The Use of Cost-benefit Analyses in Norway and Sweden: A Comparison

Abstract

Well-informed decision making relies on access to all relevant information regarding the consequences of a proposed scheme. Like most other European countries, large road projects in Norway and Sweden are required to undergo a full impact assessment aimed at assessing all impacts, negative or positive and measurable in monetary terms or not, which are predicted to occur if a road transport project is implemented. In other words, impact assessment is a systematic illustration of all impacts that will take place if a project is carried out. The impacts of a proposed road project could be: a) impacts that can be valued in monetary terms such as construction costs, time, and accidents; b) impacts that are not possible to value in monetary terms or c) distributional impacts of political interest. The cost-benefit analysis (CBA) represent the perhaps most important part of the impact assessment. CBA provides a methodical framework that aims to quantify and value relevant variables in order to assess a project’s viability in economic terms. However, despite being an integral part of the planning process and despite the resources used for projects appraisal, several studies have indicated that the use of CBA in the decision making process may be limited (Eliasson and Lunberg, 2012; Fridstrom and Elvik, 1997; Nilson, 1991; Nyborg, 1998; Odeck 1991, 1996, 2012). This raises the question of whether CBA addresses the relevant issues for the decision makers and if road investment are used for maximising social surplus or for other purposes. This paper presents a study of the planning frameworks of the Scandinavian countries Norway and Sweden, both of whom has a long tradition for cost-benefit analyses of transport projects. The authors compare the process by which road projects are planned and implemented and we investigate the role of cost-benefit analyses in the decision-making process; the authors compare the values of central CBA-parameters and discuss whether identified differences could lead to different results for identical projects. Furthermore, the authors analyse the projects included in recent ten-year transport plans in both countries in detail. Through a quantitative assessment the authors seek to reveal the impact of various parameter results on the prioritising of projects. The main purpose is to assess if projects with a positive net present value (NPV) are more likely to be selected for implementation than projects with a low or negative NPV. The main conclusions of the paper are as follows: 1) The methodologies for cost-benefit analysis on Norway and Sweden are relatively similar, 2) Unit prices differ, but not to such an extent that differences would cause significant differences between identical projects, 3) Norwegian road projects are, on average, larger in monetary terms than Swedish projects; large Swedish projects are often selected directly by politicians, 4) Swedish road projects are, on average, more profitable than Norwegian projects, 5) The selection of Swedish road projects are influenced by their profitability whereas profitability has no significant effect on the selection of Norwegian projects, and finally 6) If profitability was the only criterion by which road projects were selected, and if budgets for road construction were identical, total benefit from Norwegian road projects would be as high as from Swedish projects. The paper makes several practical and policy recommendations, relevant to planners and politicians alike.

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