Economics- Allocation of Transport Resources

How are transport resources allocated?

Transport is a necessity, so the government can not let it go unsupported by private companies.

  • Private Goods- fully privately owned e.g Airlines (RyanAir)
  • PPP (Public Private Partnerships)- where the government has some control, but uses private money e.g- TFL Underground
  • Publicly owned company- where the company owning the resources puts all its profits back into the resource ( a not- for- dividend company), e.g- Network Rail
  • Direct government provision- funded soley by the government

Benefits of PPP's

Government (public sector):

  • Injection of additional resources into transport project above what would otherwise be provided
  • Gain in effiency due to private sector's participation
  • Access to innovative techniques and leading edge technology
  • Risk transfer to an organisation with proven project management expertise.
1 of 6

How is Cost- Benefit Analysis applied?

Cost- Benefit Analysis: A decision- making tool which weighs up the relative social costs and benefits of different projects in order to calculate the net present value (NPV) of a project.

How does it work?

1. Compares costs and benefits of a project      2. Makes forcast for future costs/ benefits over time

3. Attaches monetary values to factors (either through market value or shadow pricing)

4. Attaches weightings to factors            5. By selecting projects where SB> SC, it                                                                    maximises socail welfare

Problems of Cost- Benefit Analysis:

  • Valuation of externalities- shadowing pricing are estimates so may be inaccurate as some things are difficiult to value monetarily
  • Values are opinion- basesd and may differ between different people.
  • Weightings are opinion- based too.
  • Not all externalities are included in the study
2 of 6

Cost- Benefit Analysis- The COBA Model

New motorways/ roads are appraised with the developed cost- benefit analysis = The COBA Model (Cost OR Benefit).

Spending on roads is from public sources. This is because roads are quasi- public goods (non- excludable but rival, as more use it, space is limited and speed slows) and therefore can not be priced by the government.

How it works?

1. Measures the construction costs         2. Measures benefits to user over previous benefits

3. Evaluates costs and benefits, taking into account future costs and benefits, and produces a net present value (NPV).

Benefits split into 3 categories:

  • Time savings
  • Accident cost savings
  • Operating costs (less fuel/ maintenance) savings
3 of 6

Cost- Benefit Analysis- The COBA Model

Problems with using the COBA approach?

  • Uses estimates and shadow prices that may not prove accurate over time
  • Makes value judgements as benefits/ costs are weighted
  • Does not take into account items that are difficult to price- therefore no negative or positive externalities
  • Difficult to understand by the public
  • Only applies as a scientific model to roads,so can't compare other trnapsort projects
4 of 6

Other methods of decision- making in Transport

Mutli- Criteria Decision Analysis (MCDA)

Used when items in the decision making cannot be obtained, but are still regarded as items of major importance. Used since 1998 with road transport decisions.

Government overview policy from roads decisions was NATA- now TAG

Multi- criteria analysis used to make a decision (MCDA)

                         COBA                                                               Environmental Impact (AST)

Environental imapcts are scored on an Appraisal Summary Table using a numerical scale or by qualitative assessment (written opinion). Split into 5 sections:

Environment                     Economy                   Intergration

Safety                               Assessibility

5 of 6

Key components of Government transport policy

Transport 2010 (2000): Invest in Rail, Road and Local Transport schemes

Eddington Report (2006): Ensuring transport networks can support the success of growing urban catchments and targeting future growth- focused investment

"Creating Growth, Cutting Carbon" (2010): 3 types of sustainability- Economic, Social and Environmental

Key changes in focus overtime: More focus on long term solutions and using technology to make it easier for people to use public transport

Sustainable Development- The ability to meet the needs of the present without compromising the ability of the future generations to meet their own needs.

Transport Example- Manchester Metrolink

Intergration- The combination of different methods of transport within one system, making it easy and well priced for people to use

Transport Example- "Get Me There" (Oyster) Card

6 of 6


No comments have yet been made

Similar Economics resources:

See all Economics resources »See all Resource allocation resources »