Transport Economics & System Assessment

Transport Economics

Optimum Choice
Function: x*y, substitute into the curve that perpendicular with line.

What is microeconomics?
Behaviour of individual entities (market firms, household, supply-demand study about what affecting
them). When the prices high, producer produce more yet market only able to buy at certain level.
When prices are low, producer produce less, while market able to buy more

Household Theory
Marginal Utility
Utility function is derived from Function

Slutsky Effect
Income Effect: T-SSubtitution Effect: P-T
Elasticity:
delta X / delta Y
per 1% increase of employment, production increases 0,5%

Indifference Curve
Indifference curve is graph showing different bundles of goods between which a customer is
indifferent. E.g. Utilitiy curve.
Marginal Utility: Utility will increase after certain point and then become flat thus decrease

Theory of Firms
Firms constraints: Customer, competition, nature
Factore production: Land, labour, raw material, capital

Marginal Rates of Subtitution

Perfect Subtitutes: 2 workers and 1 machine produces 4 items. 4 workers and 2 machine produces
8 items
Complementary: Indifference curve. Maximal utility is 1 pencil and 1 eraser. For 3 pencil and 1
eraser, you wont get any better utility

Isoquant
Combinations of Input to generate a certain output

Technical Rate of Subtitutions

the amount by which the quantity of one input has to be reduced () when one extra unit of another
input is used (), so that output remains constant () (MP1/MP2 )
E.g. Rate TRS= -2, from X1 to X2. If you want to cut X1 by 3, then you should cut X2 by 6

Return to Scale
.

When you doubling the input, the output should be doubled as well.

E.g.
Constant return to scale
2 eggs, 2 cups of milk = 2 pancake, 4 eggs, 4 cups of milk = 4 pancake
Increasing return to scale
2 eggs, 2 cups of milk = 2 pancake, 4 eggs, 4 cups of milk = 6 pancake
Decreasing return to scale
2 eggs, 2 cups of milk = 2 pancake
4 eggs, 4 cups of milk = 3 pancake

Fixed and Variable Costs

Fixed costs:office space, land rent, properties, insurance
Variable costs:
Raw material, labour

Minimising risk of makin wrong decision

Reducing complexity of decision making process
Illustrate potential damages, profits and costs

When we do assessment method:

for evaluating the impacts of a project

Not Formalised method: Method of Balancing and Discussion (not aggregated at all)

for selecting from among different alternatives of a project

for selecting from among different projects with restricted financial budget
for an implementation order
for evaluating the impacts of a programme

for selecting from among different programmes

Aggregation Methods:

Average Fixed costs: fixed cost / unit produced

Average Variable costs: Variable costs/unit produced
Total cost average: Total cost/unit produced

Formalised Method: CBA & MCA (all indicators are aggregated into one)

Excercise:
Cost Curve C(y)=y+1
Variable cost: y; Fixed cost: 1; Average VC: y; Average FC: 1/y; Average TC: (y+1)/y

Benefit Cost Analysis

Steps:
Select only influencing / mandatory to calculate aspects, aggregate to yearly amount, comparison to
other plan/existing, moneterize (Euro/year)

Why Transports Engineers need to learn Economics?

If we want to built new transport systems, roads, highways, etc.

We want to make decisions, choose between alternatives
Predict the impact of new highway, street, railway

Economic point of view of congestion

Definition
CBA is systematic process for calculating and comparing costs and benefits of a project.
Indicators should able to moneterized

Ways to conversion into monetary terms

Conversion into monetary terms: Cost of damage (Direct impacts: Noise, pollution, damaged goods,
environment impacts), Avoidance of costs (costs to avoid damages), Opportunity costs: the
alternative use of scare factor

Demand: miles traveled, journeys madeSupply: Capacity (Road, PT)

External costs: Social costs

Congestion = Demand > Supply

Problems of Monetary Valuation: Many objects cannot monetarized, or just roughly

From traditional speed flow relationship into travel times, then derive into average social cost.
Creating MSC (Marginal social costs) with respect to social cost of society of road user

Criticism

System Assessment
Why we need assessment method?

Criticism:
The uncertainty about which physical costs and benefit assosiated with a project, the accuracy of
monetary valuations, CBA can easily manipulated, CBA only applied to individual projects

Second Gen
Discount Rate
Discount Rate reasons:
Time preference, opportunity costs

Develop as a reaction to MCA first gen, for several problems:

Distribution of weights

Relevance Tree: analytic technique that divide broad topic into small sub topics

Conversion of original values into utility values

Cardinal scale neccessary for value of aggregation

For value aggregation used:
NPV: Benefit - Cost
BC Ratio: Benefit / Cost

Preference Matrix: Ordinal scale, choose indicators, divide into how many steps needed
(only two indicators can be aggregated at one time)

Multi-Criteria Analysis
Analysis tool to assess multi criteria/ complex problem, based on both qualitative & quantitative.
MCA relies on three conditions: Subtargets (devided overall target), bottom up hierarchy link,
indicator level (bottom target level as basis)
Why there are many different MCA technique?
Time to take analysis may different from one to another, Nature of data may different from one to
another, Analytical skills may different from one to another, Administrative culture may different from
one to another

Types of Scale indicators

1.
2.
3.

MCA Techniques criteria:

transparency, able to audit, ease to use, realistic (data & resources needed)
Limitation of MCA:
no explicit rational like BCA (benefits should overtake the costs)

First Gen
What is the scale of boundaries (Highest and lowest value)?

Cadinal: 1,2,3,4,5,6,7,dst. (Mathematical operation allowed)

Ordinal: Very nice, nice, not nice, ugly, very ugly

Balancing Methods

Comparison in pairs (two planning alternatives compared each others)

Not using mathematical formula

Plan A > Plan B
Plan B < Plan C
Plan C > Plan A
The rank: Plan C, Plan A, Plan B

Definition by using the lowest and the highest indicator value of several alternatives
Definition using treshold (using highest and lowest scale value)

Steps

1.
2.
3.
4.
5.
6.

Nominal Scale : Urban area, Park, Mall, Road

definition of Target
determination of Weight and scales
detemination of Result values
transform result into Utility (itung x dari yang paling besar kurangin yang paling kecil)
Determination of utility
choose the Right alternative

EIA
1. What is public involvement?
This term includes public consultation (or dialogue) and public participation, which is a more
interactive and intensive process of stakeholder engagement. At a minimum, public involvement
must provide an opportunity for those directly affected by a proposal to express their views
regarding the proposal and its environmental and social impacts.
2. What are the purposes of public involvement?
Inform the stakeholders about the proposal and its likely effects;
Canvass their inputs, views and concerns;
Take account of the information and views of the public in the EIA and decision making
3. What are the key objectives of public involvement?
Obtain local and traditional knowledge that may be useful for decision-making;
Facilitate consideration of alternatives, mitigation measures and tradeoffs;
Ensure that important impacts are not overlooked and benefits are maximized;
Reduce conflict through the early identification of contentious issues;
Provide an opportunity for the public to influence project design in a positive manner (thereby

creating a sense of ownership of the proposal);

Improve transparency and accountability of decision-making; and
Increase public confidence in the EIA process.
4. Who are the stakeholders involved in an EIA project?
The people, individuals, groups and communities who are affected by the proposal;
The proponent and other project beneficiaries;
Government agencies;
NGOs and interest groups; and
Others, such as donors, the private sector, academics etc.
5. What is the scope of public involvement?
Screening: For certain categories of proposal, the responsible authority may consult with people
likely to be affected in order to gain a better understanding of the nature and significance
of the likely impacts
Scoping: Public involvement is commonly undertaken at the scoping stage. This is critical to
ensure that all the significant issues are identified, local information about the project area is
gathered, and alternative ways of achieving the project objectives are considered.
Impact analysis and mitigation:
o Avoid biases and inaccuracies in analysis;
o Identify local values and preferences;
o Assist in the consideration of mitigation measures; and
o Select a best practicable alternative.
Review of EIA quality: A major opportunity for public involvement occurs when EIA reports
are exhibited for comment.
Implementation and follow up: The environmental impacts of major projects will be monitored
during construction and operational start up, with corrective action taken where necessary
In many EIA systems, public involvement centers on the scoping and review stages.
6. What are the arguments for public involvement? (Advantages)
The public is informed;
Different viewpoints are identified;
Concerns raised by the proposal are made clearer;
Potential areas of conflict are identified;
Trust and mutual respect are fostered; and
The comfort level of decision-makers is raised.
7. What are the arguments against public involvement? (Disadvantages)
Only those with scientific or technical training are able to contribute to positive and constructive
decision-making;
It is more efficient to have a small number of people involved in making decisions (efficiency
of time, and being decisive);
Members of the public tend to be subjective whereas professionals (technical or bureaucratic)
are thought to be objective;
The existing political process works to take into account public opinion; public participation is
almost interference;
Third parties should not be allowed to interfere with another persons democratic right to do
something;
Public participation is not truly representative of public opinion;
Public participation adds to the costs of projects or governing;
Public participation encourages litigants to disrupt the proper processes of
government/administration; and
The public cannot appreciate the importance of many affairs of state (which only government or its
agencies can fully understand).
8. What is the screening procedure?
The purpose of screening is to determine whether a proposal requires an EIA or not.
The screening process can have one of four outcomes:

o No further level of EIA is required;

o A full and comprehensive EIA is required;
o A more limited EIA is required (often called preliminary or initial assessment); or
o Further study is necessary to determine the level of EIA required (often called an initial
environmental evaluation or examination [IEE])
Specific methods used in screening include:
o Legal (or policy) definition of proposals to which EIA does or does not apply;
o Inclusion list of projects (with or without thresholds) for which an EIA is automatically
required; exclusion list of activities which do not require EIA because they are
insignificant or are exempt by law (e.g. national security or emergency activities); and
o Criteria for case-by-case screening of proposals to identify those requiring an EIA
because of their potentially significant environmental effects.
Where inclusive project lists are used, the disposition of most proposals will be immediately
apparent. However, some proposals will be on the borderline in relation to a listed threshold and
for others, the environmental impacts may be unclear or uncertain. In these situations, case-bycase
screening should be undertaken, applying any indicative guidelines and criteria
established for this purpose.
9. Which types of project lists are described?
Project lists are widely used to screen proposals. These lists are of two types:
Most are inclusion lists, which describe the project types and size thresholds that are known
or considered to have significant or serious environmental impacts.
Exclusion lists of activities that are exempt because they are known to have little or no
environmental impact.
10. What is a Preliminary EIA?
Case-by-case screening is carried out when the significance of the potential environmental
impact of a proposal is unclear or uncertain.
Information that may be required for a preliminary EIA study includes:
o A description of the proposal;
o Applicable policies, plans and regulations, including environmental standards and
objectives;
o The characteristics of the environment, including land use, significant resources, critical
ecological functions, pollution and emission levels etc.;
o The potential impacts of the proposal and their likely significance;
o The degree of public concern and interest about the proposal.
11. What is the purpose of scoping?
The scoping process identifies the issues that are likely to be of most importance during the
EIA and eliminates those that are of little concern.
Scoping refers to the early, open and interactive process of determining the major issues and
impacts that will be important in decision-making on the proposal, and need to be addressed in
an EIA.
The purpose of scoping is to identify:
o The important issues to be considered in an EIA;
o The appropriate time and space boundaries of the EIA study;
o The information necessary for decision-making; and
o The significant effects and factors to be studied in detail.
Scoping is completed when the detailed studies required in the EIA have been specified often
this involves preparing Terms of Reference (ToR) or an equivalent document. This document
sets out what the EIA is to cover, the type of information to be submitted and the depth of
analysis that is required.
Key objectives of scoping are to:
o Inform the public about the proposal;
o Identify the main stakeholders and their concerns and values;
o Define the reasonable and practical alternatives to the proposal;
o Focus the important issues and significant impacts to be addressed by an EIA;
o Define the boundaries for an EIA in time, space and subject matter;

o Set requirements for the collection of baseline and other information; and
o Establish the Terms of Reference for an EIA study.
12. What are the EIA terms of references?
Purpose and application of the Terms of Reference;
Statement of need for and objectives of the proposal;
Project background and description;
Study area or impact zone(s) (e.g. the affected environment and community);
Applicable policy and institutional considerations;
EIA requirements and decision-making particulars;
Provisions for public involvement;
Alternatives to be examined;
The impacts and issues to be studied;
The studies to be carried out (e.g. approach, time & space boundaries);
The requirements for mitigation and monitoring;
The information and data to be included in the EIA report;
The timeframe for completion of the EIA process; and
The means for making changes to the ToR if necessary.
The proposed study schedule;
The resources and estimated budget for the study;
The activities and responsibilities of the study team;
The expected outputs or deliverables from the study team; and
The basis on which variations to the working brief will be negotiated.