A very interesting article from Newsroom a few days ago sheds light on some important changes in how transport projects will be assessed, moving forward. In particular, it looks at changes to the way we value travel time savings and the value of a life. These are standard inputs used in the business case process to help assess the costs and benefits of projects. The latter quantifies the benefits of avoiding a fatality, although of course, as the Vision Zero approach tell us, every life is priceless.
Governments and councils can save lives by improving our road and rail infrastructure but, with limited budgets, they must strike a balance. These must be weighed against other imperatives like providing access and parking for new residential and commercial developments, facilitating quicker commutes, accelerating the freight supply chain, or reducing the air pollution and carbon emissions caused by slow-moving traffic in our gridlocked cities.
Over the past 30 years, there’s a strong economic argument to be made that government has not valued human life highly enough; it failed to acknowledge that New Zealanders placed greater value on saving their friends, family and neighbours from injury or death than they did on shaving a few seconds off their morning commute.
Last month, that changed. With no fanfare, no press release, no ministerial statement, the transport agency Waka Kotahi published a document entitled Monetised benefits and costs manual v1.6 April 2023. The 429-page manual is a dense compendium of tables, formulae and, to the layperson, impenetrable economic justifications for obscure policies.
But buried in this manual are two big changes to v1.5, published two years earlier. It raises the value we place on saving time stuck behind a wheel driving to and from work, from $7.80/hr to $19.53 an hour – an increase by a factor of 2½. That figure increases to as much as $36.18/hr if that’s what it costs to avoid being stuck in congestion.
And at the same time, it increased an esoteric number called the VoSL – the Value of a Statistical Life – from $4.88m to a somewhat breathtaking $12.5m. That’s an even bigger increase.
The net effect of these changes is that now, if a road or rail authority wants to decide how to spend its budget, it will measure up the cost of each project against the Value of Travel Time and the Value of a Statistical Life to decide whether sufficient time will be saved, or sufficient pain and grief avoided, to justify paying for the project.
And because those values are so much higher, it will be much easier for an infrastructure project to pass the threshold in the cost-benefit ratio – and so the pressure will go on the Government to fund more projects to make our roads both faster and safer.
As noted in that last sentence, with these values so much higher than before, it’s likely going to have a big impact on the benefit-cost ratios for a lot of projects. Though even with those large increases, I doubt it will be enough for some projects, like Otaki to Levin, to move into positive BCR territory.
There is also an ever so slight increase in the relative Value of a Statistical Life compared to travel time savings. This should at least give a little bit of an advantage to projects with strong safety components. Though, as noted later in the article:
“One of the arguments against adoption of the higher value was it would result in a shift of resources away from investments in travel time savings and decongestion, and toward road safety features.”
However, I find it odd that the travel time savings figure has increased so much – when many people will opt for a longer journey just to avoid paying a few dollars for a toll, or will park further away and walk a few steps rather than pay for a carpark closer to their destination.
We should also probably consider that travel time savings are non-linear. A minute or so saving across a journey is probably within normal trip variation, and so comparatively less valuable than something that delivers a transformational change.
I also find this claim about avoiding pork-barrel decisions quite funny:
But it’s these benefit-cost ratios that help civil servants, councillors and ministers make fair decisions between competing priorities, rather than just awarding roading projects to whichever pork-barrelling constituency MP shouts the loudest.
Pork-barrelling seems to have become much more common in recent decades. Both major parties have made promises and decisions on projects before there’s even been analysis – and/or ignore the analysis completely. For example, remember the 10 bridges National promised to upgrade in the 2015 Northland by-election, and their Roads of National Significance 2.0? Or Labour’s NZ Upgrade Programme, which included projects like Penlink and Otaki to Levin – the latter of which had a benefit cost ratio of 0.2 before the project doubled in cost.
Also fascinating and worrying is some of the history behind the figures.
In 1991 government researchers completed a survey of 700 New Zealanders to find out what value they placed on safety.
They wanted to measure the amount society would pay for the avoidance of one premature statistical death – and they did it by asking individuals the amount they would pay for safety improvements. They came up with a Value of a Statistical Life of $2m.
A new more thorough survey in 1998 doubled the figure to $4 million – but the government of the day refused to adopt it, seemingly dismayed at the cost implications for road, rail and aviation infrastructure.
So it is that the flawed 1991 survey result has been updated in line with wage inflation, every subsequent year. Extraordinarily, that outdated and discredited survey was still used to decide whether or not to build transport and other infrastructure – until now.
“Due to ‘some unresolved policy issues’, the Government did not adopt the revised VoSL estimate, and the VoSL continues to be based on the value established in 1991,” wrote Resource Economics director Dr Tim Denne and his team.
What’s most worrying here is that these values have, for the last 30+ years, shaped the transport system we have today. Would Aotearoa have invested in different projects over that timeframe, had those values been different?
Of course, these two figures weren’t the only issues with business case inputs in the past. Previously, the time of a person using public transport was valued much lower than that of someone driving a car.
Unsurprisingly, not everyone is happy with this change, with some economists showing up to confirm why the profession often makes a bad name for itself.
This is the most advanced case of economist brain I've ever seen pic.twitter.com/hvpETw2uXo
— Hayden Donnell (@HaydenDonnell) May 2, 2023