GOVERNMENT'S ROLE IN TRANSPORT INVESTMENT

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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