Monday, April 21, 2014

Highway Economics and Finance -part 1.

Hi,

  • Introduction:
Improvements in the highways results in various benefits to the road users such as:

  1. Reduction in the vehicle operation cost
  2. Reduction in the travel time and resultant benefits in terms of time cost of vehicles and passengers.
  3. Reduction in the accidents rates.
  4. Ease of driving and improved level of services.
  5. increased comfort to the passengers.
This indicates that level of improvement and service of a road may be assessed from the benefits to the road users.
The improvements in road net work also benefits the land owner by providing better access and consequently enhancing the land value.The cost of the land, materials, construction work and of other facilities should be worked out. 
In terms of the economic justification for the improvements, the cost reductions to the highway users and other beneficiaries of the improvements during the estimated period should be higher than the investments made for the improvement.

Therefore there is a strong need of analysis in planning and design of highway to indicate justification of the expenditure required, particularly when various alternatives are being compared.
Any new proposal for highway improvement or development should be justified in terms of the cost incurred and benefits derived.
Economic analysis is the only means for finalizing the proposal and convincing the public about the need for certain investments.

The government or any other agency finances highway developments. The funds for these are generally recovered from the road users in the form of the direct and indirect taxation.  Highway finance deals with various methods of raising and or providing money for the highway projects.
  • Highway users benefits:
Road user benefits are the advantages, privileges of savings that accrue to drivers or owners through the use of one highway facility as compared with the use of another. Benefits are measured in terms of the decrease in road user costs and the increase in the road user services.  The road users services are the advantages or the privileges accruing to the vehicle driver or owner through features of the safety, comfort, convenience etc.  In some cases these can be calculated in rupees per vehicle- kilometer. 
A reduction in the transportation cost as a result of highway improvements, would result in the reduction in the cost of almost every commodity which is transported from place to place before being delivered to the consumer. 
The various benefits due to the highway improvement may be classified into two categories:
  1. Quantifiable or tangible benefits in terms of market values and
  2. Non-quantifiable or intangible benefits.
  • Quantifiable Benefits:
Various benefits which can be quantified include benefits to road users such as reduction in the vehicle operation cost, time cost and accident cost. Also it enhances the land value. These are beifly explained below:
  1. Saving in vehicle operation cost is due to the reduction in the fuel and oil consumption and reduction in wear and tear of Tyre and other maintenance costs. A road with sharp curves and steep grades require frequent speed changes;presence of intersections require stopping idling and accelerating; vehicle operation on road stretches with high traffic volume or congestion necessitate speed changes and stopping and increased travel time; all these factors result in an increase in every component of vehicle operation cost. Un-even pavement surface condition with ruts, pot holes, undulations, waves and corrugations increases the vehicle operation cost due to increase in fuel consumption, tyre wear and the general maintenance cost of the vehicle. 
  2. Saving in travel time is of direct consequence to commercial vehicles due to possible increase in their trip length and earning per unit time. Benefits due to saving in travel time may be assigned in terms of time cost of vehicles.
  3. Value may also be assigned for the saving in travel time of passengers. A part of the time saved by the passengers or commuters may be used  for some useful purpose and a value can be assigned for the saving in the travel time.
  4. The reduction in the accident rate due to improvements in the highway facilities causes considerable benefits to the road users and others. The component of the accident costs may include cost of damages to vehicles and other properties, cost for investigations, legal proceedings etc.
  5. The benefits to other than road users include the enhancement in land value, increase in the employment opportunities and related economic uplift.
  • Non- Quantifiable Benefits:
The non- quantifiable benefits due to improvements in highway facilities include reduction in fatigue and discomfort during travel, increase in comfort and conveniences and improvement in general amenities, social and educational aspects, development of recreational and medical services, improved mobility of essential services and defense forces, aesthetic values, etc. Yet another important intangible road user benefit is the reduced suffering and pain of those involved in highway accidents.

Thanks for your kind visit!

REFERENCES:  Highway Engineering by S.K.Khanna and C.E.G.Justo

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