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One of the most common economic evaluation methods is BenefitCost (also called Cost-Benefit) analysis, which
uses monetized (measured in monetary units) values to compare
total incremental benefits with total incremental costs. The results
can be presented as a ratio, with benefits divided by costs (which is
why it is often called Benefit/Cost or B/C analysis). Net Benefits is
defined as the sum of all benefits minus the sum of all costs, which
provides an absolute measure of benefits (total dollars), rather than
the relative measures provided by B/C Ratio.
To perform Benefit-Cost Analysis it is necessary to monetize all
relevant impacts. In recent years economists have developed
techniques for monetizing non-market impacts, and some
transportation agencies have adopted standardized values for travel
time, crash damages and environmental impacts.
EXAMPLES :
A new highway connection makes it possible for a rural region to attract new
industry, creating jobs and tax revenue.
Eliminating size or weight restrictions for a river crossing, airport, or marine port
allows local business to expand shipping facilities, creating new jobs and tax
revenue.
Scope of Direct Benefits - BCA takes a wider view of direct benefits than EIA. Through a
number of valuation methods, BCA attempts to capture welfare change of a project, even
when those do not generate follow-on economic activity. A common example is personal
travel time. BCA explicitly captures the value of time spent making a personal trip (for
example, driving to see your daughter play soccer). In EIA, this trip generates no follow-on
activity because if the traveler were not driving, she would otherwise doing leisure (nonproductive) activities. Environmental and noise pollution are other direct costs that BCA can
value, but are not included in economic impact analysis.
Scope of Follow-On Benefits - EIA takes a wider view of follow-on benefits than BCA.
Economic impact analysis generally separates impacts into three categories: (1) direct
impacts, which follow "directly" from traveler cost savings or other consequences of the
investment, (2) indirect impacts, which occur when industries that are directly affected buy
goods and services from other industries, and (3) induced impacts, which occur from
increased household spending due to higher regional wages. Impacts (2) and (3) are
considered "follow-on" impacts, and while they are typically included in EIA, they
are explicitly excluded from BCA.