Hand-out 16: CBA & COBA
Cost-benefit analysis – the need for a cost-benefit approach for allocating resources and its application. Negative and positive externalities associated with transport use. Limitations of a cost-benefit approach.
You need to be able to:
Explain the positive and negative externalities that arise from transport use Analyse the methods economists use to put a value on externalities Evaluate how effective methods of valuing externalities are
Explain how CBA / COBA is calculated
Evaluate the limitations of CBA / COBA
Positive externalities, benefits to third parties:
relocation of businesses to areas around transport infrastructure reduced costs for local businesses due to increased speed
increased employment for workers
increased economic growth (accept growth of FDI)
local multiplier effects (accept benefit to local businesses) quicker commuting journeys OR increased productivity
increased frequency of trains / flights / buses
improvements in quality of service OR a more reliable service
Negative externalities, costs to third parties:
What is CBA?
CBA is used to assess the viability of transport infrastructure projects and helps to compare and prioritise schemes in that it tries to weigh up all...