11.2 - Method of evaluation

Introduction

As well as economic efficiency, social and environmental objectives, financial considerations must be taken into account when evaluating projects involving private sector financing and projects with road tolling. An effective community consultation process is essential for road tolling projects.

In principle, the economic efficiency evaluation of toll options is no different from that for other (non-pricing) options for any scheme. However, the following issues warrant particular attention:

• the range of options considered
• the treatment of value of time savings
• the composition and application of benefit cost ratios.

Consumer surplus

Consumer surplus methodology must be used for evaluation of road tolling proposals because motorists’ behaviour in response to various levels of tolls (including no toll) must be determined and therefore a measure of the willingness to pay. Stated preference (SP) surveys or, possibly, revealed preference (RP) data, need to be used to give a general cost equation (combining travel time, vehicle operating cost and toll charge).

Range of options

Economic efficiency evaluation of road tolling projects must be undertaken with and without the tolls in place, as alternatives and options are required to be considered under the LTMA. As well, financial analysis is required of the toll options.

Financial analysis is used to determine the optimum tolls, choices of debt financing, optimum borrowing, and timeframe for implementing tolls. The imposition of tolls has consequences in terms of changing the demand for the facility, diverting traffic onto other facilities, increasing the costs due to toll collection, and other issues.

Methods of setting tolls

There are a number of approaches to setting charges for a toll road where other routes are ‘free’. Three of the most common approaches are:

• a pricing policy where economic welfare as defined by the BCR is maximised
• a revenue maximising pricing policy where service provider revenue is maximised
• a ‘network optimisation’ pricing level which seeks to optimise the performance of the network in terms of total travel times or average network speeds.

In practice, all these three considerations and possibly others may need be taken into account in reaching a toll regime which seeks to meet the overall objectives of the project.

Value of travel time

For most transport proposals, an average value of time is used in economic efficiency evaluations, ie the same unit values are used for motorists from more affluent households and for those from less affluent households. This is essentially an ‘equity’ approach (to avoid favouring road schemes used by higher income groups). It also makes the economic evaluation easier. This averaging approach is not of major consequence for most situations.

However, it has important implications for toll roads, particularly when comparing the economic merits of tolled vs. un-tolled options. An ‘equity’ value of time will substantially over-estimate the perceived disbenefits of tolling. The extent of distortion is directly related to the spread of the behavioural (‘willingness-to-pay’) value of travel time.

Evaluation of toll roads (including tolling policies) must use a distribution of values of travel time consistent with users’ willingness-to-pay values established through stated preference surveys or other means. A consistent distribution of values of travel time must be used in both the traffic modelling and economic efficiency evaluation.

When investigating options and alternatives, behavioural values can be used to calculate initial user benefits, with the overall results adjusted to the average value of travel time between the behavioural and equity values for consistency with other projects.