Why Benefit-cost Analysis Matters Less and How It Can Be Improved for Decision Making in the Transport Sector ? Experiences from the Norwegian National Transport Plan 2010 -2019



Why Benefit-cost Analysis Matters Less and How It Can Be Improved for Decision Making in the Transport Sector ? Experiences from the Norwegian National Transport Plan 2010 -2019

Authors

J. Martinsen, J Odeck, A Kjerkreit,The Norwegian Public Roads Administration, NO

Description

The role of Benefit-cost analysisBCA)in the decision making process is in Norway examined. It is found that,While BCA is conducted for projects there is no clear-cut demand for their use in decision making. Ways of improving BCA are suggested.

Abstract

Abstract
Benefit cost analysis (BCA) are often conducted in the transport sector to aid decision making. Despite this, several authors have attested that BCA plays an insignificant role in decision making, see for instance Odeck (1996) Fridstrøm (1994) and Nelthorp and Mackie (2000). This literature has generally made statistical inferences by comparing the ranking of projects according to Benefit-Cost Ratio (BCR) against the BCR of the projects that were selected for investments to arrive conclusions. The literature has however failed to explore the planning processes in order to assess or address factors that may deter the use BCA in decision making. This paper therefore has the objective of supplementing the existing literature by examining the planning processes of long terms plans in the context of Norway to reveal factors that may hinder BCA as an appropriate tool for long term planning and decision making. The objectives are to explain why BCA does not matter for decision making and to suggest improvements in the planning processes that can be made to make BCA more useful as a tool for decision making.
The case study is that of the Norwegian National Transport Plan (NTP) for the period 2010-2019 which was approved by the Parliament in the autumn of 2009. The authors of this paper were both in charge of BCA that were conducted and followed the planning process closely. Consequently, the paper examines the role of the BCA in the planning- and decision making process; hereafter: (i) the extent to which BCA is demanded and emphasized in the planning process and the extent to which those demands are binding for decision makers, (ii) the extent to which BCA that are conducted accommodates important factors that renders it useful as a tool for decision making, (iii) the extent to which the many stages of decision making with different actors distorts or even circumvent the use of BCA, and finally, (iv) the extent to which the final decision makers which essentially is the parliament comprehend the workings of BCA as a useful tool for decision making.
Our tentative findings are that: (i) BCA is mandatory for all projects being assessed for investments but there is no clear-cut demand that they should be used in decision making; this means that decisions are not obliged to use BCA in their decision making and; they do not, (ii) The BCA conducted includes important factor that are necessary for decision making but are short for distributional impacts that are important to decision makers; hence decision tend to deviate from the principals of BCA, (iii) The decision making process undergoes several stages from priorities of the local authorities through the Public Roads Administration and the parliament; this means that the different actors may have different priorities and hence, BCA may be irrelevant, (iii) the final decision makers do not have a real option to use BCA since much decisions are already made at the lower levels, and finally, (iii) the final decision makers do not understand the workings of BCA and therefore BCA is of less relevance as compared to their political objectives.
Finally, this paper gives recommendation on how the use of BCA in decision making can be improved. In particular, we suggest that BCA should be stressed and possibly be a clear-cut demanded for decision making and, that the transport authorities must constantly explain and make the decision makers understand and accept the workings of BCA as a good rational tool for decision making. Overall, our message is that communicating the workings of BCA to the general public and the decision makers in terms of what it includes and what it does not and enforcing its use in the planning process is the way forward.

Publisher

Association for European Transport