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A Cost-Benefit Analysis of an Improved Public Transportation Program in Laguna Beach, California
Literature Review
Determining whether a public activity has any social benefit is one of the most challenging activities in a public system. One of the most prominent methods used is the cost-benefit analysis (CBA) of the entire project. Barget and Gouguet (2010), describe CBA as the principles of social economics that evaluate the net inflows to the local population. Impliedly, although a project may not be profitable on its own, if it has a net gain to the local population, then it is a viable venture. Therefore, a CBA analysis should evaluate all costs and benefits associated with a project in order to determine if there are any net benefits from it. In light of this, the cost side should not only analyze the financial costs of the project, the opportunity cost should also be included in the calculation of the total cost. When evaluating the benefits side, there should be the measurement of the increase in the value of consumption among residents as well as the benefit of consumer surplus (Longo & Dawson, 2008).
Dwyer, Forsyth and Spurr (2006), describe the consumer surplus as the willingness of consumers to pay for a commodity less the actual price charged. Simply, it shows the excess utility that consumers enjoy when they purchase products. Accordingly, even if the revenues generated by a public service are minimal, there might be some undisclosed amount in terms of the consumer surplus. The opportunity cost is always difficult to calculate due to the complexity in determining the potential benefits that would have been earned if these resources had been invested in alternative projects. In light of this, a complete analysis of a project is essential in determining its CBA.
Weimer (2009), note that when analyzing the CBA of public projects, an analyst should evaluate the spending, travel improvement, access improvement, and non-monetary impacts associated with the projects. Generally, this multi-tier analysis method provides a broad look at the direct and indirect impacts of infrastructural projects. To begin with, capital investments are important sources of employment to thousands of individuals in the US. Weimer (2009) posit that as much as 24,000 jobs are directly created for every 1 billion dollars spent on public transportation in the US. Besides capital investments, there are a lot of jobs created in public transport operations. Public transport operations indirectly support other business such a fuel stations, mechanics, and car wash businesses. Moreover, there are a lot of individuals who are directly employed to work and operate public transport vehicles, trucks, buses and railway systems.
Tom and Jones (2007), note that direct investments in the capital and operation of public transport have induced and indirect effects on the economy. Simply, indirect effects refer to economic effects caused by direct investments such as the purchase of trucks and buses. They also include the direct purchase of fuel for ongoing operations, both of which support employment and create jobs. Induced effects refer to the further additional sales by operations workers and suppliers who earn income from public transports employment. Simply, these additional sales are in terms of finances needed to pay for the private expenses of these individuals.
Travelling Experience
According to Todd (2008), public transport has benefits of improving the traveling experience among the public. Todd notes that public transport has four major direct impacts; improved reliability, improved safety, reduction in traveling cost, and reduction in traveling time. In relation to time saving, improved public transport system reduces traveling time due to high-quality services. Time saving also occurs when the public transport develops an interconnected and predictable transport network, which does not experience traffic jams. Finally, the development of a reliable and predictable public bus service, such as a trolley system, reduces congestion and improves the flow of traffic, which in turn enables individuals to save traveling time.
In terms of traveling cost savings, a properly developed public transport leads to cost saving in three groups; travel costs in existing public transport, due to a change in fare as a result of the new service. Simply, the introduction of trolleys has an impact on the fare charged by taxis and similar transport systems. Similarly, those who opt to use the properly established public transport system save costs associated with fuel, maintenance, and parking incurred when using a private vehicle. Finally, there is a reduction in costs associated with ownership, which is the cost saving that occurs when individuals decide not to buy a vehicle (Todd, 2008).
Improved public transport system has the benefit of reducing the traveling and safety cost. The improvement of public transport by the introduction of safe buses reduces the rates of accidents and accordingly the risks of injuries and death among travelers. The reduction of congestion also reduces congestion-related accidents. Consequently, there is also a reduction in the cost associated with traffic enforcement. According to APTA (2007), the fatal accidents for transit passenger per mile was 1/25th that of highway passenger per mile between 2002 and 2006. The main cause of this huge difference was due to the occupancy and accident rates for public transport, as well as that of accident rates for roadway vehicles in alternative congestion levels.
Market Mobility and Agglomeration
Weisbrod (1997) notes that public transport systems have a direct impact on an area’s economy. Specifically, there is an increase in market mobility and access, as well as spatial agglomeration economies due to clustering of similar complementary activities. Market mobility and access simply mean that improved transport enables businesses to access skillful employees who travel from far-off areas to their place of work. Better still, due to improved transport, businesses cluster in a particular region, which enables them to benefit from various complementary advantages of operating within the same locality. Crain et al. (1999), opine that improved access to a market results in increased productivity for a business. According to Daniel (2005), the clustering of businesses enables them to access specialized labor, which results in higher productivity. In fact, Daniel (2005) acknowledges that the improved transport system, by using public buses and trolleys, is the reason for the existence of many cities. To elaborate, most cities do not have the parking space and road capacity to accommodate their workforce unless they use trolleys and buses.
The agglomeration benefits also have the effect of improving the quality of life of businesses and employees who decide to stay in a specific region. These benefits result in the rise in the value of land and rent depending on an area’s access to transport. Generally, areas that are near a transport system cost more in terms of rent or the price of land or the building. For example, in 2000, researchers in the University of Toronto found out that homes with the value of $225,000 but are close to a subway generate an additional $4,000 more than those that are far from this transport system (Canadian Urban Transit Association, 2003).
Capital and Operation Investments
The manner in which investments in the public sector are spent has a great impact in influencing a region’s economy. According to the APTA, in 2007 29% of investments in the US public sector were spent in capital investment vehicles and equipment (APTA, 2007). The remaining 71% was spent in operations and maintenance activities. In light of this, it is evident that there is a lot leakage in expenses that are used in the public transport. These funds end up in the hands of third parties who develop local economies. Better still, the US BEA input-output tables indicate that 76% of public transport vehicles, 81% of trucks, and 87% of supporting equipment are made in the US (Bureau of Economic Analysis, 2016). Evidently, this information shows that the public transport sector increases the economic development within the country. To enumerate, the increased investment in public transport results in an increase in business opportunities for local companies. In light of this, analytical measurements of productivity of a region, such as GDP, business outputs, labor income, and the number of total jobs created can be used to evaluate the impact of a public transport system in a region.
American Public Transportation Association (2007). A Profile of Public Transportation Passenger Demographics and Travel Characteristics Reported in On-Board Surveys, APTA, Washington, DC.
Barget, E., & Gouguet, J. J. (2007). The total economic value of sporting events: Theory and practice. Journal of Sports Economics, 8, 165–182.
Canadian Urban Transit Association (2003), “Transit Means Business: The Economic Case for Public Transit in Canada,” Issue Paper #54m, Canadian Urban Transit Association, Toronto, Ont. Retrieved from
Crain et al. (1999). “Using public transportation to reduce the economic, social, and human costs of personal immobility.” Transit Cooperative Research Program Report 49, Transportation Research Board, Washington, DC. Retrieved from
Daniel, G. (2005). “Transport investment, agglomeration and urban productivity.” World Bank Symposium Papers. Retrieved from
Dwyer, L., Forsyth, P., & Spurr, R. (2006). Economic impact of sport events: A reassessment. Tourism Review International, 10, 1–10.
Todd, L. (2008). “Evaluating public transit benefits and costs.” Best Practices Guidebook 10,” Victoria Transport Policy Institute. Retrieved from
Tom, T., & Jones, A. (2007). The Economic impact of the Metropolitan Atlanta Rapid Transit Authority, GEMS: Georgia Economic Modeling System, Carl Vinson Institute of Government, Georgia State University. Retrieved from
Weimer, D. (2009). Cost-benefit analysis and public policy. Journal of Policy Analysis and Management Classics Series, 11(2), 402-412
Weisbrod, Glen (1997). “Assessing the economic impact of transportation projects: How to choose the appropriate technique for your project.” Transportation Research Circular #477, Transportation Research Board, Washington, DC.