Investment appraisal for roads

[j.swanson@sdg.co.uk]

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Appraisal of road construction projects in the UK is handled on an=20
econometric basis. Essentially it is cost-benefit analysis (CBA), and=
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there is a computer program called COBA that has been used here for=20
many years to to this. The main benefit recognised in COBA is the=20
time saving generated by the road (time savings are the main reason=20
for building new roads) and these are converted into money, projected=20
forward many years, discounted, and compared with the investment cost.=
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Recently a government commissioned report suggested that the link=20
between transport investment and economic growth (measured as GDP) is=20
not clear. Attemps to demonstrate statistical correlations between=20
investment and GDP are often inconclusive, at least in a well=20
developed economy. This is important because the debate here is now=20
about what happens if we reduce road capacity, or make it more=20
expensive to use: if the link with GDP is not proven, then maybe no=20
harm will be done by reducing capacity.
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The arguments are complex. The economic impact of any given road=20
scheme must depend upon how people are placed to exploit it, and on=20
the time it takes to do so. Bringing a road into a remote area might=20
encourage inward investment, but it might also provide a way of=20
bringing in cheaper goods made elsewhere and damaging the local=20
economy.=20
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This seems a classic area for good systems dynamics modelling. I=20
wonder if anyone is working in this area, or knows of published=20
material that is relevant. It need not be specifically about roads -=20
anything on a system dynamics approach to investment appraisal would=20
be useful.
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John Swanson tel: +44 (0)171-919-8500
Associate fax: +44 (0)171-827-9850
Steer Davies Gleave
32 Upper Ground
London
SE1 9PD
j.swanson@sdg.co.uk