Transport Economics - notes for essay questions

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  • Created by: Adam
  • Created on: 08-01-13 18:03

CBA - Cost benefit analysis

A technique used for assessing the viability of a project, by comparing its social costs and benefits over time, and determining it's net present value.

Stages - Identification  -Enumeration  -Forecasting  -Net present value

Problems -Not all costs and benefits may be taken into account
-Putting a monetary value on negative externalities is difficult/ not completely accurate
-Forecasting is unreliable (difficult to determine the future)
-Cause and effect - is the benefit/ cost due to the new project or something else?
-Differences between the future and current value

Effectiveness of CBA depends upon the datas accuracy

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COBA - not to be confused with CBA

A decision making process used to decide whether and where to build new roads

Compares user costs and benefits
Costs - maintanance and construction
Benefits - Reduction in road user costs - accidents, time saved, vehicle operating costs

Negatives - Doesnt include External costs and benefits and therefore isnt the benefits and costs to society
- Expensive
- Takes a long time
- Only applies to roads

Flawed, but does help decision making process - Effective if used in conjunction with other policies
(+EIA = new approach to transport appraisal)

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Privatisation - When former publicly owned organisations are sold off to the private sector
Franchise - Outcome of a competitive system to bid for the provision of a service

Positives - encourage private sector investment to generate new capital investment
- Private sector is more motivated to provide better quality of service and is more efficient
- Reduces government spending
- Greater competition from firms bidding against each other for right to operate franchise
    -Benefits of higher competition (more allocatively, productively and dynamically efficient, less x inefficiency, price and non-price competition so cheaper + better quality of service)
- Benefits of higher contestability

Public vs Private negatives - Natural Monopoly argument
- Private sector doesn't include external costs and benefits - Allocative inefficiency
- All the profits go to the private sector
- Ignore external costs and benefits
- Limited interested parties may mean competition doesn't rise

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Removal of regulations and legal barriers to entry, in the hope of increasing competition in a market

Benefits - Efficiency gains - Incentive to lower costs of production due to competition + become more dynamicly efficient
- more buses means that the supply curve shifts outward, so price falls - also leads to more people using buses, which is a more sustainable form of transport
- More competition - more incentive to compete with price and non-price methods

Drawbacks - More difficult for an intergrated transport policy - More private sector firms
- Resulting market share = Oligopoly - consumers wont necesserily benefit
- A few large firms may dominate (an oligopoly market structure)
    - use methods like predatory pricing as a barrier to entry, as they have significant economies of scale benefit
    - means it is less contestable than theory

sucess varies from area to area + depends on extent other barriers to entry reamin

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Definition - The extent to which barriers to entry and exit are free and costless.
It is one where potential firms can influence the behaviour of existing firms, and there is always the threat of possible entry.

Characteristics - Abesence of sunk costs    -Open to hit and run entry    -Perfect knowledge exists
-Lack of barriers to entry and exit    -Lack of brand loyalty    -Firms have access to the same tech

Monopolistic Competition - Low barriers to entry but customer loyalty can be built + regulatory requirments

Oligopolistic Markets - High barriers to entry but fear of competitive firms

Market power - patent or legal right to operate in the market - not at all contestable

High barrier example - Air transport or ferry service                                                             
Low barrier example - Taxi or coach service

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