Incomplete analysis can lead to errors

In a time when the Department for Transport have admitted their analysis of Rail Franchise bids is flawed we are reminded that a faulty method can lead to poor decisions.

One of the most difficult decisions to be made is what transport infrastructure to invest in. There are very many factors to consider, such as forecasts of future demand and external costs and benefits. All of these are difficult to value.

The solution is a full Cost-Benefit Analysis that considers all the private and external costs and values them properly. Only then can a judgement be made and even so substantial margins of error must be considered.

So should we give much credibility to a study by MIT that a third runway at Heathrow is a bad idea?

The MIT study says that, compared to a new Thames Estuary airport (Boris Island), a third runway at Heathrow would cause more early deaths due to pollution. So that's it then, decision made.

However when questioned the authors admitted they had not included any of the following issues in their study:

* The cost of construction at either site
* The impact on local transport at either site
* The impact of extra road traffic too and from any new airport
* The external costs and benefits of either airport

Of course their defence was that they were only looking at health impacts of the two options and that is actually quite reasonable. It represents a contribution to the full cost-benefit analysis and a valuable one at that.

The Guardian reports the study here

Costs and benefits of a Heathrow-Gatwick rail link

There is a proposal to link Heathrow and Gatwick airports by a high-speed rail link. This suggestion will require a thorough cost-benefit analysis (CBA).

The idea is to help improve airport capacity and avoid building new runways or new airports to achieve that. While I am not really clear how much capacity it could add the costs and benefits are worth investigating.

A CBA identifies all the costs and benefits of a project, both private and external, gives them a monetary value and then decides if the investment is worth the cost. Perhaps the strongest advantage of CBA is that it allows comparison of projects. So in this case the Heathrow-Gatwick rail link can be compared to expanding Gatwick, or Heathrow or building a new airport somewhere.

For those doing transport economics this year it represents an excellent opportunity to apply CBA. Also it is not too late for this to be included in the June Transport paper, and is a certainty for 2013 otherwise.

The Telegraph reports the scheme here

Opportunity Cost and the price of life

The BBC has followed the assessment of a new drug by NICE for use in the NHS. The clear problem for them is 'is it worth the money?' However how can you put a price on life.

This is relevent to the concepts of opportunity cost and the assessment of the value of life for Cost-Benefit Analysis.

The Price of Life