Cost–benefit analysis of road safety measures: applicability and controversies
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:
- 1.
How can the applicability of cost–benefit analysis to a specific topic be determined?
- 2.
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.
Section snippets
Cost–benefit analysis as presented in textbooks
Most textbooks in cost–benefit analysis and applied economic welfare theory (Dasgupta and Pearce, 1972, Sassone and Schaffer, 1978, Sugden and Williams, 1978, Boadway and Bruce, 1984, Mishan, 1988, Gramlich, 1990, Johansson, 1991, Hanley and Spash, 1993, Williams and Giardina, 1993, Layard and Glaister, 1994) contain examples of such analyses, intended to show their basic logic. In general, the problems used to illustrate cost–benefit analysis in textbooks share the following characteristics:
- 1.
A framework for assessing the applicability of cost–benefit analysis to assess road safety measures
In order to sort out various objections to cost–benefit analysis with regard to their implications for the use of this technique, a framework for assessing the applicability of cost–benefit analysis has been developed. This framework is displayed graphically on Fig. 1.
The framework identifies five stages in assessing the applicability of cost–benefit analysis to a certain problem. These stages are:
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Assess the basic principles of cost–benefit analysis.
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Determine the type of issue to be decided.
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Discussion
The framework proposed for assessing the applicability of cost-benefit analysis works like a sieve. A project has to pass through all stages of the framework in order to apply cost–benefit analysis. Briefly stated, this means that:
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Consumer sovereignty is respected, willingness-to-pay is accepted as the basic criterion of value and welfare maximisation in the Pareto sense is taken as the basic objective of analysis.
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The policy issue is regarded as one that mainly concerns the provision of
Conclusions
This paper has proposed a framework for assessing the applicability of cost–benefit analysis to road safety measures. The framework is intended as a heuristic device for discussing the implications of various types of criticism often made against the use of cost–benefit analysis. The main implications of various types of criticism against cost–benefit analysis can be summarised as follows:
- 1.
Those who reject the basic principles of cost–benefit analysis rule out its use altogether. Rejecting these
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