Benefit Estimation and Distribution Impact Assessment of Road Projects

1.0 INTRODUCTION

The underlying reason of economic analysis is to provide information for making decisions on the acceptability and designing of the projects (Potts, 2002). It concerns on cost-benefit analysis that contribute to social welfares. To investigate the benefits and impacts of project a number of procedures are undertaken involving various steps. But, measuring of benefits and distributional impacts are rarely so well defined that key focus in this report particularly for rural roads.

Roads can play a vital role in country’s development by facilitating trade, improving access to jobs, providing admittance to health facilities, alluring to education enrolment (Robinson, 1999). The effective and efficient road transport system can lead to higher incomes and grater economic well being of a nation. Road projects can also have negative impacts on soil quality, ecology along with induced economic development. Furthermore, roads can convey more passengers with minimum cost and time along with minimal air or noise pollution.

Distribution analysis facets at how a proposed project upset diverse stakeholders as who gets benefit or loses from the project. It is worthwhile for policymakers because it permits them to measure whether the prospective distribution of net benefits parallels with the identified intentions (Gazewaski et al., 2004) and to examine the effect of policy alterations on the distribution impact on economy and contribution of shareholders.

The report focuses on two key areas i.e., benefit estimation and distribution analysis of rural road projects. Under benefits estimation spotlights on both direct and indirect benefits related with road project and its rationale. The distribution impact assessment also depicts as primary and secondary effects. The argument extends up to the impacts on poverty reduction of rural road projects.

2.0 BENEFITS ESTIMATION

Different approaches are followed for benefits estimation of road projects across the globe. The available approaches are consumer surplus (Tak and Roy, 1971), producer surplus (Beenhakker and Lago, 1983), human capital (Potts, 2002), cost-savings (Potts, 2002), compound ranking methods (Anderson, 1995 and Robinson, 1999), and multi-criteria analysis (Moller, 1996 and Robinson, 1999). Tak and Ray (1971) describes the consumer surplus approach is more appropriate to measure the cost savings from user point of view using demand curve (Figure-1) whereas Garnemark (1976) assertions the producer surplus is very apposite to measure the owner/operator profit from roads by using supply curve (Figure-2).

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Figure-1: Consumer surplus (area of ABE) from rural road project (Potts, 2002:180)

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Figure-2: Producer surplus (P2BM2-P1AM1) from road project (ODA, 1988:66)

Nonetheless, researchers have estimated different types of benefits of roads mainly Adler (1987) unearths two types of benefits i.e., direct and indirect (Figure-3). The financial benefits are considered as direct while the benefits on economy deemed either direct or indirect. Furthermore, the social and environmental benefits are usually measured as indirect impacts.

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Figure-3: Benefit appraisal of roads (adapted from Al-Tony and Lashine, 2000:327)

2.1 Direct Benefits

According to Karatas (1989) and Potts (2002), the major benefits of road project are forthcoming as savings from travel time, vehicle operating costs, roadways maintenance costs, accidents costs, and freight shipping time (Appendix-1).

Travel times saving is one of the major benefits arising from investment in roads and it accounts up to 80% of overall benefits in developed countries (World Bank, 2005). The shorter travel times will ensue to the vehicle procession as more vehicles output can be achieved to travellers and freight users. Reduce of road lengths also a cause of travel timesaving. Therefore, the values of personal travel time requires calculate to estimate benefits. Potts (2002) says human capital approach is mode for identifying the separate trips conveyed out in working time and non-working time.

Road project would have an influence on the freight operations that can use for freight movement time (Karatas, 1989). The freight time saving also derives from resulting the traffic reduction and speed escalation. Therefore, an attempt can make for estimating of freight movement time and valuation of freight time. The calculation may be extended with other modes of transport like rails, ships etc. for comparison. The producer surplus is the appropriate for freight time assessment (Potts, 2002).

Higher average speeds can be maintained with less gear changes and decelerating that may lead to savings in fuel (ODA, 1988). Additionally, the improved road surfaces ensures to long lasting of vehicle wheels (Altan, 1986). It is required to estimate the unit costs of operation and maintenance for calculating the vehicle operation costs as per vehicles, which cost saving approach can be used (Potts, 2002).

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