Cost–benefit analysis of road safety measures: applicability and controversies

Abstract

This paper discusses the applicability of cost–benefit analysis as an aid to policy making for road safety measures. A framework for assessing the applicability of cost–benefit analysis is developed. Five main types of criticism of cost–benefit analysis are identified:

• rejecting the basic principles of cost–benefit analysis as not applicable to road safety,

• excluding some types of issues from the scope of calculation of costs and benefits,

• setting policy objectives that are not amenable to cost–benefit analysis,

• rejecting the need for maintaining a separation between policy objectives and policy programmes as required for cost–benefit analysis, and

• rejecting, or denying the possibility of ever obtaining, acceptably valid and reliable economic valuations of the consequences of alternative policy programmes.

It is concluded that rejecting the basic principles of cost–benefit analysis is a difficult position to defend, since these principles are simply a re-statement in economic terms of very general principles of rational choice. These principles are part of the normative basis of all formal techniques designed to aid policy making as well as the democratic system of government. Everybody, including those who advocate the use of cost–benefit analysis, agree that some issues are unsuitable for cost–benefit analysis, in particular those that involve basic human rights and fairness in distribution. There may, however, be disagreement with respect to the perception of a specific policy issue in terms of whether it is mainly about rights and fairness or mainly about the effective use of policy instruments to solve a social problem. Politicians may be tempted to set policy objectives that are ill suited for cost–benefit analysis, but this does not imply that cost–benefit analysis makes unreasonable assumptions. Perhaps the most important issue for the applicability of cost–benefit analysis is whether people in general have sufficiently well ordered preferences for economic valuations based on these preferences to make sense.

Introduction

Cost–benefit analysis has been applied for many years to set priorities for road safety measures. Its application goes at least 25 years back (Trilling, 1978), but has remained controversial (Hauer, 1994). Joksch (1975), in an early appraisal of the applicability of cost–benefit analysis to road safety measures, concluded that there were so many problems in estimating both costs and benefits that one should not rely on cost–benefit analysis to decide whether road safety measures ought to be introduced. His objections did not, however, question the basic principles of cost–benefit analysis. Critics like Hauer, 1991, Hauer, 1994 and Haukeland (1994) have been more fundamental and reject the basic principles of cost–benefit analysis as put forward in the field of welfare economics to be applicable in the field of road safety. They state that the very idea of putting a monetary value on human life does not make sense and is ethically unacceptable.

The implications for the applicability of cost–benefit analysis of various types of criticism against its use depend on the nature of the arguments made. If one rejects the basic principles of cost–benefit analysis, then the technique cannot be applied at all. If, on the other hand, one thinks that the economic valuation of a certain non-marketed good is too uncertain, then more research is called for to obtain a more precise valuation. This paper attempts to clarify the implications for the applicability of cost–benefit analysis of various types of criticism made against it. By doing so, the paper also tries to clarify the assumptions that must be made for the use of cost–benefit analysis to make sense. The context for the discussion is the application of cost–benefit analysis to road safety measures. The main questions discussed in the paper are:

• How can the applicability of cost–benefit analysis to a specific topic be determined?

• What are the implications of various types of criticism against the use of cost–benefit analysis for its applicability?

The outline of the paper is as follows. Following a brief presentation of how most textbooks introduce cost–benefit analysis, a framework for discussing its applicability is proposed. This framework forms the basis for a discussion of the implications of various types of criticism levelled against cost–benefit analysis. The discussion is concluded with an assessment of how adequate current cost–benefit analyses of road safety measures in Norway are as a basis for deciding on their use. Some alternatives to cost–benefit analysis are briefly discussed.