On bias, bollocks and better practice

12 Apr 2018

Adjunct Professor John Stanley

Formal cost benefit analysis of land transport initiatives has been common for fifty years, with Australia a pioneer in the field, particularly through the internationally acclaimed work of the (then) Commonwealth Bureau of Roads. Travel time, vehicle operating costs and accidents formed the initial focus of benefit quantification work for roads, together with changes in operational and maintenance costs.

Since those early days, there has been considerable progress in extending the scope of land transport CBA, from roads to public and active transport and with the inclusion of a range of additional benefits and costs, such as Wider Economic Benefits (e.g. agglomeration economies). A number of countries, Australia included, have produced guidelines that suggest ways to undertake assessments, particularly if governmental funding support is sought.

ITLS researchers have played a leading role over the last decade in building understanding of links between mobility, social exclusion and well-being, working with colleagues from Monash and Melbourne Universities. This is the only international research, to our knowledge, that has produced values of trip making as a contributor to reducing risks of social exclusion. Those values are independent of particular modes but can be used in a modal setting. For example, application of the research suggests the single biggest benefit from Melbourne’s route bus services is their social inclusion value (Stanley and Hensher 2011).

The research in question has passed peer review testing that saw publication in such noted international journals as the Journal of Transport Economics and Policy, Transportation Research Part A and Urban Studies. In short, it is seen as good quality research. Notwithstanding such peer recognition, the values that flow from this research are yet to be incorporated in evaluation guidelines, even in Australia where the research was based. This poses the question, “Why not?” Meeting the peer review test for acceptability should probably be the first criterion for inclusion. The research clearly passes that test.

Alignment with the fundamentals of CBA is a second test. CBA is essentially a means of aggregating measures of individual preference with respect to particular policies or other initiatives, or programs thereof, where money is used as the means for aggregation. We might prefer to measure utility but money is a bit easier! Willingness-to-pay for a benefit, or accept to be compensated for a cost, provides a consistent framework for measurement identification and quantification, albeit very difficult at times. The incidence of benefits/costs (who wins and loses) is also an important evaluation input, since it is heroic to assume that a dollar has equal value for all. Equity weighting procedures provide a means of transitioning from dollars to a proxy for societal utility or welfare (Stanley and Stopher 2014). If there are ethical reasons for not including particular individual preferences, such as where individual preferences might differ from the preferences a person might hold when thinking of themselves as part of a community or society, than this can be taken into account in a CBA (Nash et al. 1975). Such considerations underline the value bases of CBA, which most analysts unfortunately ignore.

The valuation work on trip making as a means of reducing risks of social exclusion was designed from the start to align with willingness-to-pay methodologies, which should mean a tick for inclusion in evaluation. Interestingly, the research indicates that the value of additional trips, in terms of reducing risks of exclusion, tends to increase proportionally with declining household income. This generally accords with broader equity weighting approaches to CBA used in places such as the UK.

It might be argued that, because no other international research has identified values of trip making in terms of reducing risks of social exclusion, why should Australia use these values? I would make three points about such an argument. First, deriving values of the kind that have been found in the Australian research requires very detailed and expensive survey work. The Australian research had the benefit of an ARC grant and considerable funding and/or in-kind support from the Victorian State Government, the Victorian bus industry, local government and the Brotherhood of St Laurence, equivalent to well over $1 million in today’s terms. We are not aware of any other research program in this area that has had such a level of support, so the absence of similar findings elsewhere is little surprise. Second, the suggestion that, if no-one else does it, then neither should Australia, is a recipe for returning mankind to caves. Progress needs new knowledge and understanding to be developed and applied in the pursuit of improved life chances and a more sustainable environment. Australia has the opportunity to set an international precedent by including the valuation work on trip making, as it relates to reducing risks of social exclusion, in its national transport evaluation guidelines.

Finally, I make the important point that to ignore these values is to perpetuate a bias in transport sector CBA against projects and policies whose purpose is, or might include, reducing risks of social exclusion. Counting agglomeration benefits, for example, given spatial distribution of associated benefits, but ignoring exclusion benefits tilts the analysis platform firmly in a regressive direction and perpetuates risks of exclusion. It is time for a more balanced approach.


References

Nash, C., Pearce, D and Stanley, J. (1975), ‘An evaluation of cost benefit analysis criteria’, Scottish Journal of Political Economy, Vol. XXII, No. 2, 121-134.

Stanley, J and D. Hensher (2011), ‘Economic modelling’, in G.Currie (Ed.) New perspectives and methods in Transport and Social Exclusion Research. Bingley, UK: Emerald.

Stopher, P. and Stanley, J. (2014), Introduction to transport policy: A public policy view, Cheltenham UK: Edward Elgar.