Valuing Benefits

Economic analysis should consider all significant impacts (benefits and costs). As much as possible these impacts should be quantified and monetized (measured in monetary units). Various techniques can be used to monetize non-market impacts (costs and benefits that involve goods which are not normally traded in a competitive market). Some impacts are unsuited to monetization or resources are not available to perform monetization analysis in a particular situation. Care must be taken to ensure that all benefits are considered in analysis, including detailed descriptions of any impacts that are not monetized.

Examples

  • Reduction in aircraft noise in homes near airports
  • Increased noise and neighborhood disruption in locations adjacent to a new freeway
  • Freeway landscaping
  • Civic pride associated with a rail transit system

These benefits may be dealt with outside the benefit-cost analysis, or attempts can be made to include them in the process. The choice would depend on their importance relative to other benefits, the likelihood of being able to soundly establish a monetary value, and political considerations. In the first example, aircraft noise reduction is probably the primary benefit of the project, and so it would be worthwhile to establish its monetary value. In the second case, it is perhaps more likely that some mitigation measures will be taken or a different alignment used to avoid the disbenefit. In the landscaping example, the cost of an individual landscaping project may be too small to warrant a study to determine its value. But since landscaping is done on large numbers of freeways, it might be worthwhile to conduct a study to determine how people value landscaping in general for different types of highways.

Two tools are often used to establish monetary values:

Hedonic pricing uses regression analysis, often utilizing real estate values and other characteristics obtained from records of property sales to estimate the value of particular transportation-related benefits.

Contingent valuation uses some type of survey to elicit values that people place on the benefits of proposed projects.

If it is not feasible to use these tools, rough estimates may be used. In that case, sensitivity analysis is recommended to account for the Uncertainty in these estimates.

Sources

H. Spencer Banzhaf and Puja Jawahar (2005), Public Benefits of Undeveloped Lands on Urban Outskirts: Non-Market Valuation Studies and their Role in Land Use Plans, Resources for the Future (www.rff.org).

Tyler D. Duvall (2008), Treatment of the Economic Value of a Statistical Life in Departmental Analyses, Office of the Secretary of Transportation, U.S. Department of Transportation (http://ostpxweb.dot.gov/policy/reports/080205.htm).

EC (2005), ExternE: Externalities of Energy - Methodology 2005 Update, Directorate-General for Research Sustainable Energy Systems, European Commission (www.externe.info).

EDRG (2007), Monetary Valuation of Hard-to-Quantify Transportation Impacts: Valuing Environmental, Health/Safety & Economic Development Impacts, NCHRP 8-36-61, National Cooperative Highway Research Program (www.trb.org/nchrp); at www.statewideplanning.org/_resources/63_NCHRP8-36-61.pdf. Also see Monetary Valuation Per Dollar Of Investment In Different Performance Measures, AASHTO (www.transportation.org); at www.dot.state.tx.us/services/transportation_planning_and_programming/la_entrada/files/nchrp.pdf

Environmental Economics Website (europa.eu.int/comm/environment/enveco), European Union

European Transport Pricing Initiatives (www.transport-pricing.net) has research projects that related to monetization of transportation that include:

CAPRI (www.its.leeds.ac.uk/projects/capri) disseminates research on transport pricing.

MCICAM (www.its.leeds.ac.uk/projects/mcicam/) investigates marginal cost pricing.

UNITE (www.its.leeds.ac.uk/projects/unite) involves transport cost accounting.

  

Environmental Valuation Reference Inventory (www.evri.ca) is a searchable storehouse of empirical studies on the economic value of environmental benefits and human health effects. It is sponsored by a number of major North American and European organizations.

David J. Forkenbrock and Glen E. Weisbrod (2001), Guidebook for Assessing the Social and Economic Effects of Transportation Projects, NCHRP Report 456, TRB (www.trb.org); at http://onlinepubs.trb.org/Onlinepubs/nchrp/nchrp_rpt_456-a.pdf

David Greene, Donald Jones and Mark Delucchi (1997), The Full Costs and Benefits of Transportation, Springer (Berlin). 

John Gowdy and Sabine O’Hara (1995), Economic Theory for Environmentalists, St. Lucie Press (www.crcpress.com).

International Society for Ecological Economics (www.ecoeco.org) provides non-market evaluation tools. 

Integral Economics (www.integraleconomics.org) is an organization that develops economic tools and policies to implement comprehensive economic analysis and support sustainability.

Ecosystem Evaluation (www.ecosystemvaluation.org/uses.htm)

Henrik Lindhjem, Ståle Navrud and Nils Axel Braathen (2010), Valuing Lives Saved From Environmental, Transport And Health Policies: A Meta-Analysis Of Stated Preference Studies, Environment Directorate, Organisation for Economic Co-operation and Development (www.oecd.org); at www.oecd.org/officialdocuments/displaydocumentpdf?cote=env/epoc/wpnep(2008)10/final&doclanguage=en.

Todd Litman (2001), What’s It Worth? Life Cycle and Benefit/Cost Analysis for Evaluating Economic Value, Presented at Internet Symposium on Benefit-Cost Analysis, Transportation Association of Canada (www.tac-atc.ca); at www.vtpi.org/worth.pdf

Todd Litman (2006), Well Measured: Developing Indicators for Comprehensive and Sustainable Transport Planning, VTPI (www.vtpi.org); at www.vtpi.org/wellmeas.pdf

Todd Litman (2009), Transportation Cost and Benefit Analysis, Victoria Transport Policy Institute (www.vtpi.org/tca).

M. Maibach, et al. (2008), Handbook on Estimation of External Cost in the Transport Sector, CE Delft (www.ce.nl); at  http://ec.europa.eu/transport/costs/handbook/doc/2008_01_15_handbook_external_cost_en.pdf.

Donald Miller and Domenico Patassini (2005), Beyond Benefit Cost Analysis: Accounting for Non-Market Values in Planning Evaluation, Ashgate (www.ashgate.com). 

Stale Navrud and Richard Ready (2002), Valuing Cultural Heritage: Applying Environmental Valuation Techniques to Historic Buildings, Monuments and Artifacts, E Elgar (www.e-elgar.com).

NRC (2009), Hidden Costs of Energy: Unpriced Consequences of Energy Production and Use, National Research Council, National Academy of Sciences (www.nap.edu/catalog/12794.html). 

NZTA (2010), Economic Evaluation Manual (EEM), New Zealand Transport Agency (www.nzta.govt.nz); at www.nzta.govt.nz/resources/results.html?catid=401.

 John Quiggin (2006), Stern and the Critics on Discounting, University of Queensland (www.uq.edu.au); at http://johnquiggin.com/wp-content/uploads/2006/12/sternreviewed06121.pdf.

Richard C. Porter (1999), Economics at the Wheel; The Costs of Cars and Drivers, Academic Press (www.academicpress.com).

Emile Quinet (2004), “A Meta-Analysis Of Western European External Cost Estimates,” Transportation Research D, Vol. 9 (www.elsevier.com/locate/trd), Nov. 2004, pp. 465-476.

 Niklas Sieber and Peter Bicker (2008), Assessing Transportation Policy Impacts on the Internalization of Externalities of Transport, Transport & Mobility Leuven for the European Commission; at www.tmleuven.be/project/refit/d3-3.pdf.

Nariida C. Smith, Daniel W. Veryard and Russell P. Kilvington (2009), Relative Costs And Benefits Of Modal Transport Solutions, Research Report 393, NZ Transport Agency (www.nzta.govt.nz); at www.nzta.govt.nz/resources/research/reports/393/docs/393.pdf.

TC (1994), Guide to Benefit-Cost Analysis in Transport Canada, Report TP 11875E, Transport Canada; at www.tc.gc.ca/finance/BCA/en/TOC_e.htm.

TC (2003-2007), The Full Cost Investigation of Transportation in Canada, Transport Canada (www.tc.gc.ca); at www.tc.gc.ca/pol/en/aca/fci/menu.htm . For technical analysis see Anming Zhang, Anthony E. Boardman, David Gillen and W.G. Waters II (2005), Towards Estimating the Social and Environmental Costs of Transportation in Canada, Centre for Transportation Studies, University of British Columbia (www.sauder.ubc.ca/cts); at www.bv.transports.gouv.qc.ca/mono/0965490.pdf.

TRISP (2005), Economic Evaluation Notes, UK Department for International Development and the World Bank (www.worldbank.org); at http://go.worldbank.org/ME49C4XOH0.

Transportation Benefit-Cost Analysis Website (http://.bca.transportationeconomics.org), Transportation Economics Committee, Transportation Research Board (www.trb.org).

USEPA, Environmental Economics Report Inventory (http://yosemite.epa.gov/ee/epa/eed.nsf/webpages/homepage) is a large database of documents concerning environmental economics.

USEPA (2000), Guidelines for Preparing Economic Analyses, U.S. Environmental Protection Agency (www.epa.gov); at http://yosemite1.epa.gov/ee/epa/eerm.nsf/vwAN/EE-0228C-01.pdf/$file/EE-0228C-01.pdf and http://yosemite.epa.gov/EE/epa/eerm.nsf/vwRepNumLookup/EE-0516?OpenDocument.

USEPA (2002), Full Cost Accounting: Common Questions and Answers, US Environmental Protection Agency (www.epa.gov); at www.epa.gov/epawaste/conserve/tools/fca/questions.htm

van Essen, et al (2004), Marginal Costs of Infrastructure Use – Towards a Simplified Approach, CE Delft (www.ce.nl); at www.ce.nl/?go=home.downloadPub&id=456&file=04_4597_15.pdf

H.P. van Essen, B.H. Boon, M. Maibach and C. Schreyer (2007), Methodologies For External Cost Estimates And Internalization Scenarios: Discussion Paper For The Workshop On Internalisation On March 15, 2007, CE Delft (www.ce.nl); at www.ce.nl/4288_Inputpaper.pdf.

Vermeulen, et al (2004), The Price of Transport: Overview of the Social Costs of Transport, CE Delft (www.ce.nl).

World Bank Environmental Economics and IndicatorsWebsite (http://go.worldbank.org/8PNA0NWT80), provides economic evaluation and non-market monetization resources.