Transport Notes
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The goal of Transport Notes series is dissemination of recent experiences and innovations in the World Bank Group’s transport sector operations.
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Publication
Projects with Significant Expected Restructuring Effects
(World Bank, Washington, DC, 2005-01)This note focuses on the economic evaluation of more conventional infrastructure investments, and specifically on two types of projects which may result in significant economic restructuring - relocation of economic activities, generation of new activities, or changes in the way that current activities are undertaken. The two examples used: new urban rail lines and major new barrier crossings serve simply as examples of a much wider issue. The issue is that whenever projects bring about a large step change in transport costs, there is a stimulus for a reorganization of economic activity outside the transport sector. -
Publication
Low Volume Rural Roads
(World Bank, Washington, DC, 2005-01)The objective of this note is to advise on an appropriate economic appraisal methodology that should be used for the assessment of Low Volume Rural Roads - that is roads upon which less than 200 motorized vehicles per day travel. Section 1 of this note sets out the reasons that Low Volume Rural Roads require a slightly different consideration from other transport projects. Section 2 discusses the approaches to economic evaluation that can be used for low volume rural roads, whilst Section 3 presents the manner that the consumer surplus method can be extended to account for the characteristics of low volume rural roads. Section 4 contains a summary of the main points of the note. -
Publication
Valuation of Accident Reduction
(World Bank, Washington, DC, 2005-01)The objective of this note is to advise on a desired and workable method that can be used to place values on accident reduction. The first section of this note identifies the need to categorize accidents if accidents are to be valued, and suggests a method of categorization. Following, it identifies the components of cost that make up total accident costs, while further sections suggest methods that can be used to value casualty related costs, and incident related costs. Other Sections discuss how accident valuation may vary between modes, and suggest that accident valuations are consistent with those utilized in other Bank projects (e.g. health projects). Final Sections discuss the manner that accident costs vary with time, and the relationship between the valuation and the accident prediction m model. The final Section summarizes the principal recommendations of the note. -
Publication
Demand Forecasting Errors
(World Bank, Washington, DC, 2005-01)Demand forecasts form a key input to the economic appraisal. As such any errors present within the demand forecasts will undermine the reliability of the economic appraisal. The minimization of demand forecasting errors is therefore important in the delivery of a robust appraisal. This issue is addressed in this note by introducing the key issues, and error types present within demand forecasts (Section 1). Following that introductory section the error types are described in more detail: measurement error (Section 2), model specification error (Section 3) and External or Exogenous Errors (Section 4). The final section presents a discussion on how to manage demand forecasting errors (Section 5). -
Publication
Treatment of Induced Traffic
(World Bank, Washington, DC, 2005-01)Induced traffic can be an important part of the economic appraisal particularly when the objective of the investment is to stimulate economic development; it's importance, however, is not restricted to such situations. The omission of induced traffic from the economic appraisal, or its incorrect treatment, may lead to either over or underestimations in the user benefits (consumer surplus) of an investment. In addressing this issues, this note, considers: the importance of induced traffic for the economic appraisal (Section 1); what constitutes induced traffic (Section 2); the situations in which induced traffic is likely to be relevant (Section 3) and the manner in which it can be modeled (Section 4) and user benefits calculated when it is present (Section 5). The annexes show the relative importance of including the benefits of induced traffic in the evaluation of an urban transport project; where the standard "rule of one half" breaks down in some situations that are often present in Bank projects, while another shows a numeric integration technique that can be used as a valid alternative to the rule of one half in many of these situations (and coincidently, provides a more precise evaluation even where the "rule of one half" gives an acceptable estimation). -
Publication
Where to Use Cost Effectiveness Techniques Rather Than Cost Benefit Analysis
(World Bank, Washington, DC, 2005-01)Cost Benefit Analysis, and the measures of economic performance that can be derived from it (see Note 6: When and How to Use NPV, IRR and Adjusted IRR), is the preferred method for demonstrating the economic justification of transport investments. Such an approach, however, relies on the ability to be able to measure costs and benefits in monetary terms (see Note 5: Framework), which renders it problematic for projects where the majority of benefits cannot be readily monetised. Such a project could be a Low Volume Rural Road (see Note 21: Low Volume Rural Roads). In such situations consideration should be given to the use of measures derived from cost effectiveness or weighted cost effectiveness (also known as Multi Criteria Analysis) techniques as the basis for the decision regarding whether to invest or not. Cost effectiveness techniques are also a very useful tool for project screening or ranking. Such a screening process ensures that projects that are subjected to a more detailed analysis (including cost benefit analysis) are those that best fit with the objectives of the investment (e.g. poverty alleviation). Section 1 of this note outlines the situations in which cost effectiveness techniques should be used, whilst Section 2 describes the two main types of approaches. Section 3 discusses the issue of economic viability and cost effectiveness whilst Section 4 presents a summary of recommendations. -
Publication
Notes on the Economic Evaluation of Transport Projects : Fiscal Impacts
(World Bank, Washington, DC, 2005-01)The Economic Evaluation Notes are arranged in three groups. The first group (TRN-6 to TRN-10) provides criteria for selection a particular evaluation technique or approach; the second (TRN-11 to TRN-17) addresses the selection of values of various inputs to the evaluation, and the third (TRN-18 to TRN-26) deals with specific problematic issues in economic evaluation. The Notes are preceded by a Framework (TRN-5), that provides the context within which we use economic evaluation in the transport sector. Transport projects have an impact not only on citizens and businesses, but on governments - central, regional and local. Financing and managing the project will place demands on the government's capital and current accounts. Whether these demands are greater or smaller, and how they are phased over time, will depend on the financing mechanisms used and the extent to which the public sector is involved. Alternative approaches for private finance and management are described in the World Bank's 'Public-Private Options' toolkit. In this note, we consider how the appraisal should take the financial effects into account, and how they fit within the appraisal results, as described in the Framework. -
Publication
Evaluation Implications of Sub-Optimum Pricing
(World Bank, Washington, DC, 2005-01)The note focuses on three specific ways in which sub-optimal pricing can impact on project benefits: 1) through congestion and overcrowding (Section 1); 2) through overpricing and loss of user benefits (Section 2); and 3) through financial deficits which have implications for the rest of the economy (Section 3). Sections 1-3 of the Note seek to give practical advice on each situation, including how to approach the economic analysis of the situation, and the key implications for project appraisal. If pricing policy is not known with certainty at the time of the appraisal, then alternative pricing policies must form part of the risk and uncertainty analysis. This is covered in Section 4. Conclusions are given in Section 5. -
Publication
When and How to Use NPV, IRR, and Modified IRR
(World Bank, Washington, DC, 2005-01)The Economic Evaluation Notes are arranged in three groups. The first group (TRN-6 to TRN-10) provides criteria for selection a particular evaluation technique or approach; the second (TRN-11 to TRN-17) addresses the selection of values of various inputs to the evaluation, and the third (TRN-18 to TRN-26) deals with specific problematic issues in economic evaluation. The Notes are preceded by a Framework (TRN-5), that provides the context within which we use economic evaluation in the transport sector. All three NPV, IRR, and modified IRR are summary measures of project performance. Each one provides a single figure summarizing the impact of the project on economic welfare. Each of the three measures does, however, give subtly different information: 1) NPV focuses on the total welfare gain over the whole life of the project; and, 2) IRR and Modified IRR focus on the rate at which benefits are realized following an initial transport investment. -
Publication
Risk and Uncertainty Analysis
(World Bank, Washington, DC, 2005-01)One statement that can confidently be made about any transport project is that the costs and benefits are uncertain. An important question is 'how uncertain'? By analyzing the risk and uncertainty which surrounds the project the probability of a poor outcome can be assessed. In addition, it is often possible to identify ways in which the project can be made more robust, and to ensure that the risks that remain are well managed. Risk and uncertainty analysis is therefore a standard component in the project reporting requirements for Bank projects. Risk and uncertainty analysis also features other in Bank tools, such as the RED model (see Note Low Volume Rural Roads). This note reviews the general principles of risk and uncertainty analysis in transport (Section 1); and outlines the three principal methods which may be used- sensitivity analysis (Sectio