GOVERNMENT'S ROLE IN TRANSPORT INVESTMENT
Disadvantages
where it measure the value for money over a limited range of road user benefit and excludes non-user or environmental benefits such as noise and pollution.
CBA might fail to account for important financial concerns such as inflation, interest rate and net present value.
benefits that are hard to quantify and measure items that are considered un-measurable.
The chances of inaccuracies are great due to the lack of true estimated value.
evaluations are subjective and cannot be considered absolute accurate.
some of the benefits and costs are non-monetary it becomes difficult to estimate, quantify, and identify them in monetary terms that can lead to wrong evaluations
Advantages
The cost-benefit analysis helps to make a rational decision by looking at the figures expressed in the same units
It helps to figure out whether the benefits outweigh the cost and it is financially strong and stable to pursue it
The analysis gives clarity to unpredictable situations. The listing of costs and benefits helps the analyst to identify and later evaluate each cost and benefit
A cost-benefit analysis simplifies the complex decisions in a project
The importance of subsidy
To provide efficient transport infrastructures
Objective of subsidy is often used to get rid of some burden and considered to be in the interest of the public
To reduce public transport charges
To reduce the costs of supply to the provider.
Types of subsidy
Indirect
cash grants, interest-free loans
Direct
tax breaks, insurance, low-interest loans and rent rebates
Cost
Direct cost (wages, raw materials)
Opportunity cost
Intangible costs (delivery delays of product).
Indirect cost (rent, utilities)
Benefits
Market share gained
Intangible benefits (improved employees morale and safety, customer satisfaction).
Revenue and sales increase
Cost-Benefit Analysis
Business owner will conduct CBA
evaluate all the potential costs and revenues that a company might generate from the project
outcome of the analysis will determine whether the project is financially feasible or if the company should pursue another project.
compares the costs of road schemes with the benefits derived by road users and expresses those benefits in monetary terms.
estimates the net present value (NPV) of the decision by discounting the investment and returns.
not limited to monetary considerations only
environmental and social costs and benefits that can be reasonably quantified.
Process of quantifying costs and benefits of a decision, program or project (over a certain period) and those of its alternative.
Definition
Cross subsidy
charging higher prices to one type of consumers to artificially lower prices for another group.
Subsidy
form of financial aid or support extended to an economic sector
Objective
used to get rid of some burden and considered to be in the interest of the public.
benefits offered by the government
Subsidies and public transport
increase in travel volume
to a supply response in terms of higher frequencies
decrease scheduling cost of every traveler
good solution for urban transport problem caused by car
traffic jam and congestion
difficulties to have parking slot
noise and air pollution
very important for those weak groups
persons with handicap
aged pedestrians
individuals without driver license
low income households
government has already helped by subsidizing service
such as public transport
