Chapter 10: Cost–Benefit Analysis In Transport

What is cost–benefit analysis? Is it useful, and in what contexts? What are the key components, what advances are taking place in its application in the transport sector, and what problems remain? These are the questions which we address in this chapter. There is no hope of being comprehensive, since complete books have been written on this subject (Pearce and Nash, 1981; Wohl and Hendrickson, 1984; Layard and Glaister, 1994, for example). Rather, the purpose of this chapter is to give an up-to-date view of the state of the art, referring to questions both of principle and of practice.

Appraisal is the generic term for the process of weighing up the impacts, positive and negative, of a project or policy action, so as to inform the decision-maker. Cost–benefit analysis is a specific branch of that genus. Its key characteristics are that the analysis is conducted from an overall social viewpoint rather than that of any particular agent, and that it uses monetary values, where feasible and valid, as the weights applying to the various impacts which are relevant to the decision. We begin by considering the need for project appraisal.