the overhead i s a v a l i d item f o r i n c l u s i o n i n the economic c o s t s . A normal margin of p r o f i t i s a l s o a l e g i t i m a t e economic cost f o r i n c l u s i o n i n the a n a l y s i s . C. The Measurement of B e n e f i t s Vincent Hogg, speaking of the experience of the World Bank w i t h f e a s i b i l i t y study rep o r t s submitted by c o n s u l t a n t s , s t a t e s t h a t "... the main d i f f i c u l t y a r i s e s from conceptual and measurement problems r e l a t i n g to the b e n e f i t s a n t i c i p a t e d 23 from the p r o j e c t s under i n v e s t i g a t i o n . " In an e a r l i e r p a r t of t h i s chapter, i t was noted t h a t one of the most seriou s d e f i c i e n c i e s of t r a n s p o r t a t i o n investment stud i e s has been the f a i l u r e to r e l a t e the proposed investments to the econo-mies of the areas a f f e c t e d , and tha t one of the r e s u l t s of t h i s d e f i c i e n c y i s the tendency to c a l c u l a t e the b e n e f i t s of the investments p r i m a r i l y or e x c l u s i v e l y on the b a s i s of v e h i c l e operating cost savings. This tendency i s not s u r p r i s -i n g i n view of the time and budget l i m i t a t i o n s o f t e n imposed on consultants and the d i f f i c u l t y of measuring non-user b e n e f i t s . The d i f f i c u l t y of t h e i r measurement i s emphasized by Gary Fromm. V.W. Hogg, op_. c i t . , p. 31. 82 Because the b e n e f i t s of t r a n s p o r t f a c i l i t i e s are f r e q u e n t l y more i n d i r e c t than d i r e c t , they are ex-tremely d i f f i c u l t to q u a n t i f y , The t r a n s p o r t s e c t o r . . . i s dynamic i n a l t e r i n g r e l a t i v e p r i c e r e l a t i o n s h i p s between production f a c t o r s (by reducing d i s t r i b u t i o n costs through the p r o v i s i o n of p o r t s , highways, p i p e l i n e s , e t c . ) , thereby f a c i -l i t a t i n g the e x p l o i t a t i o n of u n u t i l i z e d , or under-u t i l i z e d resources. Improved t r a n s p o r t may a l s o help to increase the spread of the market economy, entrepreneurship, and p r i v a t e savings and investment i n productive a c t i v i t y . Determining the extent of t h i s dynamic s t i m u l a -t i o n of production i s d i f f i c u l t , however, i f not impossible. I t i s even more hazardous to place a value on these e x t e r n a l developmental e f f e c t s than to a s c r i b e them to p a r t i c u l a r p r o j e c t s or sectors . . . In most cases, e s p e c i a l l y when the s t i m u l a t i o n of development by t r a n s p o r t appears tenuous and the e f f e c t s are p r o b l e m a t i c a l , these b e n e f i t s should be c l a s s e d w i t h other n o n - q u a n t i f i a b l e economic f a c t o r s — to be i d e n t i f i e d and measured to the degree f e a s i b l e and i n c l u d e d i n the c o s t - b e n e f i t p r o j e c t e v a l u a t i o n as an addendum.24 As an a i d i n the a n a l y s i s of t h i s problem, p u b l i c c a p i t a l investments i n t r a n s p o r t a t i o n f a c i l i t i e s can be c l a s s i f i e d i n t o two major types: those designed to improve an e x i s t i n g t r a n s -p o r t a t i o n system or some of the i n d i v i d u a l l i n k s i n the system, and those designed to extend the system and expose new areas of l a n d , or other resources to economic development. In most stu d i e s of the f i r s t type of investment, the savings i n v e h i c l e operating costs form the greater p a r t , i f not a l l , of the b e n e f i t s measured. When attempts to measure other b e n e f i t s are made, they are most oft e n based on an estimate of generated Gary Fromm (ed.), Transport Investment and Economic  Development (Washington: The Brookings I n s t i t u t i o n , 1965), pp. 91-93. 83 t r a f f i c and the assumed b e n e f i t s represented by t h i s t r a f f i c . In the case of pe n e t r a t i o n roads designed to open new areas f o r p roduction, almost a l l of the t r a f f i c on the f a c i l i t y w i l l be generated t r a f f i c , and v e h i c l e operating cost savings w i l l be non-existent. In t h i s case, the an a l y s t i s forced t o take a d i f f e r e n t approach to the measurement of the b e n e f i t s of the proposed investment. The d i s t i n c t i o n between the two types of investment i s not d i f f i c u l t to make i n p r a c t i c e , although many t r a n s p o r t a t i o n investments contain some of the elements, i n greater or l e s s e r degree, of both c l a s s i f i c a t i o n s . Each type of investment w i l l be considered i n d i v i d u a l l y i n the f o l l o w i n g pages. 1. Improvement of an E x i s t i n g Road or System of Roads When e x i s t i n g f a c i l i t i e s are improved, a l l of the b e n e f i t s stem i n i t i a l l y from the r e s u l t i n g r e d u c t i o n i n ve-h i c l e operating c o s t s . As i n d i c a t e d e a r l i e r , many studie s c o n s i s t of only the measurement of these cost savings, and t h e i r magnitude i n r e l a t i o n to the c a p i t a l costs and i n c r e -mental maintenance costs r e q u i r e d . The measurement of these b e n e f i t s w i l l be considered f i r s t . Although operating cost savings are normally the e a s i e s t of a l l b e n e f i t s to q u a n t i f y , and present few conceptual pro-blems, some of the st u d i e s reviewed f a i l e d to measure them completely or c o r r e c t l y . The b e n e f i t s i n the form of operating cost savings accrue i n i t i a l l y to normal and d i v e r t e d t r a f f i c . 84 Normal t r a f f i c i s the t r a f f i c both present and f u t u r e which w i l l use a p a r t i c u l a r road l i n k over the per i o d of the a n a l y s i whether the l i n k i s improved or whether i t remains i n i t s e x i s t i n g c o n d i t i o n . Normal t r a f f i c i s thus encountered only on l i n k s which are i n existence at the beginning of the a n a l y s i s p e r i o d . I f the l i n k i s a proposed new l i n k , then there w i l l be no normal t r a f f i c ; a l l of the t r a f f i c w i l l be e i t h e r d i v e r t e d or generated. The annual operating cost savings f o r normal t r a f f i c c o n s i s t of the t o t a l annual operating costs of the t r a f f i c on the l i n k i n i t s present c o n d i t i o n f o r each year of the a n a l y s i l e s s the same costs as they would be wi t h the proposed improve ments to the l i n k . Thus, the c a l c u l a t i o n of the operating cost savings f o r normal t r a f f i c r e q u i r e s t h a t operating cost c o e f f i c i e n t s such as those shown p r e v i o u s l y be a p p l i e d to the t r a f f i c volumes, v e h i c l e types, and highway c h a r a c t e r i s t i c s f o r the l i n k i n i t s present c o n d i t i o n , and f o r the l i n k i n one or more stages of improvement, f o r each year of the analy-sxs p e r i o d . D i v e r t e d t r a f f i c i s t r a f f i c which would have used a d i f f e r e n t route or mode of t r a n s p o r t a t i o n i n the absence of the proposed investment which may c o n s i s t of the improvement " A l t h o u g h t h i s considers only the b e n e f i t to normal t r a f f i c , the v e h i c l e operating costs used should be the costs appropriate to the t o t a l t r a f f i c volume on the l i n k , i n c l u d i n g d i v e r t e d and generated t r a f f i c . 85 of an e x i s t i n g l i n k , or the c o n s t r u c t i o n of a new l i n k designed to reduce c o n g e s t i o n , d i s t a n c e , c u r v a t u r e or r a t e of r i s e and f a l l , by by-passing the e x i s t i n g l i n k . The o p e r a t i n g c o s t s a v i n g t o d i v e r t e d highway t r a f f i c i s c a l c u l a t e d i n the same way as t h a t f o r normal t r a f f i c : t o t a l annual o p e r a t i n g c o s t on the o r i g i n a l l i n k or ro u t e , l e s s the same c o s t on the im-proved o r new l i n k or r o u t e . Again, the t r a f f i c volumes used i n c a l c u l a t i n g o p e r a t i n g c o s t s should be the t o t a l volumes a p p r o p r i a t e t o each route i n each year. When the t r a f f i c i s d i v e r t e d from another mode of t r a n s p o r t a t i o n , the co s t s on the o r i g i n a l mode must be compared with the c o s t s on the new or improved road l i n k to determine the b e n e f i t s . In the case of t r a f f i c d i v e r t e d from r a i l w a y t o highway, only the marginal c o s t o f t r a n s p o r t a t i o n by r a i l w a y f o r the d i v e r t e d t r a f f i c s hould be c o n s i d e r e d . The d i f f e r e n c e s i n q u a l i t y of s e r v i c e between the d i f f e r e n t modes should a l s o be taken i n t o account, c o n s i d e r i n g t o t a l d i s t r i b u t i o n c o s t s as f a r as p o s s i b l e ; otherwise, the c o s t s of the two modes w i l l not be f a i r l y com-pa r a b l e . In the case of t r a f f i c d i v e r t e d from one highway t o another, the savings i n o p e r a t i n g c o s t s t o the d i v e r t e d t r a f f i c can be c a l c u l a t e d by the above procedure. However, the r e i s u s u a l l y an a d d i t i o n a l s a v i n g to t r a f f i c remaining on the o r i g i n a l highway, s i n c e i t i s now o p e r a t i n g under c o n d i -2 6 t i o n s o f reduced t r a f f i c volumes. T h i s b e n e f i t i s o f t e n Maintenance c o s t s on the o r i g i n a l highway may a l s o be reduced because of the r e d u c t i o n i n t r a f f i c volume. 86 27 neglected i n the st u d i e s of t r a n s p o r t a t i o n investments. A simple example w i l l serve to i l l u s t r a t e the measure-ment of b e n e f i t s i n the form of operating cost savings to normal and d i v e r t e d t r a f f i c . Assume a paved road A B C wi t h a g r a v e l -surfaced s h o r t - c u t , A C. The eastbound t r a f f i c flows are wi t h o r i g i n d e s t i n a t i o n p a i r s of A C, A B and B C f and west-bound, C A, C B and B A. I t i s proposed to pave the short-cut A C, which i s at present c a r r y i n g only h a l f of the through t r a f f i c between A and C. The remainder of the through t r a f f i c i s now t r a v e l l i n g v i a A B C . A f t e r paving i t i s expected that a l l through t r a f f i c w i l l t r a v e l v i a A C. The a n a l y s i s p e r i o d i s assumed to be twenty years, w i t h t r a f f i c growing at f i v e percent per year. The b e n e f i t s i n the form of v e h i c l e operating cost savings w i l l be as f o l l o w s : (a) Normal t r a f f i c : t h i s i s t r a f f i c now using the route A C, having operating costs i n each year of the a n a l y s i s appropriate to a g r a v e l s u r f a c e , and to the current and ex-pected f u t u r e annual t r a f f i c volumes, t a k i n g account of normal t r a f f i c growth. A f t e r the l i n k A C i s paved, the operating 27 H.D. Nobrmg and M. Harwitz, o p . c i t . , p. 4 . 87 costs of t h i s t r a f f i c w i l l tend to d e c l i n e because of the improved s u r f a c e , but w i l l tend to r i s e because of the i n -creased volume o f - t r a f f i c which w i l l use the l i n k a f t e r the improvement (normal plus d i v e r t e d plus generated t r a f f i c ) . Assuming a net d e c l i n e i n annual operating c o s t s , the saving i n year 1 w i l l be the t o t a l operating cost of the normal t r a f f i c on the unimproved road, minus the t o t a l operating cost of the same t r a f f i c as i t would be on the improved road, operating i n the heavier t r a f f i c . The saving i n year 20 w i l l be c a l c u l a t e d on the same b a s i s , but wit h t r a f f i c volumes both w i t h and without the improvement increased at f i v e percent . per year, l e a d i n g to higher u n i t operating c o s t s . (b) Diverted t r a f f i c : the p o r t i o n of the through t r a f f i c between A and C which i s now using A B C w i l l d i v e r t to A C i f the improvement i s made. Assuming roads A B C and A C w i l l be of s i m i l a r standards a f t e r the improvement, the operating cost saving t o the d i v e r t e d t r a f f i c w i l l c o n s i s t of the saving i n distance on the shorter route A C, plus (or minus) the d i f f e r e n c e i n u n i t operating costs corresponding to the d i f f e r e n c e i n t r a f f i c volumes. Again, t r a f f i c volumes w i l l i ncrease each year, both w i t h and without the improvement. The d i v e r s i o n of t r a f f i c from A B C to A C w i l l a l s o b e n e f i t the t r a f f i c remaining on A B C since i t w i l l be oper-a t i n g i n lower t o t a l t r a f f i c volumes. In measuring the b e n e f i t s i n the form of v e h i c l e oper-a t i n g cost savings, care must be taken to conform to the "with and without" methodology mentioned e a r l i e r i n t h i s t h e s i s , and the "before and a f t e r " approach should be co n s c i o u s l y avoided. The s i m p l e s t approach to a s i t u a t i o n such as the one used i n the example i s to adopt a " t o t a l c o s t " approach to the measurement of the operating cost savings f o r normal and d i v e r t e d t r a f f i c . This approach c o n s i s t s of f o r e c a s t i n g the t r a f f i c over the p e r i o d of the a n a l y s i s , assuming no change i n the road system, and c a l c u l a t i n g the t o t a l annual v e h i c l e operating c o s t , t a k i n g account of the increased u n i t operating costs r e s u l t i n g from i n c r e a s i n g t r a f f i c volumes. This t o t a l annual c o s t , i n c l u d i n g a l l v e h i c l e kilometers operated on a l l of the l i n k s shown i n the diagram, i s then compared w i t h the t o t a l annual cost of the comparable t r a f f i c , w i t h the highway improvement i n e f f e c t . This means tha t a second t r a f f i c f o r e c a s t must be made f o r the p e r i o d of the a n a l y s i s , t a k i n g account of the changes i n the p r o p o r t i o n of the t r a f f i c on each route which w i l l r e s u l t from the improve-ment i n route A C, and a l s o t a k i n g account of the generated t r a f f i c which w i l l r e s u l t from the highway improvement. The t o t a l cost i n t h i s case w i l l r e f l e c t the shorter distance t r a v e l l e d by the d i v e r t e d t r a f f i c , and the f a c t that the t r a f f i c remaining on A B C w i l l be operating under c o n d i t i o n s of lower t o t a l volume than would be the case without the im-provement. The generated t r a f f i c i s included i n the second f o r e c a s t i n order t h a t the operating costs of the normal and d i v e r t e d t r a f f i c w i l l be those appropriate to the t o t a l 89 t r a f f i c volumes i n which they operate. When comparing the costs w i t h and without the improvement, the operating cost of the generated t r a f f i c must be deducted from t o t a l o perating costs w i t h the improvement, i n order that only the costs of 2 8 the normal and d i v e r t e d t r a f f i c w i l l be compared i n each case. In many cases of investments designed t o improve an e x i s t i n g system, the b e n e f i t s are p r i m a r i l y i n the form of operating cost savings, and although these may be some mech-a n i c a l problems i n the measurement of the savings, there are seldom any conceptual problems. However, i n any case where t r a n s p o r t a t i o n costs are reduced, there w i l l a l s o be some 29 generation of new t r a f f i c , and the determination of the b e n e f i t s represented by t h i s t r a f f i c i s not.quite so simple as the determination of operating cost savings f o r e x i s t i n g and f u t u r e normal and d i v e r t e d t r a f f i c . By d e f i n i t i o n , gener-ated t r a f f i c i s t r a f f i c which would not have e x i s t e d without the road improvement; the r e f o r e there i s no cost saving i n v o l v e d , and the b e n e f i t must be measured i n some other way. Generated t r a f f i c may represent one or more of three 30 s i t u a t i o n s which r e s u l t from the road improvement. (1) t r a n s p o r t a t i o n of goods which would not have been produced without the road improvement; 2 8 This method was used i n the e v a l u a t i o n of the Thonburi-Paktho Highway i n Thailand r e f e r r e d to e a r l i e r i n t h i s chapter. 29 Except i n the unusual case of a p e r f e c t l y i n e l a s t i c demand f o r t r a n s p o r t a t i o n . 30 This r e f e r s t o commodity t r a f f i c . Person t r a f f i c may a l s o be generated. 90 (2) t r a n s p o r t a t i o n of goods which would have been produced, but not transported without the road improvement, and/or (3.) the a d d i t i o n a l t r a n s p o r t a t i o n of goods which would have been produced and transported i n any case, but are transported over greater distances as a r e s u l t of the road improvement. Hans Adle r suggests t h a t the r e a l measurement of the economic b e n e f i t s i n the f i r s t case i s the net value of the new production, i . e . the value of the production, l e s s the economic cost of the production. In the second and t h i r d cases, A d l e r s t a t e s t h a t the b e n e f i t could reasonably be c a l -c u l a t e d on the b a s i s of the p r i c e i n the o r i g i n a l market where the goods were s o l d and the p r i c e i n the new market, deducting from the p r i c e d i f f e r e n t i a l the e x t r a t r a n s p o r t a t i o n costs 31 i n v o l v e d . A l s o , i n order to consider these as b e n e f i t s a t t r i b u t a b l e to the t r a n s p o r t a t i o n investment, i t must be shown t h a t : (a) the a c t i v i t i e s would not have taken place except f o r the t r a n s p o r t a t i o n investment; (b) the resources used i n the a c t i v i t i e s would other-wise be unemployed, or would have been employed l e s s p r o d u c t i v e l y i n t h e i r a l t e r n a t i v e uses, and A d l e r , op. c i t . , pp. 5 5 - 5 6 . 9 1 (c) the a c t i v i t i e s do not d i s p l a c e other a c t i v i t i e s 32 which would otherwise have taken p l a c e . However, t h i s procedure does not consider the p o s s i b i l i t y t h a t the increased production may r e s u l t i n a r e d u c t i o n of the average cost of production, and t h a t the increased d i s t r i b u -t i o n of goods may r e s u l t i n a decrease i n the average cost of operating d i s t r i b u t i o n f a c i l i t i e s other than the road i t s e l f . A l s o , i t does not consider the p o s s i b i l i t y t h a t the market p r i c e of the t o t a l output of each commodity may change as a r e s u l t of the increased supply. The determination of the r e a l economic b e n e f i t s would r e q u i r e comprehensive stud i e s of the production, d i s t r i b u t i o n and marketing processes and t h e i r cost and p r i c e c h a r a c t e r i s -t i c s , however, and the cost of such stud i e s may not be con-s i d e r e d warranted i n cases where generated t r a f f i c , and the b e n e f i t s represented by t h i s t r a f f i c , are expected to be a r e l a t i v e l y minor by-product of the investment. The problem, of course, i s t h a t the a n a l y s t cannot be sure t h a t these e f f e c t s w i l l be minor without conducting the s t u d i e s . The method commonly used to estimate the b e n e f i t s represented by generated t r a f f i c i s to c r e d i t the generated t r a f f i c w i t h one-half of the u n i t operating cost savings 33 r e s u l t i n g from the highway improvement. 3 2 I b i d . , p. 54. 33 Robert T. Brown and C. G. H a r r a l , E s t i m a t i n g Highway  B e n e f i t s i n Underdeveloped Countries (Washington: The Brookings I n s t i t u t i o n , n.d.), pp. 3,7. 9 2 In the f o l l o w i n g diagram, i t i s assumed t h a t a highway improvement has reduced v e h i c l e operating costs from C to and that as a r e s u l t , the volume of t r a f f i c has increased from Q to Qi per u n i t of time. Cost per t r i p T r i p s per u n i t of time The area C A B C-^  represents the b e n e f i t to the normal t r a f f i c 0 Q, r e s u l t i n g from the cost r e d u c t i o n from C to C j . The area A D B i s held to represent the b e n e f i t to the generated t r a f f i c Q Q±. Mohring and Harwitz provide a complete ex p l a n a t i o n of t h i s method of measurement, and argue, w i t h some q u a l i f i c a t i o n s , t h a t i t provides an accurate measurement of the b e n e f i t s repre-34 sented by the generated t r a f f i c . David Winch a l s o s t a t e s t h a t the net b e n e f i t to generated t r a f f i c i s represented by the H.D. Mohring and M. Harwitz, op. c i t , Chap. I . The The authors r e f e r to the area A D B as the b e n e f i t , which i s not q u i t e the same as the common approximation of c r e d i t i n g the generated t r a f f i c w i t h one-half of the cost savings, except i n cases where the p o r t i o n of the demand represented by curve A D i s l i n e a r . area A D B. On the other hand, Brown and H a r r a l c l a i m t h a t t h i s method does not provide a measurement of a l l of the b e n e f i t s represented by generated t r a f f i c ; t h a t ". . .transport cost reductions are not an adequate measure of the increase i n production which can occur, e s p e c i a l l y i n underdeveloped 3 6 c o u n t r i e s . . ." and t h a t ". . . t r a d i t i o n a l techniques of e s t i m a t i n g b e n e f i t s which examine s o l e l y t r a n s p o r t savings are without conceptual foundation and can be s e r i o u s l y mis-l e a d i n g . The r e s o l u t i o n of t h i s d i f f e r e n c e of o p i n i o n w i l l not be attempted i n t h i s t h e s i s , because whether or not the area A D B i n the diagram i s a true measure of the b e n e f i t i s not the b a s i c problem. The above methodology r e q u i r e s t h a t the volume of generated t r a f f i c be estimated before the methodology can be a p p l i e d . The volume of generated t r a f f i c cannot be reasonably estimated without knowledge of the c h a r a c t e r i s t i c s of the t r a n s p o r t a t i o n demand curve f o r each component of the generated t r a f f i c expected to use the improved l i n k or l i n k s . In order to determine the c h a r a c t e r i s t i c s of the curve, data regarding the economic c h a r a c t e r i s t i c s of the production, David M. Winch, The Economics of Highway Planning (Toronto: U n i v e r s i t y of Toronto Press, 1963), pp. 93-94. 3 6 Robert T. Brown and C.G. H a r r a l , op. c i t . , p. 3. 3 7 T b l d . , p. 35. 94 consumption and d i s t r i b u t i o n of the commodities i n v o l v e d must be developed, so t h a t the r e a c t i o n to a change i n the cost of t r a n s p o r t a t i o n can be estimated. Thus, since a com-prehensive economic study i s r e q u i r e d i n order to estimate the volume of generated t r a f f i c and thus allow the above method to be used, and since the data obtained i n such a study could be used t o measure the b e n e f i t s d i r e c t l y , i t h ardly seems reasonable to then d i s r e g a r d the data and i n s t e a d attempt to measure the b e n e f i t s i n d i r e c t l y through the volume of generated t r a f f i c , e s p e c i a l l y when the v a l i d i t y of the r e s u l t s has been s e r i o u s l y questioned. David Winch suggests t h a t generated t r a f f i c i s best estimated "... i n the l i g h t of experience w i t h other comparable f a c i l i t i e s , " and suggests the use of a "gravity-model" formula of the form T = ( K . P l . P 2 ) / D n , where T = t r a f f i c flow per u n i t of time between the two areas; P l , P2 = populations of the two areas; D = distance between the two areas. This can be measured i n terms of t r a v e l c o s t , since a time r e d u c t i o n i s as important as a r e d u c t i o n i n mileage; K = a constant, dependent on incomes, e t c . ; and n = a p o s i t i v e exponent found e m p i r i c a l l y to vary between 0 . 6 and 3 . 3 6 . " ^ 3 8 David M. Winch, op_. c i t . , p. 9 5 . Winch a l s o suggests the use of a s i m i l a r approach to f o r e c a s t i n g t r a f f i c growth, again based p r i m a r i l y on p o p u l a t i o n , income and distance (or c o s t ) . A number of o b j e c t i o n s to t h i s method could be s t a t e d . Obviously, distance alone as the impedence f a c t o r i s i n s u f f i -c i e n t . A paved, w e l l - a l i g n e d highway may w e l l provide lower t r a n s p o r t a t i o n costs than a one-lane earth road, even though the distance v i a the l a t t e r were s h o r t e r , and the longer highway would then be expected to r e s u l t i n greater t r a f f i c generation. Thus, as Winch a l l o w s , the impedence f a c t o r should r e f l e c t t r a v e l cost. This i s a l s o i n s u f f i c i e n t , however. Even though t r a v e l cost were reduced by a highway improvement, there would be l i t t l e generation of t r a f f i c unless the savings were passed on by the highway operators, at l e a s t t o some extent. The incremental volumes of produc-t i o n , consumption and t r a n s p o r t a t i o n are a f f e c t e d by the changes i n costs as perceived by shippers and o t h e r s , which may be q u i t e d i f f e r e n t from the changes i n a c t u a l transpor-t a t i o n c o s t s . The main o b j e c t i o n , however, i s t h a t the f a c t o r used i n the measurement of mass i s population alone, modified by a constant "dependent on incomes, e t c . " Unless the " e t c . " takes i n t o account the productive c a p a c i t i e s of the areas, the e l a s t i c i t i e s of supply and demand of the various products t r a n s p o r t e d , and a number of s i m i l a r f a c t o r s , thenmost of f a c t o r s which determine the r e a c t i o n to a 39 change i n t r a n s p o r t a t i o n costs w i l l not be considered. 39 The generation of person t r a v e l may p o s s i b l e be reasonably estimated by the use of such a model, however. S i m i l a r models are used e x t e n s i v e l y i n s t u d i e s of urban t r a f f i c , where person t r i p s normally form a l a r g e p r o p o r t i o n of t o t a l t r i p s . 96 In summary, the measurement of the b e n e f i t s represented by generated t r a f f i c , on the b a s i s of the area A D B i n the diagram, i s not a s a t i s f a c t o r y method. In p r a c t i c e , however, s i t u a t i o n s a r i s e where v e h i c l e operating cost savings are reasonably expected to be the major b e n e f i t of a road im-provement, and time and budget c o n s t r a i n t s do not permit a comprehensive a n a l y s i s of other b e n e f i t s . In such a case, a measurement on t h i s b a s i s i s probably p r e f e r a b l e to no measure-ment at a l l . However, i t should be recognized t h a t t h i s provides only a very rough approximation of the r e a l b e n e f i t s , and t h a t i t i s a poor s u b s t i t u t e f o r a comprehensive economic study and the d i r e c t measurement of other b e n e f i t s . This problem i s considered to represent a major d e f i c i e n c y of e x i s t i n g methods and a p p l i c a t i o n s , once again r e s u l t i n g from the f a i l u r e to r e l a t e proposed t r a n s p o r t a t i o n investments t o the economy, and w i l l be considered f u r t h e r i n Chapter IV. 2. C o n s t r u c t i o n of New Roads to Develop New Areas The "pure" example of t h i s s i t u a t i o n would be a case where there was a b s o l u t e l y no economic a c t i v i t y i n an area, and a l l of the t r a f f i c on the proposed road would be generated t r a f f i c . A more common case would be one where there was some commodity t r a n s p o r t a t i o n , by human porterage or by animal, f o r trade purposes, but to a l l i n t e n t s and purposes the only economic a c t i v i t y of the area c o n s i s t s of subsistence a g r i c u l -t u r e . In e i t h e r of these cases, an attempt to measure the 97 b e n e f i t s of the road investment by c o n s i d e r i n g only t r a f f i c volumes and changes i n operating costs would be u n s a t i s f a c -t o r y . The most acceptable measurement of b e n e f i t i n such a case i s the net value of the new production which i s a t t r i -butable to the highway investment, plus the net increase i n 4 0 value added to goods p r e v i o u s l y produced but not transported. Although a g r i c u l t u r e i s the most common a c t i v i t y i n such a case i n underdeveloped c o u n t r i e s , and i s therefore used as an ex-ample , the general measurement procedure can be e q u a l l y a p p l i e d to f o r e s t r y , mining, or most other types of economic a c t i v i t y . The net value i s normally considered to be the p r i c e p a i d i n the market where the goods are exchanged, l e s s the incremental economic cost of producing the goods and d e l i v e r i n g them to the market. This again r e q u i r e s a comprehensive study of the production processes, the resources r e q u i r e d and t h e i r economic values, and the f a c t o r s which determine the p r i c e i n the markets f o r the production; i n s h o r t , a comprehensive economic study of the area a f f e c t e d , s i m i l a r to t h a t r e q u i r e d f o r the measurement of the b e n e f i t s represented by generated t r a f f i c i n the case of the improvement of an e x i s t i n g road. In concept, the measurement of the b e n e f i t i n the two cases i s the same, w i t h the d i f f e r e n c e being l a r g e l y one of degree. In the case of improving an e x i s t i n g road, the a n a l y s t Hans A d l e r , op. c i t . , pp. 55-56. 98 must attempt to measure the r e s u l t s of a change i n transpor-t a t i o n costs i n an area which was p r e v i o u s l y economically a c c e s s i b l e , and the changes, wh i l e they may be s i g n i f i c a n t , would not normally be expected to be r e v o l u t i o n a r y . In the case of a new road, p e n e t r a t i n g an area which was p r e v i o u s l y economically i n a c c e s s i b l e , i t i s s t i l l a question of reducing t r a n s p o r t a t i o n c o s t s , but the changes r e s u l t i n g i n t h i s case may be very f a r - r e a c h i n g ones, perhaps r e s u l t i n g i n the beginning of the t r a n s i t i o n from a subsistence economy to an exchange economy, and i n r a d i c a l changes i n the types of a g r i c u l t u r a l crops t r a d i t i o n a l l y produced. In opening up new areas t o production, or i n the t r a n s i t i o n from subsistence to market production, investments i n i r r i g a t i o n , land c l e a r i n g , equipment and other f a c i l i t i e s , as w e l l as i n the t r a n s p o r t a t i o n f a c i l i t y , are oft e n r e q u i r e d . When s i g n i f i c a n t non-transport investment i s req u i r e d to r e a l i z e the new production, the problem a r i s e s of a l l o c a t i n g the b e n e f i t s among the t r a n s p o r t investment and the other investments. The p r e f e r a b l e approach i n such a s i t u a t i o n i s not to make an a l l o c a t i o n at a l l , but rat h e r to consider a l l of the investments as p a r t of the same p r o j e c t and compare t o t a l b e n e f i t s w i t h t o t a l c o s t s . In some cases, however, grouping a l l of the investments i n t o a s i n g l e p r o j e c t i s un-s a t i s f a c t o r y , and an a l l o c a t i o n of b e n e f i t s to the various investments must be made. This could be the case, f o r example, i f the d i f f e r e n t investments were being undertaken and financed by d i f f e r e n t i n t e r n a t i o n a l agencies, and each agency r e q u i r e d t h a t a r e t u r n be c a l c u l a t e d on i t s p a r t i c u l a r investment. I t i s d i f f i c u l t to make such an a l l o c a t i o n except a r b i t r a r i l y , or on the b a s i s of s u b j e c t i v e judgment, but there are a l t e r n a t i v e methods which may be t e s t e d . One i s to a l l o c a t e b e n e f i t s to the t r a n s p o r t a t i o n investment i n the same r a t i o as the t r a n s -41 port investment has to the other investments. Another i s to assume th a t the non-transport investments w i l l earn a r e t u r n equal to the opportunity cost of c a p i t a l , and to deduct a corresponding amount from the t o t a l b e n e f i t s f o r e c a s t f o r each year of the a n a l y s i s . Neither of these methods r e a l l y d i s -t i n g u i s h e s among the b e n e f i t s a t t r i b u t a b l e to the d i f f e r e n t investments, however, and an a l l o c a t i o n should be avoided i f p o s s i b l e . The c r e a t i o n of economic access to a p r e v i o u s l y un-developed area can only create the opportunity f o r economic development; i t cannot ensure t h a t the development w i l l , i n f a c t , take p l a c e . The response to the opportunity depends on a number of f a c t o r s , not a l l of which are economic f a c t o r s . "The response may be zero, negative, or p o s i t i v e i n terms of developmental impact and i s broadly bound up w i t h aspects of c u l t u r e , s o c i a l r e l a t i o n s h i p s , i n d i v i d u a l psychology, and 42 l e v e l s of w e l l - b e i n g . " Wilson quotes the example of the 41 I b i d . , p. 55. 42 George W. Wilson, e t a l . , The Impact of Highway  Investment on Development (Washington: The Brookings I n s t i -t u t i o n , 1966) , p. 192. 100 Kota Belud d i s t r i c t of North Borneo where two races, the Dusuns and the Bajaus, occupy adjacent areas. The Dusun area i s h i l l y , and i s served by only one road, w h i l e the Bajau area i s e a s i e r country and i s served by a small network of roads. In s p i t e of these d i f f e r e n c e s , n e a r l y 100 percent of the rubber planted i n the Kota Belud d i s t r i c t i s i n the Dusun area, and the road i s w e l l used. The Bajaus, however, have continued t o c u l t i v a t e padi f i e l d s and to r e a r b u f f a l o e s , the r e t u r n from these being lower than that from rubber and the work only occupies about four months of the year, the roads b a r e l y being used. In f a c t , i t i s d o u b t f u l i f road access i n the Bajau area has l e d to any increased l o c a l development at a l l . 4 3 S i m i l a r s i t u a t i o n s have been noted i n M a l a y s i a , where the groups i n v o l v e d were Chinese and Malays.^4 The d i f f e r e n c e s i n response to the economic o p p o r t u n i t i e s i n these cases are a t t r i b u t e d to the a t t i t u d e s of the d i f f e r e n t e t h n i c groups. Obviously, a c o n s i d e r a t i o n of economic f a c t o r s alone cannot provide r e l i a b l e i n d i c a t i o n s of the economic b e n e f i t s of t r a n s p o r t a t i o n improvements, which suggests the n e c e s s i t y of i n c l u d i n g other s o c i a l sciences i n the e v a l u a t i o n of transpor-t a t i o n investments. The importance of other f a c t o r s r e l a t i v e I b i d . , p. 140. Quoted from R.S.P. Bonney, The Place of Transport,; P a r t i c u l a r l y Road Transport i n the; Economic and  S o c i a l Development m North 1 Borneo (United Nations, Conference on the A p p l i c a t i o n of Science and Technology f o r the B e n e f i t of the Less Developed Areas, 1962). 44 I b i d . , p. 141; a l s o W. Hughes, The C o n t r i b u t i o n of  Highway Transpo r t a t i o n to Economic and S o c i a l Development (Address to the Automotive Transport A s s o c i a t i o n Annual Convention, 1964) . 101 to t h a t of economic f a c t o r s w i l l d i f f e r from case to case, but i t has been suggested t h a t the economic f a c t o r s may not be the primary ones. " . . . i n those c o u n t r i e s where growth seems most e s s e n t i a l f o r human w e l f a r e , problems outside the 45 conventional l i m i t s of economics are s u r e l y paramount." There i s no simple s o l u t i o n to t h i s problem, arid none w i l l be attempted here, except to recommend t h a t non-economic determinants of economic development be subjected to st u d i e s e q u a l l y comprehensive as those a p p l i e d to economic deter-minants . D. Summary: The Measurement of Costs and B e n e f i t s This chapter has provided a f a r from exhaustive t r e a t -ment of the costs and b e n e f i t s of t r a n s p o r t a t i o n investments, and t h e i r measurement. However, i t has served the purpose of i d e n t i f y i n g many of the problems encountered i n the measure-ment. S o l u t i o n s have been suggested f o r many of the minor problems i d e n t i f i e d ; p a r t i c u l a r l y those problems which a r i s e i n the a p p l i c a t i o n s of the methodology, r a t h e r than i n i t s conceptual foundations. However, some major problems i n the e x i s t i n g methods, and some major d e f i c i e n c i e s i n t h e i r a p p l i -c a t i o n s , have a l s o been i d e n t i f i e d , and no s o l u t i o n s have been o f f e r e d . > 45 B.F. H o s e l i t z , et a l . , Theories of Economic Growth (New York: The Free Press of Glencoe, 1960), p. 242. 102 Most of the major d e f i c i e n c i e s i n current methods can be as c r i b e d to the f a i l u r e to make a comprehensive economic study of the area appropriate to the l e v e l of d e c i s i o n , and to consider the r e l a t i o n s h i p s between the economy and the t r a n s -p o r t a t i o n system. The demand f o r t r a n s p o r t a t i o n i s p r i m a r i l y a d e r i v e d demand, thus t r a f f i c flows must be f o r e c a s t on the ba s i s of f o r e c a s t s of the economic a c t i v i t i e s which are ex-pected to produce the t r a f f i c . This must be done w i t h a con-s i d e r a b l e degree of d i s a g g r e g a t i o n — a t the l e v e l of i n d u s t r i e s , and f o r r e l a t i v e l y small areas—because of the f a c t t h a t aggregated i n d i c a t i o n s of economic growth f o r a country or f o r a l a r g e area may bear l i t t l e r e l a t i o n s h i p to the s i t u a t i o n i n a s p e c i f i c , small area or on a s i n g l e l i n k of the transpor-t a t i o n system. Changes i n the t r a n s p o r t a t i o n system, or to a l i n k i n the system, w i l l i n tu r n have an e f f e c t on the economy. Thus, changes i n t r a n s p o r t a t i o n s e r v i c e c h a r a c t e r i s t i c s and costs which w i l l r e s u l t from proposed investments must be r e l a t e d back to the economy, and t h e i r impact evaluated i n terms of t h e i r e f f e c t on production, consumption, d i s t r i b u t i o n p a t t e r n s , and thus on t r a f f i c volumes. The changes i n q u a n t i t i e s and patterns of production, consumption and d i s t r i b u t i o n imply costs and b e n e f i t s other than those d i r e c t l y r e l a t e d to t r a n s p o r t a t i o n . An a n a l y s i s of these f a c t o r s based s o l e l y on v e h i c l e operating cost savings and the assumed b e n e f i t s to generated t r a f f i c i s a more i n d i r e c t and l e s s s a t i s f a c t o r y 103 method of measuring these other costs and b e n e f i t s than are other methods which w i l l be proposed. The other major d e f i c i e n c y i d e n t i f i e d i s the f a i l u r e to evaluate s i n g l e t r a n s p o r t a t i o n investments i n the context of the whole t r a n s p o r t a t i o n system. A change i n a s i n g l e l i n k of the system w i l l almost always a f f e c t t r a f f i c volumes on some or a l l of the other l i n k s . These e f f e c t s are seldom considered i n the a p p l i c a t i o n of current methods of transpor-t a t i o n investment a n a l y s i s . This tendency to analyse s p e c i f i c t r a n s p o r t a t i o n pro-j e c t s as though they were divorced from the r e s t of the economy and from the r e s t of the t r a n s p o r t a t i o n system must almost i n v a r i a b l y r e s u l t i n i n a c c u r a c i e s i n the measurement of costs and b e n e f i t s . A considerable degree of inaccuracy i s unavoidable i n f o r e c a s t i n g the fut u r e e f f e c t s of proposed t r a n s p o r t a t i o n investments, p a r t i c u l a r l y i n view of the d i f f i c u l t y of p r e d i c t i n g human r e a c t i o n s to a change i n c i r -cumstances, the frequent lack of r e l i a b l e data, and the u n c e r t a i n t y which w i l l always accompany f o r e c a s t s ranging up to twenty years or more i n the f u t u r e . However, the in a c c u r -acy should not be compounded by the use of methods which are conceptually i n c o r r e c t or incomplete. These major problems w i l l be considered f u r t h e r i n Chapter IV, and p o s s i b l e s o l u t i o n s w i l l be proposed. CHAPTER IV SYSTEMS ANALYSIS AND NATIONAL INCOME METHODS A. Systems A n a l y s i s The methodology s e l e c t e d f o r the e v a l u a t i o n of pro-posed p u b l i c investments i n t r a n s p o r t a t i o n should not only take account of the r e l a t i o n s h i p s between the t r a n s p o r t a t i o n system and the economy, and between i n d i v i d u a l l i n k s and the whole system, but i t should a l s o be able to accommodate the procedures recommended p r e v i o u s l y to remedy the minor d e f i -c i e n c i e s i d e n t i f i e d . I t must ther e f o r e be capable of handling a l a r g e number of interdependent v a r i a b l e f a c t o r s . Even i n a r e l a t i v e l y simple a n a l y s i s , there may be more than one hundred e x i s t i n g and p o s s i b l e new highway l i n k s , w i t h each e x i s t i n g l i n k having a number of p o s s i b l e l e v e l s of improve-ment, and each proposed new l i n k having a number of p o s s i b l e c o n s t r u c t i o n standards, each w i t h a d i f f e r e n t c a p i t a l c o s t . For each p o s s i b l e standard of each l i n k , there may be two or more p o s s i b l e l e v e l s of maintenance, each w i t h a d i f f e r e n t maintenance co s t . For each highway standard and maintenance l e v e l , there i s a d i f f e r e n t l e v e l of v e h i c l e operating c o s t s , f o r each v e h i c l e type. In a d d i t i o n , v e h i c l e operating costs a l s o vary w i t h the volume of t r a f f i c , the load f a c t o r , power, road gradient and speed, which themselves are to some extent interdependent. The d i f f e r e n t components of v e h i c l e operating 105 operating costs vary d i f f e r e n t l y w i t h changes i n these determinants. Each p o s s i b l e change on each l i n k has d i f f e r e n t i m p l i -c a t i o n s i n terms of savings to normal t r a f f i c , and i n terms of the volumes of d i v e r t e d and generated t r a f f i c ; thus, a l s o i n terms of i t s e f f e c t s on other l i n k s . I t a l s o has d i f f e r e n t i m p l i c a t i o n s i n terms of the q u a n t i t i e s and values of changes i n production and consumption and other i n d i r e c t e f f e c t s , which i n t u r n act back on the t r a n s p o r t a t i o n system. Thus, i n any but the simplest of cases, a systems ana-l y s i s i s r e q u i r e d , and the volume of computation d i c t a t e s the use of an e l e c t r o n i c computer. The term 'systems a n a l y s i s ' as used here simply i m p l i e s a method of a n a l y s i s which takes account of the f a c t t h a t i n the system, no one p a r t — b e i t a road l i n k , a v e h i c l e , a u n i t of production or consumption, or any other p a r t of the system--is e n t i r e l y independent of the other p a r t s , and a change i n one p a r t of the system w i l l a f f e c t the operation of some or a l l of the other p a r t s . In t h i s context, both of the methods of investment a n a l y s i s to be con-sid e r e d i n t h i s chapter are systems analyses. B. N a t i o n a l Income Methods I t was s t a t e d i n Chapter I I th a t the o b j e c t i v e of p u b l i c t r a n s p o r t a t i o n investment a n a l y s i s assumed i n t h i s t h e s i s i s to determine the a l l o c a t i o n of p u b l i c funds w i t h i n the 106 t r a n s p o r t s e c t o r i n such a way tha t they w i l l produce the maximum p o s s i b l e c o n t r i b u t i o n to n a t i o n a l income. Therefore, the i d e a l method of investment e v a l u a t i o n i s one which w i l l evaluate proposed investments i n terms of t h e i r e f f e c t s on n a t i o n a l income. In p r a c t i c e , the term ' n a t i o n a l income methods' of e v a l u a t i o n has come to have two meanings. In one, i t i m p l i e s a s i m u l a t i o n of the economy and the a c t u a l measure-ment of n a t i o n a l income, w i t h the j u s t i f i c a t i o n f o r transpor-t a t i o n investments being evaluated i n terms of t h e i r t o t a l e f f e c t s on the measured n a t i o n a l income. In the other, i t i s taken to mean an approach to investment e v a l u a t i o n which attempts to measure the f u l l impact of t r a n s p o r t a t i o n i n v e s t -ments on the whole economy, but without s i m u l a t i n g the whole economy, and a c t u a l l y measuring n a t i o n a l income. Hans Adle r advocates t h i s approach. . . . the n a t i o n a l income approach i s u s e f u l i n focus i n g on costs and b e n e f i t s from the p o i n t of view of the economy as a whole and not merely of the p a r t i e s d i r e c t l y i n v o l v e d . In t h i s way i t helps i n s e l e c t i n g the b e n e f i t s to be in c l u d e d and those to be omitted. . . . I t i s h e l p f u l i n i d e n t i f y i n g economic costs and b e n e f i t s , but not i n measuring them.l The f i r s t of the two methods to be considered here i s commonly r e f e r r e d to as the Harvard Model. I t comes w i t h i n •'•Hans A. A d l e r , Sector and P r o j e c t Planning i n Trans-p o r t a t i o n (Washington: World Bank S t a f f Occasional Papers Number Four, 1967), p. 37. 107 the f i r s t meaning of n a t i o n a l income methods i n th a t i t attempts to simulate the economy, measure n a t i o n a l income, and evaluate t r a n s p o r t a t i o n investments i n terms of the changes they pro-duce i n the measured n a t i o n a l income. The second method, which was developed s p e c i f i c a l l y f o r a land t r a n s p o r t a t i o n study of Dahomey, A f r i c a , w i l l be r e f e r r e d to here as the "Dahomey method." I t comes w i t h i n the second meaning i n th a t i t does not attempt to measure n a t i o n a l income, but i t does attempt to measure the e f f e c t of t r a n s p o r t a t i o n investments on n a t i o n a l income to the gr e a t e s t p r a c t i c a b l e extent. 2 1. The Harvard Model The Harvard Model was developed by the Harvard Trans-p o r t a t i o n and Economic Development Program, wi t h a s s i s t a n c e from the Brookings I n s t i t u t i o n . I t a c t u a l l y c o n s i s t s of two d i s t i n c t models: a macro-economic model, which measures n a t i o n a l income and f u r n i s h e s r e g i o n a l production and consump-t i o n data to the second model, the t r a n s p o r t model, which i n tu r n provides t r a n s p o r t a t i o n flows and costs f o r the economic model. These models are run f o r each year of the a n a l y s i s There i s very l i t t l e p ublished data regarding the Harvard Model. Except where otherwise noted, a l l of the m a t e r i a l on the Model has been deri v e d from the f o l l o w i n g p u b l i c a t i o n . Paul O. Roberts, Transport Planning: Models  f o r Developing Countries (Ann Arbor, Mich.: U n i v e r s i t y M i c r o f i l m s Inc., 1 9 6 7 ) . This i s a reproduction of a Ph.D. d i s s e r t a t i o n submitted to Northwestern U n i v e r s i t y i n 1966 . 108 p e r i o d , w i t h the outputs of each year being used as inputs f o r the succeeding year. A d e t a i l e d d e s c r i p t i o n of the Harvard Model i s beyond the scope of t h i s t h e s i s ; t h e r e f o r e , only the major features which are r e l e v a n t to i t s use i n investment e v a l u a t i o n w i l l be considered. In the f o l l o w i n g s e c t i o n s , an a n a l y s i s at the n a t i o n a l l e v e l of d e c i s i o n i s assumed. Although a l l modes of t r a n s p o r t a t i o n may be included i n the model, the d e s c r i p t i o n i s based on highway transpor-t a t i o n i n keeping w i t h the r e s t of t h i s t h e s i s . (a) The Transport Model The purpose of the t r a n s p o r t model i s t o simulate commodity and v e h i c l e flows on a t r a n s p o r t a t i o n network, and to c a l c u l a t e v e h i c l e operating costs r e s u l t i n g from the flows. In using the model, the country i s f i r s t d i v i d e d i n t o a number of geographical r e g i o n s , w i t h an e x t r a region to repre-sent the e x t e r n a l world. The t r a n s p o r t a t i o n system i s repre-sented as a s e r i e s of l i n k s and nodes j o i n i n g the regions , w i t h the l i n k s r epresenting t r a n s p o r t a t i o n f a c i l i t i e s such as roads and r a i l w a y s , and the nodes representing c i t i e s and po i n t s of t r a n s p o r t a t i o n interchanges. The b a s i c inputs to the t r a n s p o r t model c o n s i s t of l i n k c h a r a c t e r i s t i c s , v e h i c l e c h a r a c t e r i s t i c s and operating c o s t s , and r e g i o n a l supply and demand data by commodity or commodity group. The l i n k c h a r a c t e r i s t i c s i n the case of a road l i n k i n c l u d e the f o l l o w i n g : 109 length of the l i n k , surface type, design speed, r i s e and f a l l , w i d th, number of lanes. The v e h i c l e f l e e t i n the country i s d i v i d e d i n t o three c l a s s e s of t r u c k s — b u l k v e h i c l e s , general v e h i c l e s , and s p e c i a l ve-h i c l e s such as tank t r u c k s — p l u s buses and p r i v a t e automobiles. For a r e p r e s e n t a t i v e or 'average' v e h i c l e i n each c l a s s , the f o l l o w i n g data i s recorded: weight v e h i c l e c a p i t a l cost payload cost per t i r e horsepower crew wages per hour number of t i r e s f u e l cost per g a l l o n l i f e t i m e mileage o i l cost per quart number i n crew maintenance cost Formulae s i m i l a r to those shown i n Chapter I I I are a l s o i n -cluded to permit the c a l c u l a t i o n of v e h i c l e operating costs under various road, t r a f f i c and v e h i c l e load c o n d i t i o n s . The r e g i o n a l supply and demand data are derived from the economic model, which w i l l be described i n a l a t e r p a r t of t h i s chapter. For each commodity, a commodity preference f a c t o r i s developed to i n d i c a t e the r e l a t i v e importance to the 110 commodity of t r a n s p o r t c o s t , w a i t i n g time, t r a v e l time, r e -l i a b i l i t y i n terms of the v a r i a b i l i t y of t r a v e l time, and the p r o b a b i l i t y of l o s s . Link performance f a c t o r s are a l s o developed t o i n d i c a t e the performance of each l i n k i n terms of t r a n s p o r t c o s t , w a i t i n g time, and the other f a c t o r s noted above. These two sets of factors—commodity preference f a c t o r s and l i n k performance f a c t o r s — a r e then combined to i n d i c a t e the u t i l i t y to the shipper (or conversely, the t o t a l cost) of shipping a commodity over a l i n k . I f a l l of the q u a l i t a t i v e f a c t o r s noted above are expressed i n terms of cost to the shipper, f o r example, the 'R-factor' w i l l be 3 expressed i n terms of t o t a l cost as perceived by the shipper. Given the above input data, the flow of each commodity between the supply region and the demand regions i s simulated by e i t h e r a l i n e a r program or a g r a v i t y model, and i s assigned to t r a n s p o r t a t i o n modes and l i n k s , such that the sum of the R-factor i s minimized. Each commodity flow i s assigned to a p a r t i c u l a r v e h i c l e c l a s s , depending on the c h a r a c t e r i s t i c s of the commodity. The r e s u l t i n g f l o w s , by commodity and v e h i c l e c l a s s i f i c a t i o n , are accumulated on the l i n k s to show the t o t a l commodity and v e h i c l e volumes on each l i n k . The empty back-hauls r e s u l t i n g from d i r e c t i o n a l imbalances i n commodity 3 The 'R-factor' i s the expression used i n the model to denote the combined e f f e c t s of the commodity preference f a c t o r and the l i n k performance f a c t o r . I l l flows are considered i n converting commodity flows to v e h i c l e f l o w s . 4 The a n a l y s t has the choice of a l i n e a r program or a g r a v i t y model i n d i s t r i b u t i n g each commodity between production and consumption areas. In the use of a l i n e a r program, each production area w i l l supply only a l i m i t e d number of consump-t i o n areas, and no c r o s s - h a u l i n g can take p l a c e . The use of a g r a v i t y model r e s u l t s i n every production area supplying at l e a s t some of the commodity to every consumption area, and c r o s s - h a u l i n g can occur. The method which w i l l best simulate the a c t u a l flow of any commodity depends l a r g e l y on the nature of the commodity. In the case of a homogeneous product w i t h s i m i l a r p h y s i c a l and cost c h a r a c t e r i s t i c s regardless of the l o c a t i o n of the supply area, the l i n e a r program w i l l normally provide the best s i m u l a t i o n of the a c t u a l flow, w h i l e the g r a v i t y model normally provides the best s i m u l a t i o n i n the case of non-homogeneous products, or product groups. In cases where there are s i g n i f i c a n t seasonal v a r i a t i o n s i n commodity f l o w s , seasonal disaggregation t a b l e s f o r the commodities can be prepared, showing the p r o p o r t i o n of the t o t a l annual flow of each commodity which occurs i n each of the defined seasons. The t r a n s p o r t model can then be run sep a r a t e l y f o r each season i n the year. Rather than expressing d i r e c t i o n a l imbalances i n terms of empty back-hauls, they may be expressed i n terms of reduced average load f a c t o r s f o r each v e h i c l e c l a s s i f i c a t i o n . 112 In summary, given the above t r a n s p o r t a t i o n and economic inputs f o r a given year, the t r a n s p o r t model i s simply a t o o l f o r s i m u l a t i n g commodity and v e h i c l e flows over the t r a n s p o r t a -t i o n system f o r tha t year, and f o r c a l c u l a t i n g the ass o c i a t e d t r a n s p o r t a t i o n c o s t s . (b) The Macro-Economic Model The macro-economic model has two purposes: the develop-ment of r e g i o n a l supply, demand and cost data f o r use i n the tr a n s p o r t model, and the c a l c u l a t i o n of n a t i o n a l income, both f o r each year of the a n a l y s i s p e r i o d . I t represents an attempt to simulate a whole economy, t a k i n g account of the i n t e r -r e l a t i o n s h i p s among general economic v a r i a b l e s such as p r i c e s , incomes, consumption, savings, investments and p r o f i t s , and emphasizing to some extent the r o l e of t r a n s p o r t a t i o n i n the economy. The core of the model i s a n a t i o n a l input-output t a b l e which i s used t o determine the inputs r e q u i r e d to produce a u n i t of output of each commodity, and which i n c o r p o r a t e s , by means of i t s t e c h n i c a l c o e f f i c i e n t s , the i n t e r - i n d u s t r y t r a n s -a c t i o n s which are generated by any given set of demands f o r f i n a l products. In a d d i t i o n to the input-output t a b l e , the model incorporates a s e r i e s of equations which express the i n t e r r e l a t i o n s h i p s among the various v a r i a b l e f a c t o r s which determine n a t i o n a l income. For each year and f o r each r e g i o n , a f i n a l b i l l of goods i s determined on the ba s i s of p r i v a t e 113 consumption, investment i n p l a n t , investment i n inventory and government expenditures; exports are added to o b t a i n n a t i o n a l demand. Some of the v a r i a b l e s , such as government expenditure, exports and p a r t of the investment, are s p e c i f i e d exogenously f o r each year. Consumption i s based on wages and dividends from the previous year. The output of each i n d u s t r y i s obtained from the input-output computation f o r the whole country, and a l l o c a t e d to regions on the b a s i s of r e g i o n a l outputs i n the previous year, r e g i o n a l p r o f i t a b i l i t y and r e g i o n a l c a p a c i t y . Regional output i s i n t u r n the b a s i s f o r computing r e g i o n a l wages, d e p r e c i a t i o n of p l a n t , revenue, cost of mater-i a l s and taxes. From these, p r o f i t s , r e t a i n e d earnings, dividends and average revenue are computed f o r each commodity, using p r i c e s from the previous year i n the revenue c a l c u l a -t i o n s . Regional demands are developed by computing i n t e r -mediate goods demand on the b a s i s of the t e c h n o l o g i c a l c o e f f i -c i e n t s incorporated i n the input-output t a b l e and adding t h i s to r e g i o n a l f i n a l demands. A new p r i c e f o r each commodity i s then c a l c u l a t e d , using average supply c o s t s , marginal supply c o s t s , average t r a n s p o r t costs and s p e c i f i c s a l e s taxes. The new p r i c e s are then used i n the operation of the model i n the subsequent year. The f i n a l output which i s r e l e v a n t to the t r a n s p o r t model i s the r e g i o n a l supply, demand, and production cost f o r each i n d u s t r y included i n the input-output t a b l e . 114 The development of these data i s one of the purposes of the macro-economic model. The other purpose of the model i s to c a l c u l a t e 5 n a t i o n a l income. T o t a l n a t i o n a l demand i s taken as the sum of a l l r e g i o n a l consumer demands f o r f i n a l goods and s e r v i c e s , plus investment demands t o replace p l a n t and equipment or t o increase c a p a c i t y , plus government and export demand, which i n t o t a l are v i r t u a l l y e q u i v a l e n t to gross n a t i o n a l product. N a t i o n a l income i s then derived through appropriate adjustments i n i n v e n t o r i e s and savings. Regional demands f o r f i n a l goods and s e r v i c e s are deriv e d from the input-output t a b l e . Invest-ment demand i s deriv e d from an exogenous term which in c l u d e s f o r e i g n grants and loans as w e l l as more complicated f a c t o r s such as changes i n c a p i t a l f l i g h t and hoarding p r a c t i c e s , plus an i n t e r n a l l y - d e r i v e d term based on savings and p r o f i t l e v e l s . Government demand and exports are s p e c i f i e d exogenously, as st a t e d e a r l i e r . The input data requirements of the model are obviously q u i t e demanding. Since knowledge of these requirements i s e s s e n t i a l to the assessment of the a p p l i c a b i l i t y of the model to a given s i t u a t i o n , a p a r t i a l l i s t of some of the data r e -The d e s c r i p t i o n of t h i s feature of the model i s derived from B r i a n V. M a r t i n and Charles B. Warden, "Transportation Planning i n Developing Countries," T r a f f i c Q u a r t e r l y , v o l . 19 (January 1965), pp. 59-75. 115 q u i r e d i s given below. The inputs are broken down i n t o those r e q u i r e d f o r the i n i t i a l year, and those r e q u i r e d f o r each subsequent year. I n i t i a l Year Regional production cost by commodity P r i c e s of domestic goods and of imports Regional incomes Average propensity to consume Average propensity to import I n i t i a l i n v e n t o r i e s by commodity I n i t i a l outputs, by i n d u s t r y and commodity Investment g e s t a t i o n p e r i o d s , by i n d u s t r y Past p r o f i t s and expected earnings, by i n d u s t r y I n i t i a l investments, by i n d u s t r y Input-output t a b l e c o e f f i c i e n t s ( i . e . t e c h n o l o g i c a l c o e f f i c i e n t s , by i n d u s t r y ) I n i t i a l c a p a c i t y , by i n d u s t r y Rate of c a p i t a l d e p r e c i a t i o n , by i n d u s t r y Incremental r a t e s of d e p r e c i a t i o n on over-capacity production Marginal e f f i c i e n c y of c a p i t a l Proportions of p r o f i t s d i s t r i b u t e d Information regarding the data requirements of the model was provided by Enelco L i m i t e d , a Toronto-based f i r m of computer s p e c i a l i s t s who took part i n an a p p l i c a t i o n of the Harvard Model i n a t r a n s p o r t a t i o n study i n Somalia i n 1966. 116 Subsequent Years Export p r i c e s by commodity Changes i n sales taxes Changes i n import p r i c e s Government expenditures Exports Wage r a t e s , normal and overtime This i s not a complete l i s t i n g of input data requirements, but i t i s considered s u f f i c i e n t to i n d i c a t e the nature and extent of the requirements. (c) E v a l u a t i o n of the Harvard Model The Harvard Model provides a conceptual framework f o r many phases of general economic planning and f o r many f a c e t s of t r a n s p o r t a t i o n a n a l y s i s and plan n i n g , as w e l l as f o r the ev a l u a t i o n of t r a n s p o r t a t i o n investments. I t i s judged here only i n i t s r o l e as a method of t r a n s p o r t a t i o n investment a n a l y s i s . In i t s a p p l i c a t i o n as a t o o l of t r a n s p o r t a t i o n i n v e s t -ment e v a l u a t i o n , i n d i v i d u a l investment proposals or combina-t i o n s of proposals can be formulated, t e s t e d i n the model, and t h e i r r e s u l t s determined i n terms of t h e i r e f f e c t on n a t i o n a l income, f o r a s i n g l e year or over the whole a n a l y s i s p e r i o d . Thus, investments can be evaluated d i r e c t l y i n terms of the o b j e c t i v e assumed i n t h i s t h e s i s . The model permits 117 a l e v e l of d e c i s i o n to be s p e c i f i c a l l y d e f i n ed, l i m i t e d only by data a v a i l a b i l i t y and computer ca p a c i t y . I t i s a framework w i t h i n which a l l reasonably q u a n t i f i a b l e costs and b e n e f i t s can be i n c l u d e d , and to a s i g n i f i c a n t extent i t forces t h e i r i n c l u s i o n through i t s requirement f o r i n t e r n a l consistency. I t takes account of the tim i n g of costs and b e n e f i t s i n that d i f f e r e n c e s i n n a t i o n a l income wi t h and without proposed t r a n s p o r t a t i o n investments are c a l c u l a t e d year by year. I t simulates t r a f f i c on the ba s i s of the production, consumption, and other economic f a c t o r s which, produce the t r a f f i c , and on the b a s i s of t o t a l t r a n s p o r t a t i o n costs as perceived by the shipper. I t d i s t i n g u i s h e s among the various types of v e h i c l e s w i t h t h e i r d i f f e r e n t p h y s i c a l and cost c h a r a c t e r i s t i c s . I t takes f u l l account of the d i f f e r e n c e s among normal, d i v e r t e d and generated t r a f f i c , although i t does not s p e c i f i c a l l y i d e n t i f y each type i n the t o t a l flows on the various l i n k s . From the d e s c r i p t i o n of the model, i t i s apparent th a t the t r a n s p o r t a t i o n system i s f u l l y r e l a t e d to the economy, and th a t i n the year-by-year operation of the model, changes i n the t r a n s p o r t a t i o n system are r e f l e c t e d i n changes i n the economy, which i n turn act back on the t r a n s p o r t a t i o n system. A l l of the l i n k s i n the t r a n s p o r t a t i o n system are considered simultaneously, t a k i n g f u l l account of the interdependencies among the l i n k s . Thus, the Harvard Model provides a conceptual framework which overcomes the major problems i d e n t i f i e d i n t h i s t h e s i s , and which incorporates features which remedy the 118 minor d e f i c i e n c i e s i d e n t i f i e d . I t s scope a l s o extends f a r beyond the economic e v a l u a t i o n of proposed t r a n s p o r t a t i o n investments. However, the a p p l i c a t i o n of the model i s not without problems. The input data requirements, e s p e c i a l l y f o r the macro-economic model, r e q u i r e a major e f f o r t i n the development and c o l l e c t i o n of data, which i s both c o s t l y and time-consuming In many cases some of the data simply w i l l not be a v a i l a b l e , r e q u i r i n g t h a t approximate values be estimated i n order t h a t the a n a l y s i s may proceed. " I t appears, i n general, t h a t one must be prepared t o use one's i n t u i t i o n f r e e l y , where necessary This being the case, there i s some question as to whether the s o p h i s t i c a t i o n of the model, and the computational e f f o r t and cost i n v o l v e d , are warranted, i n view of the probable i n a c c u r -a c i e s i n the input data. Even i f the input data could be developed f o r the base year, i t i s almost impossible to ensure t h a t the manipulation of the data a c t u a l l y r e s u l t s i n a reason-able s i m u l a t i o n of the t r a n s p o r t system and the economy over time. In order to determine t h i s w i t h a reasonable degree of confidence, the model would have to be te s t e d and the r e s u l t s compared w i t h the a c t u a l s i t u a t i o n over at l e a s t two, and p r e f e r a b l y more years i n the past, which means that the input data would have to be developed f o r past years as w e l l as f o r 7 Paul 0. Roberts, op. c i t . , p. 131. the current or base year. Such data a v a i l a b i l i t y would be most unusual which makes the c a l i b r a t i o n of the model ex-tremely d i f f i c u l t i f not impossible. The model i s s t r i c t l y a s i m u l a t i o n procedure; i t i s not a search procedure. I t does not attempt to i d e n t i f y an optimum t r a n s p o r t a t i o n system or an optimum c o n f i g u r a t i o n f o r any l i n k or l i n k s i n the system. I t w i l l only simulate the r e s u l t s of changes i n the t r a n s p o r t a t i o n system which are introduced exogenously, and the q u a l i t y of the r e s u l t s i s g r e a t l y dependent on the judgment of the a n a l y s t i n s e l e c t i n g investment proposals f o r t e s t i n g . I f i t i s d e s i r e d to t e s t the e f f e c t of a s i n g l e change on a s i n g l e l i n k , the whole model must be operated f o r each year of the a n a l y s i s p e r i o d , w i t h and without the change, and assuming other f a c t o r s r e -main constant. The model i s expensive to operate, making i t very c o s t l y to thus evaluate each i n d i v i d u a l change which may be proposed. In a d d i t i o n , to take account of the interdepen-dencies among the d i f f e r e n t l i n k s , each investment proposed would t h e o r e t i c a l l y have to be t e s t e d i n conjunction w i t h a l l p o s s i b l e combinations of a l l other investment proposals, which would be p r o h i b i t i v e i n terms of cost. Instead, 'packages' of proposed investments are t e s t e d , which leads to the p o s s i -b i l i t y t h a t an economically v i a b l e package may contain i n d i v i d u a l p r o j e c t s which are not economically j u s t i f i e d . Thus, i n e f f e c t , the model cannot evaluate a l l a l t e r n a t i v e s , except at p r o h i b i t i v e cost. A l s o , whether r i g h t l y or wrongly, 120 most t r a n s p o r t a t i o n studies undertaken by consultants i n underdeveloped c o u n t r i e s are r e s t r i c t e d to analyses of s i n g l e l i n k s or combinations of r e l a t i v e l y few l i n k s , and apply only to r e l a t i v e l y small areas of the co u n t r i e s i n v o l v e d . In these cases, i t i s questionable whether the use of such a comprehensive and s o p h i s t i c a t e d method of a n a l y s i s i s warranted or even p o s s i b l e w i t h i n the time and budget l i m i t a t i o n s normally imposed. F i n a l l y , the Harvard Model as a whole has never been s u c c e s s f u l l y a p p l i e d . Paul Roberts s t a t e s t h a t , at the time of the w r i t i n g of h i s d i s s e r t a t i o n i n 1966, p r a c t i c a l a p p l i -g cations i n Somalia, P a k i s t a n and Colombia had begun. The a p p l i c a t i o n i n Somalia was l a r g e l y u n s u c c e s s f u l , and i t appears t h a t the a p p l i c a t i o n s i n Pa k i s t a n and Colombia a l s o 9 f a i l e d to produce the d e s i r e d r e s u l t s . The p r i n c i p a l problems were encountered i n o b t a i n i n g data f o r input to the macro-economic model, and i n the operation of t h i s model. Valuable experience was gained i n these a p p l i c a t i o n s , and u s e f u l know-ledge regarding the t r a n s p o r t systems and the economies of the °Ibid., p. 260. 9 . Discussions w i t h personnel of Enelco L t d . who took p a r t i n the a p p l i c a t i o n i n Somalia, i n d i c a t e d that the a p p l i c a t i o n was not s u c c e s s f u l . D i s c u s s i o n w i t h Paul Roberts i n l a t e 1967 and w i t h personnel i n the World Bank i n 1967 and 1968, i n d i -cated t h a t s e r i o u s problems were s t i l l being encountered, p a r t i c u l a r l y w i t h the macro-economic model. The t r a n s p o r t model i s operating reasonably s a t i s f a c t o r i l y . 121 c o u n t r i e s was developed, but i t seems c l e a r t h a t the Harvard Model, and p a r t i c u l a r l y the macro-economic model, i s s t i l l l a r g e l y i n an experimental stage of development. Thus, i n the o p i n i o n of the author, based on the above c o n s i d e r a t i o n s , the Harvard Model has not yet reached a stage of development where i t can be used w i t h confidence as the a n a l y t i c a l b a s i s of recommendations f o r the a l l o c a t i o n of scarce development c a p i t a l to and w i t h i n the t r a n s p o r t s e c t o r . 2. The Dahomey Method (a) I n t r o d u c t i o n This method of a n a l y s i s was developed s p e c i f i c a l l y f o r use i n the Dahomey Land Transport Study, undertaken by a group of c onsultants f o r the Government of Dahomey and the United Nations Development Programme i n 1967."^ The World Bank are a c t i n g as executive agents f o r the government and the U.N.D.P. The study i s not yet completed, t h e r e f o r e the d e s c r i p t i o n of the methodology w i l l be i n conceptual terms, r a t h e r than i n terms of a d e s c r i p t i o n of the p r o j e c t i t s e l f , although the p r o j e c t w i l l be used to i l l u s t r a t e some of the p o i n t s . The primary o b j e c t i v e of the study was the f o r m u l a t i o n of a p u b l i c c a p i t a l investment and maintenance program f o r land t r a n s p o r t a t i o n i n the country. S p e c i f i c recommendations "^No published m a t e r i a l has been generated by t h i s study at the time of w r i t i n g , although a number of i n t e r n a l memoranda have been produced. The d e s c r i p t i o n of the methodology i s based on the author's experience while en-gaged i n the study. 122 were t o be made f o r the t h r e e - y e a r p e r i o d from 1968 t o 1970 i n c l u s i v e , and i n d i c a t i o n s o f g e n e r a l p r i o r i t i e s were t o be p r o v i d e d f o r t h e subsequent f i v e y e a r s . The a n a l y s i s p e r i o d s e l e c t e d was twenty y e a r s . S i n c e the p r i m a r y o b j e c t i v e was t o s e a r c h f o r and e v a l u a t e p o s s i b l e c a p i t a l and maintenance p r o j e c t s and i d -e n t i f y the e c o n o m i c a l l y j u s t i f i e d ones, t h e d e s i r e d method-o l o g y was one based on a s e a r c h i n g p r o c e d u r e r a t h e r t h a n on a s i m u l a t i o n p r o c e d u r e . The H a r v a r d Model was c o n s i d e r e d f o r use i n t h e s t u d y , b u t because i t i s p r i m a r i l y a s i m u l a t i o n p r o c e d u r e , and because o f t h e o t h e r problems noted i n the e v a l u a t i o n o f t h e H a r v a r d Model, i t s use as a complete u n i t was r e j e c t e d . Budget and time c o n s t r a i n t s were i m p o r t a n t c o n s i d e r a t i o n s i n t h i s d e c i s i o n . However, t h e t r a n s p o r t a t i o n model p o r t i o n o f t h e H a r v a r d Model was used i n the t r a n s p o r -t a t i o n s i m u l a t i o n and f o r e c a s t i n g p a r t o f the s t u d y , w i t h o n l y m inor m o d i f i c a t i o n s . 1 ' ' " I n s t e a d o f the macro-economic p o r t i o n o f t h e H a r v a r d Model, a " l i n k o p t i m i z a t i o n program" was d e v e l o p e d . T h i s i s no t a s u b s t i t u t e f o r the macro-economic model; i t i s an e n t i r e l y d i f f e r e n t p r o c e d u r e w i t h a d i f f e r e n t purpose. Rather t h a n s i m u l a t i n g t h e economy and p r o v i d i n g i n p u t s t o the t r a n s -Paul 0. Roberts, o p . c i t . , p. 41. Roberts p o i n t s out t h a t the t r a n s p o r t a t i o n model does not r e q u i r e the use of the macro-economic model i n order t o be o p e r a t i v e , s i n c e i t r e -q u i r e s o n l y r e g i o n a l . s u p p l y and demand f o r each i n d u s t r y . 123 p o r t a t i o n model, i t s purpose i s to evaluate a large number of p o s s i b l e c a p i t a l and maintenance p r o j e c t s and s e l e c t those which are economically j u s t i f i e d . U n l i k e the t r a n s p o r t a t i o n model which operates on the b a s i s of perceived c o s t s , i . e . costs as seen by the shipper, the l i n k o p t i m i z a t i o n program operates e n t i r e l y on the b a s i s of economic costs and b e n e f i t s , net of taxes and d u t i e s and using shadow p r i c e s where appropriate. Given the t r a f f i c volumes on a l i n k by v e h i c l e type which are developed i n the t r a n s p o r t a t i o n model, the o p t i m i z a t i o n program c a l c u l a t e s the annual v e h i c l e operating costs appropriate to the commodity types, t r a f f i c volumes and l i n k c h a r a c t e r i s t i c s , using f a c t o r s as explained e a r l i e r to take account of commodity preferences and l i n k performance. I t a l s o c a l c u l a t e s the annual road maintenance cost on the l i n k , appropriate to the volume of t r a f f i c , the c o n s t r u c t i o n standard, and the l e v e l of mainten-ance. This c a l c u l a t i o n i s based on a s e r i e s of maintenance formulae s i m i l a r to those shown i n Chapter I I I . There i s a l s o p r o v i s i o n i n the program f o r c a p i t a l costs and f o r "other costs and b e n e f i t s , " which w i l l be explained l a t e r . The e f f e c t of seasonal v a r i a t i o n s i n supply, demand and t r a n s p o r t a t i o n are accounted f o r i n two ways i n the program. F i r s t , seasonal peaks i n t r a f f i c are recognized through the increased opera-t i n g costs associated w i t h the higher volumes of t r a f f i c . A l s o , a "seasonal delay f a c t o r " i s c a l c u l a t e d f o r each l i n k , based on the p r o p o r t i o n of the time the l i n k i s impassable due 124 to c l i m a t i c c o n d i t i o n s i n the r a i n y season or seasons. This i s incorporated i n t o the l i n k performance f a c t o r . The program discounts the annual values f o r v e h i c l e operating c o s t s , maintenance c o s t s , c a p i t a l c o s t s , other costs and b e n e f i t s , and t o t a l c o s t s , to t h e i r present values as of the base year, at a s e r i e s of discount r a t e s . I t can accommodate nine d i f f e r e n t discount r a t e s , among which w i l l always be inc l u d e d the r a t e representing the estimated oppor-t u n i t y cost of c a p i t a l i n the country. The program makes the above c a l c u l a t i o n s f o r each reasonable c o n s t r u c t i o n c l a s s and f o r each maintenance l e v e l simultaneously, and p r i n t s out the r e s u l t s f o r each year of the a n a l y s i s p e r i o d , and a l s o i n the form of t o t a l present values f o r each cost c l a s s i f i c a t i o n and f o r t o t a l c o s t . "Other costs and b e n e f i t s , " which w i l l normally be i n the form of a net b e n e f i t , are t r e a t e d as negative costs i n the program. The operation and a p p l i c a t i o n of the l i n k o p t i m i z a t i o n program w i l l be f u r t h e r c l a r i f i e d i n a l a t e r p a r t of the chapter. (b) F i e l d surveys In the a p p l i c a t i o n of the Dahomey Method of transpor-t a t i o n investment e v a l u a t i o n , the country or area being analysed i s f i r s t d i v i d e d i n t o zones on the b a s i s of po p u l a t i o n , geographic f e a t u r e s , economic a c t i v i t i e s , p o l i t i c a l boundaries and other f a c t o r s . Dahomey, wit h an area of about 113,000 square kilometers and a 1967 population of approximately 2,480,000, was d i v i d e d i n t o e i g h t y - f i v e zones w i t h each zone 125 represented by an "economic node." The t r a n s p o r t a t i o n network i s d i v i d e d i n t o nodes and l i n k s , w i t h the nodes representing c i t i e s and towns, crossroads and other i n t e r s e c t i o n s , and p o i n t s along roads where the road c o n s t r u c t i o n standard changes, and the l i n k s representing the road s e c t i o n s between the nodes. The nodes i n the t r a n s p o r t system i n c l u d e a l l of the economic nodes, plus others which are r e q u i r e d f o r the road system alone. E x t e r n a l l i n k s , nodes and zones are e s t a -b l i s h e d at p o i n t s of road connections w i t h neighbouring c o u n t r i e s and at seaports, to accommodate flows of imported 12 and exported commodities. In the Dahomey study, there are approximately 145 l i n k s r e p r e s e n t i n g about 4,500 kilometers of highway, and 115 t r a n s p o r t a t i o n nodes. For ease of c a l c u l a t i o n , the highway l i n k s are grouped i n t o a number of c l a s s i f i c a t i o n s or c o n s t r u c t i o n standards. The c o n s t r u c t i o n standards used i n Dahomey included one-lane t r a c k s , one-lane earth roads, two-lane earth roads, one-lane l a t e r i t e - s u r f a c e d roads, two-lane l a t e r i t e - s u r f a c e d roads, one-lane paved roads and two-lane paved roads. A number of f i e l d surveys are r e q u i r e d to develop input data f o r the a n a l y s i s . An inventory of the e x i s t i n g Depending on the t r a n s p o r t a t i o n system, there may a l s o be r a i l or water l i n k s , and t r a n s f e r l i n k s , which repre-sent t r a n s f e r costs at p o i n t s where commodities are t r a n s -f e r r e d from one mode to another. In keeping w i t h the r e s t of the t h e s i s , only road t r a n s p o r t a t i o n i s included i n t h i s des-c r i p t i o n , and the emphasis i s on commodity r a t h e r than passenger t r a n s p o r t a t i o n . 126 road system i s required, showing the construction standard and maintenance l e v e l of each l i n k , the rate of r i s e and f a l l , and other factors which a f f e c t the performance of the l i n k i n r e l a -t i o n to the commodity preference factors mentioned e a r l i e r . Maintenance levels are c l a s s i f i e d as adequate, minimum or zero. The c a p i t a l costs required to up-grade each l i n k to the next higher standard, and to each additional higher standard considered reasonable, must be estimated; also, the mainten-ance cost for each l i n k for each construction standard and maintenance l e v e l . A base-year t r a f f i c survey must be conducted to deter-mine o r i g i n s , destinations, and routes by commodity and by vehicle type, and should be supplemented by any available data from past t r a f f i c counts and surveys. Ideally, the origin-destination survey should be of s u f f i c i e n t length to indicate seasonal variations i n commodity and vehicle flows. A rate survey i s undertaken i n conjunction with the o r i g i n -destination survey to determine the rates charged by transpor-ter s , and a shipper survey i s also conducted to determine the commodity preference factors for each commodity. A survey of past and base-year population, production, consumption, imports and exports must be conducted i n each of the zones, and s u f f i c i e n t data collected to permit these factors to be forecast over the analysis period. Again, data regarding seasonal variations i n production and consumption should be gathered. The population study w i l l be used as a 127 f a c t o r i n e s t i m a t i n g c o n s u m p t i o n b y z o n e , a n d i n t h e s i m u l a -t i o n a n d f o r e c a s t i n g o f p a s s e n g e r t r a v e l , a n d i t s h o u l d b e s u p p l e m e n t e d b y d a t a o n i n c o m e . T h e s t u d y o f p r o d u c t i o n , c o n s u m p t i o n , i m p o r t s a n d e x p o r t s i s u s e d t o d e v e l o p s u p p l y a n d d e m a n d i n p u t s f o r t h e t r a n s p o r t a t i o n m o d e l , a n d i s a l s o r e q u i r e d a s t h e b a s i s f o r e s t i m a t i n g t h e e f f e c t o f c h a n g e s i n t h e t r a n s p o r t a t i o n s y s t e m o n p r o d u c t i o n a n d c o n s u m p t i o n . T h e s t u d y m a y b e i n t h e u s u a l f o r m o f a n i n p u t - o u t p u t t a b l e , b u t i t m a y b e a b b r e v i a t e d t o c o n s i d e r o n l y t h e z o n a l s u r p l u s e s a n d d e f i c i e n c i e s r e q u i r i n g t r a n s p o r t a t i o n . W h e n m u c h o f t h e e c o n o m i c a c t i v i t y i n a c o u n t r y c o n s i s t s o f s u b s i s t e n c e a g r i c u l t u r e a n d t h e r e i s l i t t l e t r a n s p o r t a t i o n o f t h e i n p u t s a n d o u t p u t s , a c o n s i d e r a b l e s a v i n g m a y b e r e a l i z e d b y c o d i n g o n l y n e t s u r p l u s e s a n d d e f i -c i e n c i e s b y c o m m o d i t y a n d b y z o n e , r a t h e r t h a n c o d i n g t o t a l p r o d u c t i o n a n d c o n s u m p t i o n , f o r i n p u t i n t o t h e t r a n s p o r t a t i o n m o d e l . T h e c o s t s a n d c o s t c h a r a c t e r i s t i c s o f p r o d u c t i o n , p r i c e s , s u p p l y a n d d e m a n d e l a s t i c i t i e s , a n d t h e n o n - e c o n o m i c f a c t o r s w h i c h d e t e r m i n e t h e r e a c t i o n t o r e d u c e d t r a n s p o r t c o s t s f o r i n p u t s a n d o u t p u t s m u s t b e e s t i m a t e d b y c o m m o d i t y a n d b y z o n e , i n o r d e r t h a t t h e e f f e c t o f c h a n g e s o f d i f f e r e n t m a g n i t u d e s i n t r a n s p o r t a t i o n c o s t s c a n b e e s t i m a t e d . T h e e f f e c t s w i l l b e t h o s e n o t e d i n t h e p r e v i o u s c h a p t e r d e a l i n g w i t h g e n e r a t e d t r a f f i c , a n d w i l l i n c l u d e i n c r e a s e d p r o d u c t i o n a n d c o n s u m p t i o n , t r a n s p o r t a t i o n o f g o o d s w h i c h w e r e p r e v i o u s l y p r o d u c e d b u t n o t t r a n s p o r t e d , i n c r e a s e d t r a n s p o r t a t i o n o f g o o d s 128 which were p r e v i o u s l y produced and t r a n s p o r t e d , and p o s s i b l e economies of s c a l e r e s u l t i n g from i n c r e a s e d l e v e l s of pro-d u c t i o n . In each case, the n o n - t r a n s p o r t a t i o n c o s t s of the i n c r e a s e d p r o d u c t i o n and the e f f e c t on average c o s t s of produc-t i o n , changes i n market p r i c e s , and the n o n - t r a n s p o r t a t i o n c a p i t a l c o s t s r e q u i r e d must be estimated i n order t h a t the value of the net b e n e f i t may be c a l c u l a t e d . In the c a l c u l a t i o n of the net value of these "other c o s t s and b e n e f i t s , " i t i s assumed t h a t n o n - t r a n s p o r t a t i o n investments w i l l earn a r e t u r n equal to the assumed o p p o r t u n i t y c o s t of c a p i t a l . The u l t i m a t e e f f e c t s of t r a n s p o r t a t i o n changes on p r o d u c t i o n and consumption can o n l y be estimated on the b a s i s of a r e l a t i v e l y d e t a i l e d study of the p r o d u c t i o n , d i s t r i b u t i o n and marketing of each commodity, and i t i s d e s i r a b l e t h a t these estimates be made by s p e c i a l i s t s i n a g r i c u l t u r e , mining, f o r e s t r y and other r e l e -vant s e c t o r s , t a k i n g as f u l l account as p o s s i b l e of the non-economic f a c t o r s which i n f l u e n c e r e a c t i o n s to c o s t and p r i c e changes. The e x i s t i n g t r a n s p o r t a t i o n model program i s able to accommodate a maximum of f o r t y commodities or commodity c l a s s i -f i c a t i o n s . T h i s l i m i t a t i o n was found to be somewhat r e s t r i c -t i v e , even i n the r e l a t i v e l y simple Dahomey economy, but the c a p a c i t y c o u l d be i n c r e a s e d . The f i n a l r e s u l t of t h i s p a r t of the study w i l l be a base-year t a b l e of supply and demand by commodity, zone and 1 2 9 season, and s u f f i c i e n t data to permit the f o r e c a s t i n g of supply and demand as i t w i l l be over the a n a l y s i s p e r i o d i f there are no major changes i n the t r a n s p o r t a t i o n system, and as i t w i l l be f o r a range of p o s s i b l e changes i n the t r a n s p o r t a t i o n s y s -tem and i n t r a n s p o r t a t i o n c o s t s . I t w i l l a l s o p r o v i d e data f o r the c a l c u l a t i o n of the net value of "other c o s t s and b e n e f i t s " r e s u l t i n g from t r a n s p o r t a t i o n improvements, (c) O p e r a t i o n The supply and demand data by commodity, zone and season f o r the base-year are i n s e r t e d i n t o the t r a n s p o r t a t i o n model, and the base-year t r a f f i c i s simulated f o r each season, u s i n g l i n e a r programming or g r a v i t y models as c o n s i d e r e d a p p r o p r i a t e to the v a r i o u s commodities. The simulated t r a f f i c i s then compared with the a c t u a l base-year t r a f f i c by commo-d i t y , v e h i c l e type, route and season, and adjustments are made u n t i l a s a t i s f a c t o r y s i m u l a t i o n of the a c t u a l flows i s achieved. I f data are a v a i l a b l e , t h i s c a l i b r a t i o n procedure should a l s o be c a r r i e d out f o r one or more years i n the p a s t , i n order to p r o v i d e a b e t t e r i n d i c a t i o n of the nature of the adjustments which should be made. In the Dahomey study the c a l i b r a t i o n was based on one year o n l y , and s i n c e runs of the t r a n s p o r t a t i o n model were r e q u i r e d to achieve an a c c e p t a b l e s i m u l a t i o n of the a c t u a l commodity and v e h i c l e flows. In the s i m u l a t i o n of base-year t r a f f i c , the e x i s t i n g r a t e s t r u c -t u r e i s approximated as c l o s e l y as p o s s i b l e i n order t h a t 130 t r a f f i c w i l l be simulated on the ba s i s of costs as perceived by the shipper, i n c l u d i n g the costs associated w i t h w a i t i n g time, t r a v e l time, and other measures of commodity preference and l i n k performance. The output of the tr a n s p o r t model shows among other t h i n g s , the flows on each l i n k i n each season by commodity and v e h i c l e type, and an o r i g i n - d e s t i n a t i o n matrix which i n -d i c a t e s the t o t a l perceived t r a n s p o r t a t i o n cost f o r each commodity from each o r i g i n to each d e s t i n a t i o n , by season. Production and consumption by commodity and zone are then f o r e c a s t f o r each season of each year over the a n a l y s i s p e r i o d , on the assumption t h a t no major changes w i l l be made i n the road system. These f o r e c a s t s are used as input to the t r a n s p o r t a t i o n model which then simulates f u t u r e t r a f f i c . The economic f o r e c a s t s and t r a f f i c s i m u l a t i o n s may be made i n d i v i d u a l l y f o r each year of the a n a l y s i s p e r i o d , or they may be made f o r s e l e c t e d years, f o r example every t h i r d or f o u r t h year, and the values f o r the i n t e r v e n i n g years developed by an i n t e r p o l a t i o n program. In e i t h e r case, the r e s u l t i s i n the form of t r a f f i c flows by v e h i c l e type on each l i n k f o r each season and year of the a n a l y s i s p e r i o d . The t r a f f i c flows are then used as input to the l i n k o p t i m i z a t i o n program. Although the o p t i m i z a t i o n program i s designed to c a l -c u l a t e a l l of the costs f o r each c o n s t r u c t i o n standard and maintenance l e v e l on each l i n k simultaneously, i n t h i s f i r s t run i t i s constrained to consider only the e x i s t i n g construc-t i o n standard and maintenance l e v e l on each l i n k . A sample of 131 the output of t h i s run, f o r one of the l i n k s of the road 13 system i n Dahomey, i s shown i n Figure 1. This output i n d i c a t e s t h a t the e x i s t i n g standard of the l i n k between nodes 10 and 115 i s c o n s t r u c t i o n c l a s s 4, or a one-lane l a t e r i t e -s u r f aced road, and the e x i s t i n g maintenance l e v e l i s l e v e l 2, or minimum maintenance. The output shows the operating c o s t , maintenance cost and t o t a l cost i n each year from 1967 to 1990, and t h e i r present values as of the beginning of 1967 at a range of discount r a t e s , assuming that the same standard and maintenance l e v e l w i l l be continued over the whole p e r i o d . This gives the t o t a l economic cost of t r a n s p o r t a t i o n over the a n a l y s i s p e r i o d f o r the n u l l or "do nothing" a l t e r n a t i v e . S i m i l a r t a b l e s are produced f o r every other l i n k , and the cost p o r t i o n s of the ta b l e s are combined and p r i n t e d out f o r the network as a whole. Using the same t r a f f i c f o r e c a s t s , the l i n k o p t i m i z a t i o n program i s run again, s t i l l c onstrained to the e x i s t i n g con-s t r u c t i o n standard on each l i n k , but now fre e to consider a l l The monetary values i n t h i s sample output are i n m i l l i o n C.F.A. Francs, but n a t u r a l l y any currency u n i t may be used. The annual values are the sums of the values f o r each season of each year, which are c a l c u l a t e d s e p a r ately and combined before t h i s output i s p r i n t e d . The t r a f f i c volumes shown are average d a i l y volumes of t o t a l v e h i c l e s , and do not enter i n t o the c a l c u l a t i o n s . 132 FIGURE 1 SAMPLE OUTPUT - LINK OPTIMIZATION PROGRAM Opt i m i z a t i o n of Link Between 10 (Pobe) and 115 (Ikpin) Mode 23 - Present Conditions - Con s t r u c t i o n Class 4 Link C h a r a c t e r i s t i c s : Distance (km): 12.30; Design Speed (kph): 80.00; R i s e / F a l l ( f t ) : 290.00; Region: South; Delay Season: 1; Delay Factor: 1.08. I n t e r p o l a t i o n s : V o l . pres. system: 2; v o l . impr. system: 2; Cst. pres. system: 2; Cst. Impr. system: 2. Operating Cost Maintenance Cost C a p i t a l Year M/L 1 M/L 2 M/L 3 M/L 1 M/L 2 Cost 67 0. 30.458 0. 0. 1.544 0. 68 0. 32.580 0. 0. 1.607 0. 69 0. 34.851 0. 0. 1.673 0. 70 0. 37.279 0. 0. 1.741 0. 71 0. 39.877 0. 0. 1.813 0. 72 0. 42.656 0. 0. 1.888 0. 73 0. 45.629 0. 0. 1.967 0. 74 0. 48.808 0. 0. 2.049 0. 75 0. 52.210 0. 0. 2.135 0. 76 0. 56.697 0. 0. 2.254 0. 77 0. 61.621 0. 0. 2.380 0. 78 0. 67.029 0. 0. 2.513 0. 79 0. 72.972 0. 0. 2.654 0. 80 0. 79.510 0. 0. 2.804 0. 81 0. 86.706 0. 0. 2.962 0. 82 0. 94.635 0. 0. 3.131 0. 83 0. 103.376 0. 0. 3.309 0. 84 0. 113.020 0. 0. 3.498 0. 85 0. 123.668 0. 0. 3.698 0. 86 0. 135.433 0. 0. 3.911 0. 87 0. 148.440 0. 0. 4.136 0. 88 0. 162.832 0. 0. 4.375 0. 89 0. 178.765 0. 0. 4.628 0. 90 0. 196.416 0. 0. 4.896 0. PRESENT VALUES DISC Rate 5.0 0. 973.70 0. 0. 34.49 0. 8.0 0. 667.29 0. 0. 24.65 0. 10.0 0. 532.77 0. 0. 20.22 0. 12.0 0. 434.01 0. 0. 16.90 0. 15.0 0. 330.38 0. 0. 13.32 0. 20.0 0. 227.05 0. 0. 9.60 0. 30.0 0. 133.01 0. 0. 5.99 0. 40.0 0. 92.65 0. 0. 4.31 0. 50.0 0. 70.96 0. 0. 3.37 0. 133 FIGURE 1 (Continued) Other Costs T o t a l Cost D a i l y and B e n e f i t s M/L 1 M/L 2 M/L 3 Volume 0. 0. 32.001 0. 239 0. 0. 34.187 0. 250 0. 0. 36.523 0. 261 0. 0. 39.021 0. 273 0. 0. 41.690 0. 286 0. 0. 44.545 0. 299 0. 0. 47.596 0. 312 0.. 0. 50.858 0. 327 0. 0. 54.345 0. 341 0. 0. 58.951 0. 362 0. 0. 64.001 0. 384 0. 0. 69.541 0. 407 0. 0. 75.626 0. 431 0. 0. 82.313 0. 457 0. 0. 89.669 0. 485 0. 0. 97.765 0. 514 0. 0. 106.685 0. 544 0. 0. 116.518 0. 577 0. 0. 127.366 0. 612 0. 0. 139.343 0. 649 0. 0. 152.576 0. 687 0. 0. 167.207 0. 729 0. 0. 183.393 0. 773 0. 0. 201.312 0. 819 Present Values Disc Rate 0. 0. 1008.19 0. 0. 0. 691.95 0. 0. 0. 552.99 0. 0. 0. 450.91 0. 0. 0. 343.70 0. 0. 0. 236.65 0. 0. 0. 139.00 0. 0. 0. 96.97 0. 0. 0. 74.33 0. 134 three p o s s i b l e l e v e l s of maintenance. The output i s s i m i l a r to t h a t of the previous run, except that maintenance l e v e l s 1 and 3 are now i n c l u d e d . Since l e v e l 3 represents zero maintenance, no maintenance costs are shown f o r t h i s l e v e l , but the e f f e c t of t h i s maintenance l e v e l i s r e f l e c t e d i n v e h i c l e operating c o s t s . A l l changes are assumed to go i n t o e f f e c t at the beginning of 1971; th e r e f o r e the operating costs up to t h i s time are those appropriate to the e x i s t i n g main-tenance l e v e l . On each l i n k , one maintenance l e v e l w i l l produce a lower present value of t o t a l costs than e i t h e r of the other two l e v e l s . Assuming the opportunity cost of c a p i t a l i n the country i s ten percent per year, then the maintenance l e v e l producing the lowest present value of t o t a l costs at a discount r a t e of ten percent i s s e l e c t e d as the i n i t i a l "optimum" maintenance l e v e l . On each l i n k where the "optimum" l e v e l i s d i f f e r e n t from the e x i s t i n g l e v e l , there w i l l be a change i n v e h i c l e operating costs when the maintenance l e v e l i s changed. T h i s , i n t u r n , i m p l i e s changes i n t r a f f i c volumes on these and other l i n k s , and p o s s i b l e changes i n supply and demand. Therefore, the f i l e of road l i n k c h a r a c t e r i s t i c s i n the t r a n s p o r t a t i o n model i s r e v i s e d t o show the new maintenance l e v e l s , and the t r a n s -p o r t a t i o n model i s run again, s t i l l using the o r i g i n a l supply and demand i n p u t s . 135 A s n o t e d e a r l i e r , t h e t r a n s p o r t a t i o n m o d e l o u t p u t shows n o t o n l y t h e f l o w s on e a c h l i n k , b u t a l s o an o r i g i n - d e s t i n a -t i o n m a t r i x b y c o m m o d i t y , and t h e p e r c e i v e d c o s t s o f t r a n s -p o r t i n g e a c h c o m m o d i t y f r o m e a c h o r i g i n t o e a c h d e s t i n a t i o n . The new p e r c e i v e d c o s t s a r e c o m p a r e d w i t h t h o s e f r o m t h e o r i g i n a l r u n o f t h e t r a n s p o r t m o d e l , and t h e r e d u c t i o n s i n p e r c e i v e d c o s t s r e s u l t i n g f r o m t h e m a i n t e n a n c e i m p r o v e m e n t s c a n be c a l c u l a t e d f o r e a c h c o m m o d i t y , f r o m e a c h o r i g i n t o e a c h d e s t i n a t i o n . On t h e b a s i s o f t h e r e d u c t i o n s i n p e r c e i v e d c o s t s , a nd f r o m d a t a d e v e l o p e d i n t h e i n i t i a l p r o d u c t i o n and c o n s u m p t i o n s u r v e y s , new e s t i m a t e s o f p r o d u c t i o n and consump-t i o n a r e made, and t h e n e t v a l u e s o f t h e " o t h e r c o s t s and b e n e f i t s " a r e c a l c u l a t e d . A c o m m o d i t y may u s e a number o f l i n k s i n i t s t r a v e l f r o m an o r i g i n t o a d e s t i n a t i o n . The n e t v a l u e o f o t h e r c o s t s and b e n e f i t s i s d i s t r i b u t e d t o t h e v a r i o u s l i n k s on t h e b a s i s o f t h e s a v i n g i n p e r c e i v e d c o s t s w h i c h o c c u r s on e a c h l i n k u s e d . The r e v i s e d e s t i m a t e s o f p r o d u c t i o n and c o n s u m p t i o n a r e t h e n u s e d i n a f u r t h e r r u n o f t h e t r a n s p o r t a t i o n m o d e l , and t h e r e s u l t i n g t r a f f i c v o l u m e s a r e u s e d as i n p u t f o r a n o t h e r r u n o f t h e o p t i m i z a t i o n p r o g r a m . The n e t v a l u e o f o t h e r c o s t s and b e n e f i t s a s s o c i a t e d w i t h e a c h l i n k i s i n t r o d u c e d i n t o t h e o p t i m i z a t i o n p r o g r a m e x o g e n o u s l y , f o r e a c h y e a r o f t h e a n a l y s i s p e r i o d . The o p t i m i z a t i o n p r o g r a m a g a i n t e s t s e a c h l i n k a t e a c h m a i n t e n a n c e l e v e l , a n d t h e "optimum" l e v e l s a t a d i s c o u n t r a t e o f t e n p e r c e n t a r e a g a i n s e l e c t e d . The l e v e l s 136 s e l e c t e d are those which provide the lowest present value of t o t a l costs on each l i n k , w i t h the net value of other costs 14 and b e n e f i t s being t r e a t e d as negative c o s t s . The l i n k c h a r a c t e r i s t i c s f i l e i n the t r a n s p o r t a t i o n model i s again r e v i s e d i n accordance w i t h the new maintenance l e v e l s on the l i n k s , and the procedure i s repeated, u n t i l f u r t h e r i t e r a t i o n s produce no appreciable change i n the main-tenance l e v e l s s e l e c t e d . The f i n a l maintenance l e v e l s thus s e l e c t e d are considered to be the optimum ones, assuming th a t c o n s t r u c t i o n standards w i l l remain unchanged over the a n a l y s i s p e r i o d . The d i f f e r e n c e between the t o t a l costs w i t h e x i s t i n g c o n d i t i o n s and the t o t a l costs w i t h optimized maintenance represents the b e n e f i t s which could be derived through improved maintenance alone, while the d i f f e r e n c e between the o r i g i n a l and the new maintenance costs represent the incremental main-tenance cost i n c u r r e d to produce the b e n e f i t s . I t should be noted t h a t the maintenance l e v e l s could be optimized c o n c u r r e n t l y w i t h the o p t i m i z a t i o n of c o n s t r u c t i o n standards, which would s i m p l i f y the a n a l y s i s and reduce the I t i s p o s s i b l e t h a t the maintenance l e v e l s e l e c t e d on a l i n k w i l l be lower than the e x i s t i n g l e v e l which means tha t v e h i c l e operating costs and thus perceived c o s t s , w i l l i n -crease, and "other costs and b e n e f i t s " w i l l represent a net d i s b e n e f i t and production consumption could d e c l i n e . However, because maintenance costs are r e l a t i v e l y s m a l l , and because low maintenance l e v e l s have a s i g n i f i c a n t e f f e c t on v e h i c l e operating c o s t s , t h i s i s very u n l i k e l y . I t d i d not occur i n the Dahomey study. 137 co s t . The r e s u l t s would be the same i n terms of the f i n a l s e l e c t i o n of c a p i t a l and maintenance p r o j e c t s . However, the b e n e f i t s of improved maintenance could not then be d i s t i n -guished from the b e n e f i t s a t t r i b u t a b l e to c a p i t a l improvements and the terms of reference of the Dahomey study r e q u i r e d t h a t i n t e r n a l r ates of r e t u r n on the i n d i v i d u a l c a p i t a l investments 15 be c a l c u l a t e d . For t h i s reason, i t was necessary to f o l l o w the above procedure. The next step i n the procedure i s to i d e n t i f y p o s s i b l e c a p i t a l investment p r o j e c t s and evaluate t h e i r economic j u s t i -f i c a t i o n . These may take the form of new l i n k s to be added to the system, or the up-grading of e x i s t i n g l i n k s to higher con-s t r u c t i o n standards. Two types of new l i n k p o s s i b i l i t i e s can be i d e n t i f i e d : those which are designed to penetrate new areas, and which j o i n the e x i s t i n g system at only one end of the new l i n k , and those which are a l t e r n a t i v e s to e x i s t i n g l i n k s or combinations of l i n k s , and which are j o i n e d at both ends to the e x i s t i n g system. The f i r s t type of new l i n k p o s s i b i l i t y i s i d e n t i f i e d during the economic survey when the productive p o t e n t i a l of each zone i s estimated by the a g r i c u l -t u r a l , f o r e s t r y , and other s p e c i a l i s t s . The second type, which may a l s o have the e f f e c t of pe n e t r a t i n g new areas, i s Rates of r e t u r n on i n d i v i d u a l p r o j e c t s w i t h i n a system are somewhat u n r e a l i s t i c because of the interdepen-dencies among the l i n k s . They can be approximated, however, as w i l l be explained l a t e r i n the chapter. 138 i d e n t i f i e d by a combination of the above co n s i d e r a t i o n s and engineering judgment, c o n s i d e r i n g p o s s i b l e short-cuts and other improvements which could be made by adding new l i n k s to the e x i s t i n g system. The new l i n k s are added to the l i n k f i l e of the t r a n s p o r t a t i o n model at c o n s t r u c t i o n standards which are considered by judgment to be appropriate to the probable volumes of t r a f f i c which they w i l l c a r r y . C o n s t r u c t i o n costs are estimated f o r the new l i n k s f o r the standards at which they are added to the network, and f o r a l l reasonable higher and lower standards. The t r a n s p o r t a t i o n model thus r e v i s e d i s then run w i t h the e x i s t i n g l i n k s at t h e i r o r i g i n a l standards and optimum maintenance, and w i t h the new l i n k s at the i n s e r t e d standards and adequate maintenance. The supply and demand inputs used are those which r e s u l t e d from the f i n a l maintenance optimiza-t i o n . The r e s u l t i n g t r a f f i c flows are put i n t o the l i n k o p t i m i z a t i o n program which i s now operated without c o n s t r a i n t s , i . e . i t can evaluate every reasonable c o n s t r u c t i o n standard and a l l three maintenance l e v e l s on every e x i s t i n g and new l i n k . A sample of the output of t h i s run, f o r one l i n k , i s shown i n Figure 2. A l t e r n a t i v e 0 represents the l i n k at i t s e x i s t i n g c o n s t r u c t i o n c l a s s w h i l e A l t e r n a t i v e s 1 to 3 represent c o n s e c u t i v e l y higher c l a s s e s w i t h the associated c a p i t a l costs f o r upgrading from the e x i s t i n g standard. On each e x i s t i n g l i n k there w i l l be one c o n s t r u c t i o n standard and maintenance l e v e l which produces a lower present 139 FIGURE 2 SAMPLE OUTPUT - LINK OPTIMIZATION PROGRAM ALL ALTERNATIVES (a) O p t i m i z a t i o n of Link Between 10 (Pobe) and 115 (Ikpin) Mode 23 - A l t e r n a t i v e No. 0 - Const r u c t i o n Class 4 Link C h a r a c t e r i s t i c s : Distance (km): 12.30; Design Speed (kph): 80.00; R i s e / F a l l ( f t ) : 290.00; Region: South; Delay Season: 1; Delay Factor: 1.08. I n t e r p o l a t i o n s : V o l . pres. system: 2; V o l . Impr. system: 2; Cst. pres. system: 2; Cst. Impr. system: 2. Operating Cost Maintenance Cost Year M/L 1 M/L 2 M/L 3 M/L 1 M/L 2 Cost 67 30.458 30.458 30. 458 1.544 1.544 0. 68 32.580 32.580 32. 580 1.607 1.607 0. 69 34.851 34.851 34. 851 1.673 1.673 0. 70 37.279 37.279 37. 279 1.741 1.741 0. 71 33.108 41.397 53. 239 3.381 1.868 0. 72 35.462 44.322 57. 010 3.526 1.946 0. 73 37.984 47.454 61. 049 3.678 2.028 0. 74 40.685 50.807 65. 374 3.837 2.114 0. 75 43.579 54.397 70. 005 4.003 2.204 0. 76 47.345 59.099 76. 056 4.230 2.326 0. 77 51.480 64.260 82. 698 4.471 2.456 0. 78 56.023 69.931 89. 996 4.726 2.594 0. 79 61.018 76.167 98. 021 4.997 2.740 0. 80 66.515 83.028 106. 851 5.283 2.895 0. 81 72.569 90.585 116. 576 5.587 3.059 0. 82 79.241 98.913 127. 294 5.909 3.234 0. 83 86.599 108.098 139. 114 6.251 3.418 0. 84 94.721 118.236 152. 162 6.613 3.614 0. 85 103.692 129.435 166. 573 6.997 3.821 0. 86 113.608 141.812 182. 501 7.403 4.041 0. 87 124.575 155.502 200. 119 7.835 4.274 0. 88 136.713 170.653 219. 618 8.292 4.520 0. 89 150.156 187.433 241. 213 8.776 4.782 0. 90 165.053 206.029 265. 144 9.289 5.060 0. Present values Disc Rate 5.0 834.39 : 1012.05 1268. 12 59.85 35.42 0. 8.0 576.38 691.98 858. 56 41.63 25.28 0. 10.0 462.91 551.56 679. 27 33.48 20.71 0. 12.0 379.48 448.54 548. 02 27.41 17.28 0. 15.0 29.1.71 340.54 410. 86 20.94 13.60 0. 20.0 203.78 233.04 275. 16 14.33 9.77 0. 30.0 122.80 135.55 153. 87 8.15 6.07 0. FIGURE 2 (a)(Continued 140 Other costs T o t a l Cost D a i l y B e n e f i t s M/L 1 M/L 2 M/L 3 Volume 0. 32.001 32.001 32.001 239 0. 34.187 34.187 34.187 250 0. 36.523 36.523 36.523 261 0. 39.021 39.021 39.021 273 0. 36.489 43.264 53.239 295 0. 38.988 46 .268 57.010 309 0. 41.662 49.482 61.049 323 0. 44.522 52.921 65.374 338 0. 47.582 56.601 70.005 353 0. 51.575 61.425 76.056 374 0. 55.951 66.717 82.698 397 0. 60.749 72.525 89.996 421 0. 66.015 78.907 98.021 446 0. 71.799 85.923 106.851 473 0. 78.156 93.644 116.576 501 0. 85.150 102.146 127.294 531 0. 92.850 111.516 139.114 563 0. 101.334 121.850 152.162 597 0. 110.689 133.255 166.573 633 0. 121.011 145.852 182.501 671 0. 132.409 159.775 200.119 711 0. 145.005 175.173 219.618 754 0. 158.932 192.215 241.213 799 0. 174.342 211.088 265.144 847 Present Values Disc Rate 0. 894.24 1047.47 1273.93 0. 618.01 717.25 863.97 0. 496.39 572.26 684.45 0. 406.89 465.82 552.98 0. 312.65 354.14 415.51 0. 218.11 242.82 279.37 0. 130.96 141.62 157.38 141 FIGURE 2 (continued) (b) O p t i m i z a t i o n of Link Between 10 (Pobe) and 115 (Ikpin) Mode 23 - A l t e r n a t i v e No. 1 - Cons t r u c t i o n Class 5 Operating Cost Maintenance Cost Year M/L 1 M/L 2 M/L 3 M/L 1 M/L 2 67 30. 458 30. 458 30. 458 1. 544 1. 544 68 32. 580 32. 580 32. 580 1. 607 1. 607 69 34. 851 34. 851 34. 851 1. 673 1. 673 70 37. 279 37. 279 37. 279 1. 741 1. 741 71 19. 329 24. 381 31. 225 3. 434 1. 881 72 20. 272 25. 571 32. 749 3. 579 1. 960 73 21. 260 26. 819 34. 347 3. 731 2. 042 74 22. 296 28. 129 36. 023 3. 890 2. 127 75 23. 383 29. 502 37. 781 4. 056 2. 217 76 24. 837 31. 336 40. 131 4. 283 2. 340 77 26. 385 33. 289 42. 631 4. 524 2. 470 78 28. 033 35. 367 45. 293 4. 779 2. 608 79 29. 787 37. 581 48. 128 5. 049 2. 754 80 31. 656 39. 938 51. 147 5. 336 2. 909 81 33. 646 42. 450 54. 364 5. 640 3. 073 82 35. 768 45. 127 57. 792 5. 962 3. 247 83 38. 029 47. 980 61. 446 6. 304 3. 432 84 40. 441 51. 022 65. 342 6. 666 3. 627 85 43. 013 54. 267 69. 498 7. 050 3. 834 86 45. 758 57. 730 73. 932 7. 456 4. 054 87 48. 687 61. 426 78. 666 7. 887 4. 287 88 51. 815 65. 372 83. 720 8. 344 4. 534 89 55. 156 69. 588 89. 118 8. 829 4. 796 90 58. 726 74. 092 94. 887 9. 342 5. 073 Present Values Disc Rate 5.0 444. 54 529. 62 644. 77 60. 39 35. 56 8.0 328. 05 384. 78 461. 56 42. 01 25. 37 10.0 275. 19 319. 38 379. 20 33. 79 20. 78 12.0 235. 28 270. 24 317. 55 27. 66 17. 35 15.0 191. 84 217. 08 251. 25 21. 12 13. 64 20.0 145. 78 161. 37 182. 48 14. 46 9. 81 30.0 98. 75 105. 84 115. 45 8. 22 6. 08 40.0 75. 24 79. 01 84. 13 5. 51 4. 36 50.0 60. 99 63. 22 66. 23 4. 07 3. 40 C a p i t a l Cost 0. 0. 0. 13.900 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 11.44 10.22 9.49 8.83 7.95 6, 4, 3, 2. 70 87 62 75 142 FIGURE 2 (b) (Continued) Other Costs D a i l y Year and B e n e f i t s M/L 1 M/L 2 M/L 3 Volume 67 0. 32.001 32.001 32.001 239 68 0. 34.187 34.187 34.187 250 69 0. 36.523 36.523 36.523 261 70 0. 52.921 52.921 52.921 273 71 0. 22.763 26.262 31.225 295 72 0. 23.851 27.531 32.749 309 73 0. 24.991 28.861 34.347 323 74 0. 26.186 30.256 36.023 338 75 0. 27.439 31.719 37.781 358 76 0. 29.120 33.676 40.131 374 77 0. 30.909 35.759 42.631 397 78 0. 32.812 37.975 45.293 421 79 0. 34.836 40.335 48.128 446 80 0. 36.992 42.847 51.147 473 81 0. 39.286 45.523 54.364 501 82 0. 41.730 48.374 57.793 531 83 0. 44.333 51.411 61.446 563 84 0. 47.107 ' 54.649 65.342 597 85 0. 50.063 58.102 69.498 633 86 0. 53.214 61.784 73.932 671 87 0. 56.574 65.713 78.666 711 88 0. 60.159 69.906 83.720 754 89 0. 63.985 74.384 89.118 799 90 0. 68.069 79.165 94.887 847 Present Values Disc Rate 5.0 0. 516.36 576.61 662.01 8.0 0. 380.28 420.37 477.19 10.0 0. 318.47 349.66 393.87 12.0 0. 271.78 296.42 331.34 15.0 0. 220.91 238.68 263.85 20.0 0. 166.94 177.88 193.40 30.0 0. 111.83 116.79 123.82 40.0 0. 84.36 87.00 90.74 50.0 0. 67.81 69.36 71.56 143 FIGURE 2 (Continued) (c) O p t i m i z a t i o n of Link Between 10 (Pobe) and 115 (Ikpin) Mode 23 - A l t e r n a t i v e No. 2 - Const r u c t i o n Class 6 Link C h a r a c t e r i s t i c s : Distance (km): 12.30; Design Speed (kph): 100.00; R i s e - F a l l : 290.00 f t . ; Region: South; Delay Season: 1; Delay Factor: 1.00. I n t e r p o l a t i o n s : as f o r (a) Operating Cost Maintenance Cost C a p i t a l Year M/L 1 M/L 2 M/L 3 M/L 1 M/L 2 Cost 67 30. 458 30 .458 30. 458 68 32. 580 32 .580 32. 580 69 34. 851 34 .851 34. 851 70 37. 279 37 .279 37. 279 71 17. 978 27 .140 34. 777 72 18. 960 28 .621 36. 677 73 19. 995 30 .183 38. 680 74 21. 086 31 .831 40. 792 75 22. 237 33 .568 43. 020 76 23. 785 35 .904 46. 014 77 25. 452 38 .420 49. 239 78 27. 248 41 .133 52. 715 79 29. 186 44 .058 56. 464 80 31. 277 47 .215 60. 510 81 33. 536 50 .625 64. 880 82 35. 978 54 .311 69. 604 83 38. 619 58 .298 74. 714 84 41. 479 62 .614 80. 246 85 44. 577 67 .291 86. 239 86 47. 936 72 .362 92. 738 87 51. 582 77 .865 99. 791 88 55. 541 83 . 841 107. 450 89 59. 845 90 .338 115. 776 90 64. 526 97 .405 124. 834 P r e s e n t V a l u e s Disc Rate 5.0 445. 71 612. 02 750. 75 8.0 327. 04 437. 02 528. 76 10.0 273. 52 358. 74 429. 83 12.0 233. 30 300. 37 356. 32 15.0 189. 76 237. 86 277. 98 20.0 143. 92 173. 35 197. 90 30.0 97. 55 110. 76 121. 77 40.0 74. 49 81. 47 87. 29 50.0 60. 51 64. 61 68. 02 1.544 1.544 0. 1.607 1.607 0. 1.673 1.673 27.600 1.741 1.741 27.600 2.282 1.602 0. 2.300 1.669 0. 2.318 1.739 0. 2.337 1.812 0. 2.357 1.888 0. 2.385 1.992 0. 2.414 2.103 0. 2.444 2.220 0. 2.512 2.477 0. 2.512 2.477 0. 2.548 2.616 0. 2.587 2.764 0. 2.628 2.922 0. 2.672 3.088 0. 2.718 3.264 0. 2.768 3.451' 0. 2.820 3.650 0. 2.875 3.860 0. 2.933 4.082 0. 2.995 4.319 0. 31.54 31.14 46.55 23.31 22.41 42.20 19.49 18.47 39.59 16.56 15.51 37.19 13.32 12.31 33.93 9.83 8.98 29.28 6.25 5.70 22.23 4.50 4.16 17.24 3.50 3.28 13.63 144 FIGURE 2 (c) (Continued) Other Costs T o t a l Cost D a i l y Year and B e n e f i t s M/L 1 M/L 2 M/L 3 Volume 67 0. 32.001 32.001 32.001 239 68 0. 34.187 34.187 34.187 250 69 0. 64.123 64.123 64.123 261 70 0. 66.621 66.621 66.621 273 71 0. 20.261 28.742 34.777 295 72 0. 21.259 30.290 36.677 309 73 0. 22.313 31.922 38.680 323 74 0. 23.423 33.642 40.792 338 75 0. 24.594 35.456 43.020 353 76 0. 26.169 37:897 46.014 374 77 0. 27.865 40.524 49.239 397 78 0. 29.693 43.353 52.715 421 79 0. 31.663 46.402 56.464 446 80 0. 33.789 49.691 60.510 473 81 0. 36.085 53.241 64.880 501 82 0. 38.565 57.075 69.604 531 83 0. 41.248 61.219 74.714 563 84 0. 44.151 65.702 80.246 597 85 0. 47.295 70.555 86.239 633 86 0. 50.704 75.813 92.738 671 87 0. 54.401 81.514 99.791 711 88 0. 58.416 87.701 107.450 754 89 0. 62.778 94.420 115.776 799 90 0. 67.522 101.724 124.834 847 Present Values Disc Rate 5.0 0. 523.80 689.71 803.10 8.0 0. 392.54 501.62 576.37 10.0 0. 332.60 416.80 474.60 12.0 0. 287.05 353.07 398.46 15.0 0. 237.01 284.10 316.56 20.0 0. 183.03 211.16 231.39 30.0 0. 126.02 138.68 147.51 40.0 0. 96.23 102.87 107.52 50.0 0. 77.64 81.52 84.24 145 FIGURE 2 (Continued) (d) O p t i m i z a t i o n of Link Between 10 (Pobe) and 115 (Ikpin) Mode 23 - A l t e r n a t i v e No. 3 - Construction Class 7 C h a r a c t e r i s t i c s and I n t e r p o l a t i o n s as i n (c) Operating Cost Maintenance Cost C a p i t a l Cost 0. 0. 35.000 35.000 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. 0. Present Values Disc Rate 59.03 53.51 50.20 47.16 43.02 37.13 28.19 21.87 17.28 ar M/L • 1 M/L , 2 M/L , 3 M/L 1 M/L 2 67 30. 458 30. 458 30. 458 1.544 1.544 68 32. 580 32. 580 32. 580 1.607 1.607 69 34. 851 34. 851 34. 851 1.673 1.673 70 37. 279 37. 279 37. 279 1.741 1.741 71 15. 799 23. 904 30. 601 2.288 1.627 72 16. 570 25. 073 32. 096 2.294 1.693 73 17. 378 26. 298 33. 664 2.300 1.763 74 18. 225 27. 583 35. 309 2.306 1.836 75 19. 113 28. 930 37. 034 2.313 1.913 76 20. 302 30. 729 39. 337 2.322 2.017 77 21. 567 32. 644 41. 788 2.331 2.128 78 22. 914 34. 683 44. 397 2.341 2.245 79 24. 348 36. 853 47. 176 2.352 2.369 80 25. 875 39. 165 50. 135 2.363 2.641 81 27. 502 41. 628 53. 288 2.375 2.789 82 29. 236 44. 253 56. 648 2.387 2.946 83 31. 085 47. 051 60. 230 2.401 2.946 84 33. 056 50. 034 64. 049 2.415 3.113 85 35. 159 53. 217 68. 123 2.430 3.289 86 37. 402 56. 612 72. 470 2.446 3.476 87 39. 796 60. 237 77. 109 2.462 3.674 88 42. 353 64. 107 82. 063 2.480 3.884 89 45. 084 68. 241 87. 355 2.499 4.107 90 48. 003 72. 658 93. 010 2.519 4.343 5 .0 385. 15 521. 66 634 .36 30 .02 31. 39 8 .0 288. 45 379. 47 454 .62 22 .39 22. 59 10 .0 244. 34 315. 25 373 .79 18 .82 18. 61 12 .0 210. 88 266. 97 313 .27 16 .07 15. 62 15 .0 174. 22 214. 72 248 .16 13 .01 12. 40 20 .0 134. 89 159. 91 180 .57 9 .67 9. 03 30 .0 93. 79 105. 18 114 .58 6 .19 5. 73 40 .0 72. 60 78. 66 83 .67 4 .48 4. 18 50 .0 59. 44 63. 01 65 .96 3 .49 3. 29 146 FIGURE 2 (d) (Continued) Other Costs T o t a l Cost D a i l y Year and B e n e f i t s M/L 1 M/L 2 M/L 3 Volume 67 0. 32.001 32.001 32.001 239 68 0. 34.187 34.187 34.187 250 69 0. 71.523 71.523 71.523 261 70 0. 74.021 74.021 74.021 273 71 0. 18.088 25.531 30.601 295 72 0. 18.864 26.766 32.096 309 73 0. 19.678 28.061 33.664 323 74 0. 20.531 29.419 35.309 338 75 0. 21.426 30.843 37.034 353 76 0. 22.624 32.746 39.337 374 77 0. 23.898 34.772 41.778 397 78 0. 25.255 36.928 44.397 421 79 0. 26.699 39.223 47.176 446 80 0. 28.238 41.666 50.135 473 81 0. 29.877 44.269 53.288 501 82 0. 31.624 47.042 56.648 531 83 0. 33.486 49.997 60.230 563 84 0. 35.471 53.147 64.049 597 85 0. 37.588 56.506 68.123 633 86 0. 39.848 60.088 72.470 671 87 0. 42.259 63.911 77.109 711 88 0. 44.834 67.991 82.063 754 89 0. 47.584 72.348 87.355 799 90 0. 50.522 77.001 93.010 847 Present Values Disc Rate 5.0 0. 474.21 612.09 699.19 8.0 0. 364.35 455.57 513.55 10.0 0. 313.37 384.06 429.17 12.0 0. 274.11 329.74 365.38 15.0 0. 230.25 270.14 295.84 20.0 0. 181.69 206.08 221.92 30.0 0. 128.17 139.09 146.27 40.0 0. 98.95 104.70 108.52 50.0 0. 80.21 83.58 85.83 147 value of t o t a l costs than a l l of the othe r s , at a discount r a t e of ten percent. The l i n k c h a r a c t e r i s t i c f i l e of the t r a n s p o r t a t i o n model i s then r e v i s e d to show t h i s standard and maintenance l e v e l . A l l proposed new l i n k s are r e t a i n e d i n the f i l e . The t r a n s p o r t a t i o n model i s then run and the second pa r t of the output, the o r i g i n - d e s t i n a t i o n matrix and the new perceived t r a n s p o r t costs by commodity, i s used to c a l c u l a t e the change i n perceived cost f o r each commodity between each o r i g i n and d e s t i n a t i o n . Based on the changes i n perceived c o s t s , the supply and demand f o r e c a s t s are r e v i s e d and the net value of "other costs and b e n e f i t s " i s c a l c u l a t e d f o r each l i n k , e x i s t i n g and new. However, on some of the e x i s t i n g l i n k s where no c a p i t a l p r o j e c t s were shown to be j u s t i f i e d at ten percent, p r o j e c t s may have been j u s t i f i e d i f they had been c r e d i t e d w i t h a net value of other costs and b e n e f i t s . There-f o r e , t h i s net value i s a l s o c a l c u l a t e d f o r c a p i t a l p r o j e c t s on these l i n k s which were r e j e c t e d at ten percent but accepted at f i v e percent and appropriate f u r t h e r r e v i s i o n s are made to 16 the supply and demand i n p u t s . The r e v i s e d supply and demand inputs are i n s e r t e d i n t o the t r a n s p o r t a t i o n model, and new t r a f f i c f o r e c a s t s are ob-t a i n e d . The o p t i m i z a t i o n program i s then run again, using these new t r a f f i c f o r e c a s t s and the exogenously-calculated net "*"^This leaves the p o s s i b i l i t y t h a t c a p i t a l p r o j e c t s which were r e j e c t e d at f i v e percent may have been accepted at ten percent i f the net value of other costs and b e n e f i t s had been added. This i s considered u n l i k e l y , but the p o s s i -b i l i t y could be avoided by c a l c u l a t i n g the net values f o r every p o s s i b l e c o n s t r u c t i o n standard and maintenance l e v e l . 148 values of other costs and b e n e f i t s , and the r e s u l t i n g l e a s t -cost c o n f i g u r a t i o n of each l i n k i s determined. The l i n k c h a r a c t e r i s t i c f i l e i s then r e v i s e d , the t r a n s p o r t model run again, new perceived costs by commodity and o r i g i n and d e s t i -n a t i o n are developed, the supply and demand f o r e c a s t s are r e v i s e d , new net values of other costs and b e n e f i t s are c a l -c u l a t e d , and the o p t i m i z a t i o n program i s run again. This process i s repeated u n t i l f u r t h e r i t e r a t i o n s f a i l to produce s i g n i f i c a n t changes i n the t r a n s p o r t a t i o n system. In the Dahomey study, t h i s p o i n t was reached w i t h i n f i v e i t e r a t i o n s 17 a f t e r the new lxnks had been, added and t e s t e d , (d) Results This method of a n a l y s i s does not permit the t r a f f i c on each l i n k to be c l a s s i f i e d i n t o normal, d i v e r t e d and generated t r a f f i c . However, the t r a n s p o r t a t i o n costs a s s o c i a t e d w i t h each type of t r a f f i c are inc l u d e d i n the a n a l y s i s , as are the b e n e f i t s to normal and d i v e r t e d t r a f f i c . The b e n e f i t s asso-c i a t e d w i t h generated t r a f f i c have a l s o been measured, except f o r those a s s o c i a t e d w i t h generated passenger t r a v e l . The b e n e f i t s of generated passenger t r a v e l cannot be determined w i t h i n the confines of the a n a l y s i s method, but the v e h i c l e operating costs i n c u r r e d by the generated t r a v e l can be c a l -c u l a t e d f o r the system as a whole, and these can be s a i d to A d d i t i o n a l t e s t s of new l i n k s are made by e x t r a c t i n g from the t r a n s p o r t a t i o n model those p a r t s of the system d i r -e c t l y a f f e c t e d by the new l i n k s , and running these sub-systems w i t h and without the new l i n k s . 149 represent the minimum benefits. When the f i n a l optimization has been completed, the following data i s available for further analysis: 1. the present values of operating and maintenance costs on each l i n k , and for the whole system, over the period of the analysis, on the assump-tio n that no major changes w i l l be made to the road system; 2. the present values of operating costs, mainten-ance costs and other costs and benefits on each l i n k and for the whole system, over the period of the analysis, on the assumption that there w i l l be no c a p i t a l investments, but that optimum maintenance w i l l be carried out, and 3. the present values of operating costs, maintenance costs, c a p i t a l costs and other costs and benefits for each l i n k and for the whole system, over the period of the analysis, on the assumption that a l l of the selected c a p i t a l projects and main-tenance improvements w i l l be undertaken and i n service by the beginning of 1971. From a comparison of (1) and (3), the present values of c a p i t a l costs, incremental maintenance costs, and benefits can be calculated for the whole package of recommended improve-ments; with a l l discounting of future costs and benefits at a 150 r a t e equal to the opportunity cost of c a p i t a l . A present value of net b e n e f i t s and a b e n e f i t - c o s t r a t i o can then be c a l c u l a t e d f o r the whole package. An i n t e r n a l r a t e of r e t u r n can be developed by graphing the present values of costs and b e n e f i t s f o r the various discount r a t e s used. Thus, c r i t e r i a of economic j u s t i f i c a t i o n can be developed f o r the f i n a l package of improvements, w i t h the assurance that each i n d i v i d u a l im-provement w i t h i n the package i s economically j u s t i f i e d . In a d d i t i o n , the costs and b e n e f i t s of each c a p i t a l investment which i s economically j u s t i f i e d i n the context of the system can be developed by a comparison of (2) and (3) above; there-f o r e the same c r i t e r i a can be c a l c u l a t e d f o r the i n d i v i d u a l investments. This i s somewhat u n r e a l i s t i c i n a systems ana-l y s i s , where no s i n g l e l i n k or p r o j e c t i s independent of the other l i n k s and p r o j e c t s , but on the assumption t h a t the com-p l e t e package of improvements w i l l be undertaken, i t gives an i n d i c a t i o n of the r e l a t i v e p r i o r i t i e s of the p r o j e c t s . The p r o j e c t s which are economically j u s t i f i e d at the assumed opportunity cost of c a p i t a l should be undertaken as soon as p o s s i b l e ; otherwise, economic b e n e f i t s w i l l be l o s t . Thus, the t o t a l c a p i t a l cost of the s e l e c t e d c a p i t a l p r o j e c t s represents the c a p i t a l budget which should be a l l o c a t e d t o road c o n s t r u c t i o n and improvement. I f f i n a n c i n g f o r a l l of these projects.cannot be obtained, t h i s can be i n t e r p r e t e d as an i n d i c a t i o n t h a t the assumed opportunity cost of c a p i t a l was understated. In t h i s case, a higher opportunity cost should be 151 assumed and the p r o j e c t s e l e c t i o n r e v i s e d , so t h a t the c a p i t a l 18 cost requirement i s reasonably c l o s e to the budget a v a i l a b l e . The annual maintenance budget i s simply the sum of the annual maintenance costs on each l i n k of the optimized system. However, the c a p i t a l and maintenance budgets cannot be ex-t r a c t e d d i r e c t l y from the outputs of the l i n k o p t i m i z a t i o n program since a l l costs i n the program are economic c o s t s , net of taxes and d u t i e s and using shadow p r i c e s where appropriate. The f i n a n c i a l e q u i v a l e n t s of these costs must be c a l c u l a t e d i n order to formulate r e a l i s t i c budgets. Annual user charge revenue can be estimated from the t o t a l number of v e h i c l e s r e g i s t e r e d i n the country, the t o t a l k i lometers t r a v e l l e d by each c l a s s of v e h i c l e i n each year, and the user charge s t r u c t u r e . Increases i n revenue r e s u l t i n g from the road improvements are not considered as economic b e n e f i t s , but they are an important f a c t o r i n e s t i m a t i n g the funds which w i l l be a v a i l a b l e f o r road c o n s t r u c t i o n and maintenance, assuming tha t some or a l l of the revenue i s thus a p p l i e d . A l t e r n a t i v e user charge s t r u c t u r e s can be t e s t e d w i t h i n the framework of the model to determine t h e i r e f f e c t s on t r a f f i c f l o w s , economic development, and revenue. On the b a s i s of the t o t a l kilometers t r a v e l l e d by each v e h i c l e c l a s s per year as i n d i c a t e d by the t r a n s p o r t a t i o n 18 This p o i n t i s discussed i n d e t a i l i n C l e l l G. H a r r a l , P r e p a r a t i o n and A p p r a i s a l of Transport P r o j e c t s (Washington: The Brookings I n s t i t u t i o n , 1 9 6 5 ) , p. 130 . 152 model, the average l i f e t i m e kilometers of the d i f f e r e n t v e h i c l e types, and the base-year v e h i c l e r e g i s t r a t i o n s t a t i s -t i c s , a rough estimate of the v e h i c l e imports which w i l l be req u i r e d can be made, and the f o r e i g n exchange requirements estimated. This estimate of the y e a r l y a d d i t i o n s to the •vehicle f l e e t can a l s o be used i n the es t i m a t i o n of user charge revenue as noted above. Thus, the Dahomey Method has a number of u s e f u l f e a -tures apart from i t s primary o b j e c t i v e of e v a l u a t i n g the economic f e a s i b i l i t y of p u b l i c investment i n t r a n s p o r t a t i o n , (e) E v a l u a t i o n of the Dahomey Method The Dahomey Method w i l l be evaluated p r i m a r i l y i n comparison wi t h the Harvard Model, but the comparison w i l l be based on the features of each which are r e l e v a n t to the s e l e c t i o n and e v a l u a t i o n of p u b l i c investments i n transpor-t a t i o n i n underdeveloped c o u n t r i e s . Thus, many advantageous features of the Harvard Model r e l a t i n g to i t s uses i n general economic planning w i l l be neglected. Since both methods use the t r a n s p o r t a t i o n model p o r t i o n of the Harvard Model, the major d i f f e r e n c e s are those which a r i s e from the use of the l i n k o p t i m i z a t i o n program r a t h e r than the macro-economic model. The Harvard Model evaluates proposed investments d i r -e c t l y i n terms of t h e i r e f f e c t on n a t i o n a l income, which i s i n keeping w i t h the o b j e c t i v e of investment e v a l u a t i o n assumed i n t h i s t h e s i s . The Dahomey Method does not do t h i s ; r a t h e r , 153 i t attempts to measure the e f f e c t on n a t i o n a l income i n d i r e c t l y , by t a k i n g as f u l l account as p o s s i b l e of the costs and b e n e f i t s of t r a n s p o r t a t i o n investments. Thus, f o r example, the m u l t i p l i e r e f f e c t i s not measured w i t h i n the framework of the Dahomey Method. Both methods permit a l e v e l of d e c i s i o n to be defined, although the Dahomey Method i s probably more amenable to being scaled down to a l e v e l of d e c i s i o n below the n a t i o n a l one. I t d i f f e r s from the Harvard Model i n that i t s b a s i c economic r e -quirement i s an abbreviated input-output t a b l e , while a f u l l input-output t a b l e i s only one of the requirements of the macro-economic model. This d i f f e r e n c e i s p r i m a r i l y a t t r i b u t a b l e to the f a c t t h a t the Dahomey Method attempts to measure only the changes r e s u l t i n g from t r a n s p o r t a t i o n investments, wh i l e the Harvard Model attempts to q u a n t i f y the whole economy wit h and without the investments, and measure the d i f f e r e n c e by a comparison of the two. Both methods take account of the tim i n g of costs and b e n e f i t s i n tha t these are c a l c u l a t e d year by year. I t was suggested t h a t only s p e c i f i c years be analysed i n the Dahomey method, and the values f o r i n t e r v e n i n g years be developed by i n t e r p o l a t i o n , but t h i s does not preclude the p o s s i b i l i t y of a year-by-year a n a l y s i s . Both simulate t r a f f i c on the ba s i s of the production, consumption and other economic f a c t o r s which produce the t r a f f i c , and on the ba s i s of t o t a l t r a n s p o r t a t i o n costs as perceived by the shipper, and both d i s t i n g u i s h among the various types of v e h i c l e s i n the t r a f f i c stream. The 154 d i f f e r e n c e s among normal, d i v e r t e d and generated t r a f f i c are accounted f o r by both methods, although n e i t h e r s p e c i f i c a l l y i d e n t i f i e s each type of t r a f f i c i n the t o t a l flows on the various l i n k s . In both the Harvard Model and the Dahomey Method, changes i n the t r a n s p o r t a t i o n system are r e f l e c t e d i n changes i n the economy, which i n t u r n , act back on the t r a n s p o r t a t i o n system. However, the r e l a t i o n s h i p between the t r a n s p o r t system and the economy i s more f u l l y recognized i n the Harvard Model, i n tha t the requirement of i n t e r n a l consistency i s more rigorous than i n the Dahomey Method, thus tending to ensure that a l l f a c e t s of the r e l a t i o n s h i p are taken i n t o account. Both methods con-s i d e r a l l l i n k s simultaneously, t a k i n g account of the i n t e r -dependencies among the l i n k s . In terms of input requirements, the Dahomey Method i s considerably l e s s s t r i n g e n t than the Harvard Model, p a r t l y because i t aims at a l e s s r igorous a n a l y s i s , and p a r t l y because i t i s d i r e c t e d more s p e c i f i c a l l y to a r e l a t i v e l y narrow objec-t i v e than i s the Harvard Model. Although cost comparisons are not a v a i l a b l e , i t would seem that the data c o l l e c t i o n phase of the study would be considerably l e s s c o s t l y using the Dahomey Method, and problems r e l a t e d to the a v a i l a b i l i t y of data would be l e s s s e r i o u s . In both cases, the c o l l e c t i o n of s u f f i c i e n t h i s t o r i c a l data to permit the c a l i b r a t i o n of the t r a n s p o r t a t i o n model i s a serious problem, but the Harvard Model presents the even greater problem of c a l i b r a t i n g the macro-economic model. 1 5 5 Past t r a f f i c counts i n d i f f e r e n t s e c t i o n s of underdeveloped co u n t r i e s are f r e q u e n t l y a v a i l a b l e , but past economic data which could be used as a b a s i s f o r e s t i m a t i n g r e g i o n a l income are g e n e r a l l y l e s s common. The b a s i c d i f f e r e n t between the two methods i n t h e i r use as t o o l s of investment e v a l u a t i o n and s e l e c t i o n i s tha t the Dahomey Method i n v o l v e s a search and e v a l u a t i o n procedure, whereas the Harvard Model i s s t r i c t l y a s i m u l a t i o n procedure o which cannot be used t o evaluate numerous investment p o s s i b i -l i t i e s i n d i v i d u a l l y , except at p r o h i b i t i v e cost. I t does not attempt to s e l e c t an optimum package of economically j u s t i f i e d investment proposals; i t merely t e s t s the e f f e c t of packages which are s e l e c t e d p r i m a r i l y by judgment and introduced exo-genously. The Dahomey Method a l s o r e l i e s on judgment i n the form u l a t i o n of proposed new l i n k s , but the need f o r s u b j e c t i v e judgment i s g r e a t l y reduced i n the s e l e c t i o n of proposed improvements to e x i s t i n g l i n k s , and i n the s e l e c t i o n of a f i n a l package of investments. The judgment f a c t o r i s s t i l l present, however, and i t i s not suggested t h a t the Dahomey Method "optimizes" i n the sense that no f u r t h e r improvements could be made to the system, or tha t no b e t t e r combination of investment proposals could be i d e n t i f i e d . In summary, the Dahomey Method overcomes the major de-f i c i e n c i e s which have been i d e n t i f i e d i n t h i s t h e s i s . I t takes account of the r e l a t i o n s h i p s between the t r a n s p o r t a t i o n system and the economy, and the interdependencies among the i n d i v i d u a l 156 links i n the system. The procedures recommended to remedy the minor d e f i c i e n c i e s i d e n t i f i e d can be accommodated within i t s framework, and i t has the capacity to handle the large number of variable factors involved i n a comprehensive transportation analysis. Like the Harvard Model, i t i s s t i l l i n an experi-mental stage i n that no transportation analysis has been successfully completed using the method, but the Dahomey study i s now nearing completion, and no conceptual problems have been i d e n t i f i e d which would prevent i t s successful application to future studies of this nature. CHAPTER V CONCLUSIONS In the review of the methods commonly used to evaluate proposed p u b l i c investments i n t r a n s p o r t a t i o n , two major pro-blems have been i d e n t i f i e d . The f i r s t i s the f a i l u r e to r e l a t e the t r a n s p o r t a t i o n system and proposed changes i n the system, to the economy as a whole. The second i s the f a i l u r e to r e l a t e i n d i v i d u a l l i n k s i n the t r a n s p o r t system to the whole system, t a k i n g f u l l account of the interdependencies among the l i n k s . I t i s considered t h a t the s o l u t i o n to these problems can be found i n a method of a n a l y s i s which incorporates a n a t i o n a l income approach and a systems approach to investment e v a l u a t i o n . Two analyses methods which incorporate these features have been described and evaluated. One, the Harvard Model, overcomes the major problems and can a l s o accommodate the pro-cedures suggested to remedy the minor d e f i c i e n c i e s i d e n t i f i e d i n the usual methods and t h e i r a p p l i c a t i o n s . However, there are a number of problems i n v o l v e d i n the p r a c t i c a l a p p l i c a t i o n of the Harvard Model, and i t i s concluded t h a t the model has not yet reached a stage of development where i t can be a p p l i e d w i t h confidence to a p r a c t i c a l s i t u a t i o n . Even i f i t were at such a stage of development, i t would s t i l l be incapable of t e s t i n g a l a r g e number of a l t e r n a t i v e investment p o s s i b i l i t i e s and s e l e c t i n g the optimum combination, except at p r o h i b i t i v e 158 c o s t . I t i s t h e r e f o r e concluded t h a t the Harvard Model i s not now an appropriate method of investment e v a l u a t i o n , nor w i l l i t ever be i n i t s present format. The other method of investment e v a l u a t i o n , the Dahomey Method, a l s o overcomes the major problems and i s a l s o able to accommodate the procedures r e q u i r e d to overcome the minor d e f i c i e n c i e s . I t i s s p e c i f i c a l l y designed to t e s t a l a r g e number of investment p o s s i b i l i t i e s and i n d i c a t e the best package of investments from among those considered. I t s cost of a p p l i c a t i o n i s reasonable i n r e l a t i o n to the budgets nor-mally a v a i l a b l e i n such s t u d i e s , and i t s data requirements are l e s s s t r i n g e n t than those of the Harvard Model. I t i s a r e l a -t i v e l y simple method, which can be a p p l i e d w i t h reasonable assurance t h a t i t w i l l produce the d e s i r e d r e s u l t s . I t i s th e r e f o r e concluded t h a t the Dahomey Method i s the best cur-r e n t l y a v a i l a b l e f o r the economic a n a l y s i s of proposed p u b l i c investments i n t r a n s p o r t a t i o n f a c i l i t i e s . The above methods are not r e a l l y a l t e r n a t i v e ways of reaching a common o b j e c t i v e ; they were designed to serve d i f -f e r e n t purposes. In the f u t u r e , as more progress i s made i n the development and a p p l i c a t i o n of the Harvard Model, i t i s p o s s i b l e t h a t the two methods could be combined, using the t r a n s p o r t model to simulate commodity and v e h i c l e f l o w s , the l i n k o p t i m i z a t i o n program to evaluate and s e l e c t p o s s i b l e investments and formulate a t r a n s p o r t a t i o n investment program, and the macro-economic model to simulate the e f f e c t of the 159 investment program on the whole economy. This combination of methods would provide an e x c e l l e n t b a s i s f o r general t r a n s -p o r t a t i o n planning as w e l l as f o r t r a n s p o r t a t i o n investment a n a l y s i s , and i t would a l s o be an i n v a l u a b l e t o o l f o r general economic planning. The Harvard Model and the Dahomey Method c o n s t i t u t e s i g n i f i c a n t advances i n the techniques of t r a n s p o r t a t i o n eva-l u a t i o n , and f u r t h e r advances can be expected as the development of these methods continues. The review of past s t u d i e s and dis c u s s i o n s w i t h people i n v o l v e d i n t r a n s p o r t a t i o n a n a l y s i s have a l s o suggested ways i n which the q u a l i t y of a n a l y s i s could be f u r t h e r improved. In s p i t e of the larg e number of stu d i e s done, l i t t l e attempt has been made to review past stud i e s to determine how accurate the fo r e c a s t s made i n the studie s were, and to determine the reasons f o r inaccurate f o r e c a s t s . Test-i n g of t h i s nature could be most productive i n terms of im-proving f o r e c a s t i n g techniques. One of the r e s u l t s of such t e s t i n g may w e l l be the i n d i c a t i o n t h a t non-economic f a c t o r s — t r a d i t i o n , a t t i t u d e s , s o c i a l s t r u c t u r e s , and s i m i l a r f a c t o r s — are at l e a s t as important as the economic f a c t o r s commonly considered i n the es t i m a t i o n of the e f f e c t s of changes i n the t r a n s p o r t a t i o n system. This would suggest th a t investment study groups should be expanded to in c l u d e d i s c i p l i n e s such as soc i o l o g y as w e l l as the usual engineering and economic d i s c i p l i n e s . The lack of t r a f f i c and economic data i n underdeveloped co u n t r i e s i s ofte n an obstacle to the completion of a compre-160 hensive a n a l y s i s . This s i t u a t i o n cannot r e a d i l y be improved i n respect to past years, but h o p e f u l l y , the a p p l i c a t i o n of methods such as the Harvard Model and the Dahomey Method w i l l i n d i c a t e more p r e c i s e l y the nature of data d e f i c i e n c i e s , and lead to programs of data c o l l e c t i o n and p u b l i c a t i o n of s t a t i s -t i c s on a continu i n g b a s i s , designed to remedy the d e f i c i e n c i e s . As noted i n the I n t r o d u c t i o n , the recent emphasis given t r a n s p o r t a t i o n investment e v a l u a t i o n has r e s u l t e d i n s i g n i f i -cant improvements i n methods of e v a l u a t i o n . The a p p l i c a t i o n of e l e c t r o n i c computers to investment studi e s has made approaches such as the Harvard Model and the Dahomey Method p o s s i b l e , and can be expected to c o n t r i b u t e s i g n i f i c a n t l y to the continued improvement of p u b l i c t r a n s p o r t a t i o n investment a n a l y s i s . Thus, the Harvard Model and the Dahomey Method are considered to be only the f i r s t of a whole new generation of improvements i n methods of a n a l y s i s . B I B L I O G R A P H Y 1 6 2 A d l e r , Hans A. Sector and P r o j e c t Planning i n Tran s p o r t a t i o n. World Bank S t a f f Occasional Papers Number Four, Washington, D.C: 1 9 6 7 . Bierman, H. and S. Smidt. The C a p i t a l Budgeting D e c i s i o n . New York: The Macmillan Company, 1 9 6 6 . Bonney, R. and N. Stevens. Report on the I n v e s t i g a t i o n i n t o  V e h i c l e Operating Costs i n East and C e n t r a l A f r i c a . Road Research Laboratory Notes, 1 9 6 4 (unpublished). Brown, Robert T. and C l e l l G. H a r r a l . E s t i m a t i n g Highway  B e n e f i t s i n Underdeveloped Countries. Washington: The Brookings I n s t i t u t i o n (n.d.). Dahomey Land Transport Study T e c h n i c a l Memoranda (unpublished). Number 8_,' Highway Operating Costs, 1 9 6 8 ; Number 9_, Road Maintenance Methods and Costs, 1 9 6 8 . De W e i l l e , Jan. Q u a n t i f i c a t i o n of Road User Savings. World Bank S t a f f Occasional Papers Number Two, Washington: 1 9 6 6 . Dorfman, Robert (ed.). Measuring B e n e f i t s of Government Investments. Washington: The Brookings I n s t i t u t i o n , 1 9 6 5 . Fromm, Gary (ed.). Transport Investment and Economic Development. Washington: The Brookings I n s t i t u t i o n , 1 9 6 5 . General Engineering Company L t d . F e a s i b i l i t y Report, Thonburi  Paktho Highway, Kingdom of Thailand. Toronto: 1 9 6 7 (unpublished). Grant, E.L. and W.G. Ireson. P r i n c i p l e s of Engineering Economy. New York: The Ronald Press Co., 1 9 6 0 . H a r r a l , C l e l l G. Pr e p a r a t i o n and A p p r a i s a l of Transport P r o j e c t s . Washington: The Brookings I n s t i t u t i o n , 1 9 6 5 . Hogg, W.V. F e a s i b i l i t y S t u d i e s : An I n t e r n a t i o n a l Lender's View. A paper prepared f o r pr e s e n t a t i o n to the Conference on C i v i l Engineering Problems Overseas, sponsored by the I n s t i t u t i o n of C i v i l Engineers, London, 1 9 6 6 . H o s e l i t z , B.F. et a l . Theories of Economic Growth^ New York: The Free Press of Glencoe, 1 9 6 0 . I s a r d , Walter (ed.). Methods of Regional A n a l y s i s . M'i'I.T.-Press, 1 9 6 0 . 163 Kuhn, T i l l o E. The Economics of Road Transport. Montreal: M c G i l l U n i v e r s i t y , 19 57 (Ph.D. T h e s i s ) . Kuhn, T i l l o E. P u b l i c E n t e r p r i s e Economics and" Transport Problems. Stanford: U n i v e r s i t y of C a l i f o r n i a Press, 1962. Lewis, Peter. Notes on the Economic Assessment of Road P r o j e c t s . Bangkok: Royal Highway Department of Thailand, 1965. M a r t i n , B r i a n V. and Charles B. Warden. "Transportation Planning i n Developing Countries." T r a f f i c Q u a r t e r l y , v o l . 19 (January 1965). McKean, Roland. E f f i c i e n c y i n Government Through Systems A n a l y s i s . New York: John Wiley and Sons, 195 8. Mohring, H.D. and M. Harwitz. Highway B e n e f i t s , an A n a l y t i c a l  Framework. Chicago: Northwestern U n i v e r s i t y Press, 1962. Road User B e n e f i t A n a l y s i s f o r Highway Improvements. Committee on Planning and Design P o l i c i e s , American A s s o c i a t i o n of State Highway O f f i c i a l s , 1960. Roberts, Paul O. Transport Planning: Models f o r Developing  Countries. Ann Arbor, Mich.: U n i v e r s i t y M i c r o f i l m s Inc., 1967. S a a l , C a r l . Time and Gasoline Consumption i n Motor Truck Operation. Highway Research Board Research Report 9-A, 1950. S a w h i l l , R.B. and J.C. F i r e y . B u l l e t i n 286, Highways Research Board, 1960. Solomon, Ezra (ed.). The Management of Corporate C a p i t a l . New York: The Free Press of Glencoe, 1964. Tinbergen, Jan. The Design of Development. Washington: The Economic Development I n s t i t u t e , 1958. Wilson, George W. et a l . The Impact of Highway Investment on  Development. Washington: The Brookings I n s t i t u t i o n , 1966. 164 Winch, David M. The Economics of Highway Planning. Toronto: U n i v e r s i t y of Toronto Press, 1963 . Winfrey, Robley. Motor V e h i c l e Running Costs f o r Highway  Economy Studies. A r l i n g t o n , Va.: published by author, 1963 . Z e t t e l , R.M. The Incidence of Highway B e n e f i t s . Highway Research Board S p e c i a l Report 5 6 , 1959 . 

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