4. Methods
4.1 Fundamentals of cost-benefit analysis
Cost-benefit analysis (CBA) is a technique often used in making policy
decisions. It helps decision-makers choose whether or not to undertake a project
by quantifying the costs and benefits in monetary terms. Using a cost-benefit
analysis, policymakers can see how much a project will increase or decrease
social welfare. It is important to note that a cost-benefit analysis takes into
account all the relevant costs and benefits, including not only direct costs but also
indirect costs and externalities. Costs that are not borne by the user are still costs
and it is important to include them while analysing a proposed project. Another
important thing to note about a CBA is that the analysis looks at the economic
effects of a project over time. Because of inflation, the value of a cost or benefit
now is greater than the value of a cost or benefit in the future. So, when doing a
cost-benefit analysis, one must find the net present value of costs and benefits.
The following steps for carrying out a cost-benefit analysis have been drawn
from Boardman, Greenberg, Vining and Weimer (2011) and Townley (1998).
4.2 Specifying the set of alternative projects
Before finding the net benefits (benefits less costs) of installing bicycle
lanes in Truro, it must be clear exactly what this project is comparing. In the case of Truro, the net benefits of installing a bicycle lane network are compared to the
status quo. That is, the benefits of installing a bicycle lane are compared to the
existing situation without a bicycle lane. Currently, 110 people commute by
bicycle (Statistics Canada 2006) and the majority of people commute by motor
vehicle. The share of the bicycle commuters in Truro is 0.55% of all commuters.
Using this statistic, the incremental benefit of installing a bicycle lane network is
calculated.
4. Methods 4.1 Fundamentals of cost-benefit analysis Cost-benefit analysis (CBA) is a technique often used in making policy decisions. It helps decision-makers choose whether or not to undertake a project by quantifying the costs and benefits in monetary terms. Using a cost-benefit analysis, policymakers can see how much a project will increase or decrease social welfare. It is important to note that a cost-benefit analysis takes into account all the relevant costs and benefits, including not only direct costs but also indirect costs and externalities. Costs that are not borne by the user are still costs and it is important to include them while analysing a proposed project. Another important thing to note about a CBA is that the analysis looks at the economic effects of a project over time. Because of inflation, the value of a cost or benefit now is greater than the value of a cost or benefit in the future. So, when doing a cost-benefit analysis, one must find the net present value of costs and benefits. The following steps for carrying out a cost-benefit analysis have been drawn from Boardman, Greenberg, Vining and Weimer (2011) and Townley (1998). 4.2 Specifying the set of alternative projects Before finding the net benefits (benefits less costs) of installing bicycle lanes in Truro, it must be clear exactly what this project is comparing. In the case of Truro, the net benefits of installing a bicycle lane network are compared to the status quo. That is, the benefits of installing a bicycle lane are compared to the
existing situation without a bicycle lane. Currently, 110 people commute by
bicycle (Statistics Canada 2006) and the majority of people commute by motor
vehicle. The share of the bicycle commuters in Truro is 0.55% of all commuters.
Using this statistic, the incremental benefit of installing a bicycle lane network is
calculated.
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