Network Effects within a Mode

Improving a network link is likely to attract traffic to that link and thus change traffic levels elsewhere. In links that are alternatives to the improved link, traffic levels are likely to fall and users are likely to experience less congestion and reduced travel time. They might also experience reduced VOC. In addition, some savings may be gained from reduced road maintenance costs. Links that are complementary to the improved link, that is, links that feed the improved segment, may see increases in traffic and thus some deterioration of performance. Whether traffic volumes increase or decrease, summing the basic measure of benefits over all affected links in the network gives a good approximation to the total benefits of an improvement.

The same analysis as applied to the aforementioned situation can be applied to intermodal effects. Improving a link in a road network may, for example, attract passengers from public to private transport. If this involves no other adjustment, the withdrawal of patronage from a public transport system will reduce its revenues and its operating costs. The decrease in net revenue will be equal to the difference in gross revenue minus the difference in cost. The analyst should subtract that amount from the calculated benefits for road users.

Alternative responses are possible for the public transport operating agency, for instance, fares may be lowered. In that event, public transport users would receive a windfall gain at the expense of the provider, but the net loss to society would still be equal to the net revenue loss.

         

Most typically the response will be some combination of the above. If possible, the analyst should forecast that response and the actual losses estimated on the basis of the expected conjectural response. The converse of these arguments applies where public transport service improves because of an investment. The direct benefits in this case would be the financial effect on the operator, plus any financial effect on public transport users, plus any change in waiting time of public transport users, plus any effect on the generalized costs of private transport users in the system.

Just because a project’s benefits exceeds its costs does not mean that the project should begin immediately. Hence, the timing of a project should be analyzed in every case. Postponing a project may change the time profile of costs and benefits and the project’s NPV. If the profile of benefits and costs does not change, but is only postponed, then timing is not an issue. The present value of the benefits and costs will change proportionally by the discount factor used. Consider a situation in which the present value of a project’s benefits discounted at 20 percent is US$12, the present value of costs is US$6, and postponing the project one year merely shifts all costs and benefits by one year. Then the present value of both benefits and costs will be reduced by the same percentage, as will the NPV of the project itself. In these cases the sooner the project starts, the higher the NPV. If, by contrast, the benefit or cost profile changes with postponement, then timing becomes an issue.