Are CBA results robust? Experiences from the Swedish Transport Investment Plan 2010-2021

1. Are CBA results robust?Experiences from the Swedish Transport Investment Plan 2010-2021 Mattias Lundberg, Maria Börjesson, Jonas Eliasson CTS March 2011

2. Background • Widespread scepticism: • “CBA results are very sensitive to the choice of assumptions and valuations” • “Analysts chose assumptions in order to get wanted results” • “Forecast assumptions are wrong” • Clear signals from Swedish government on the importance of CBAs • Do CBAs lead to sound prioritizations?

3. Forecast Assumptions (GDP, population, etc) Forecast Model (Sampers, Samgods or similar) Effect Models Valuation, discounting and compilation How important are assumptions and valuations? • Forecast Assumptions • Forecasted effect • Valuations

4. 1. Importance of general scenario assumptions Land use (population and employment), macro economy, vehicles, time tables, prices …

5. Importance of object specific assumptions • Land use • ex E4 Umeå (-0,4 or -0,2)ex Bypass Sth and Roslagspilen • Congestion charges • ex Marieholmstunneln (+0,2 or -0,5) • Rail timetables • Definition of ”with” and ”without” investment very important

6. 2. Most important deficits of current CBA methodology (1) • Valuing improvements of perceived urban environment • Large part of benefit for bypasses and tunnels not caught – no general solution • Benefits underestimated • Forecasting effects of capacity improvementsin congested road systems • Shortcomings in static assignment models – solvable • Benefits underestimated • Forecasting effects of measures that reduce train delays • Applicable methods missing – solvable? • Benefits under- and overestimated

7. Most important deficits of current CBA methodology (2) • Forecasting and valuing improvements for freight transport • Esp. rail capacity improvements • Simplified cost functions, deterministic model, uncertain valuations etc – partly solvable • Benefit estimates uncertain • Wider economic benefits • No official method in Sweden – not solvable, but could do better • Benefits underestimated with approx. 10-15% – for some investments

8. 3. Importance of valuations Official valuations Relative weights of benefit types Differentiated values of time

9. The effect of valuations on rankings • The relative weight of benefit types hardly affects rankings • Rule of thumb: doubling the weight of a benefit type changes around a tenth of a given top ranking list • Differentiated VoT – even smaller changes

10. Conclusions • CBA rankings are surprisingly robust • Doubling the oil-price, the freight benefits or the business time valuation hardly changes the ranking • Rail timetables and congestion charges important • For the design – and NBIR in absolute terms – assumptions can be more important • ... Also for analyzing policy instruments • Largest shortfall is missing methods for forecasting effects – and valuation of urban environments • Increased reliability trains, reduced road congestion, capacity improvements freight railways • Ranking very robust wrt valuations • Traffic safety rather important – small share of total benefits, large for some projects • Differentiated VoT does not even affect balance btw road and rail • VoT for non-work trips more important – since more trips than work and business • Decision makers can trust CBAs will lead to sound prioritizations • The top-ranked investments are more or less the same in all sensitivity analyses • CBAs should not be the sole decision criteria