Perspective and Scope

Which impacts (costs and benefits) should be considered in the evaluation of the project? Whose impacts should be considered? Economic analysis should generally consider all benefits and costs that accrue to anyone it can highlight certain types of impacts, for example, an agency may highlight benefits that relate to its primary objectives (for example, a transportation agency might highlight traffic congestion or improved safety benefits, and a social service agency might highlight improved mobility for non-drivers), or it might highlight impacts that accrue to residents or businesses within the jurisdiction that is sponsoring the project. The analysis perspective and scope should be established before the analysis is begun.

Other groups to whom significant benefits and costs accrue should also be identified and their costs and benefits estimated because they are potential sources of support or opposition to the project. If a particular group has much higher costs than benefits, some means of compensating it might be considered; conversely, if a group has much higher benefits than costs, it might be possible to find a way to obtain compensation for those benefits.

Example of Perspective

A highway department in a state with a substantial amount of through traffic that neither originates nor completes its journey in that state has a fixed amount of funding available for highway improvements. When selecting roads to be improved, the department may want to consider only benefits to state residents and businesses and not to out-of-state travelers and freight carriers. However, while different agencies may have different perspectives, for government investments it is accepted practice to include benefits and costs to whomsoever they accrue, not just to the public decision maker's constituency. The viewpoint should be broad enough to include all who incur some costs and all who receive the benefits.

Example of a Potential for Compensation

An elevated freeway section in an industrial area with some housing collapses during an earthquake. The residents of the neighborhood, already traumatized by the collapse, have nothing to gain and much to lose if the freeway were reconstructed on the same alignment. However, a realignment would increase reconstruction costs by hundreds of millions of dollars. Should residents be offered money and assistance in purchasing housing elsewhere to avoid the need to move the freeway?