Evaluation of Externalities in Transport Projects

Abstract

The purpose of this paper is to illustrate the variety of issues and methods used to treatdifferent types of externalities in transportation projects and to ask how these differentapproaches and values can affect project evaluation and ranking. Of special interest is thequestion whether the elimination of externalities and different procedures favor one type oftransportation investment over the other, and specifically rail projects versus highwayprojects. To this point the paper mostly poses the questions with a focus on issues where biascan result. The paper is based on a study conducted for the Ministry of National Infrastructure in Israelto improve the evaluation procedure of transportation projects in order to better account forexternalities. This paper focuses on two main issues. First, we recommend approaches andmethods of evaluation for different transport externalities, including the value of timesavings. These evaluations are based on the international literature on these topics. Second,we suggest a methodology to better include externalities in the evaluation of transport projects, including a quantitative and qualitative multicriteria analysis (MCA). The paperalso discusses the implications of different methods and values for project evaluation.

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