SENSITIVITY OF RESOURCE ALLOCATION MODELS TO DISCOUNT RATE AND UNREPORTED ACCIDENTS. FINAL REPORT

Resource allocation models aid highway safety planning decisions by prioritizing projects based on their costs and benefits. A sensitivity avalysis was conducted to see how project selection is affected by failure to adjust the accident database for underreporting and, separately, by the choice of discount rate and accident cost methodology used in computing accident costs and the present value of future benefits. The analysis used the INCBEN model developed by the Texas Transportation Institute for the Federal Highway Administration (FHWA). A discount rate of 4 percent is recommended for projects with lives of 5 years or less. Adding a risk premium because investment funds are tied up for many years, a discount rate of 5 percent is recommended for projects with lives of 6 to 30 years. If one discount rate will be used for all projects, a 5-percent discount rate is recommended. The accident costs recommended are those contained in a 1985 report to FHWA by Miller et al. At a budget of $300,000 to $600,000, the highway safety countermeasures in the optimum solution and a few other countermeasures were overwhelmingly better than other countermeasures. Consequently, even large changes in the discount rate, accident costs, and degree of adjustment for accident underreporting had virtually no effect on what projects were in the optimum solution or on the benefits obtained. At a budget of $1.2 million to $1.5 million, the solution was much less stable; 20 percent to 30 percent of the benefit associated with the last $400,000 worth of countermeasures added, or as much as $900,000 in benefits, could be lost through the wrong choice of discount rate or accident cost methodology or through a failure to adjust reported accident data to incorporate estimated underreporting. The effects were particularly notable when the discount rate fell below 2 percent or rose above 8 percent; when the threshold for accident reporting was reporting only of towaway, injury, and fatal accidents; or when the method for calculating accident costs was changed.

• Corporate Authors:

  Granville Corporation

  1425 K Street, NW, Suite 1000
  Washington, DC  United States  20005

  Federal Highway Administration

  Traffic Safety Research Division, 6300 Georgetown Pike
  McLean, VA  United States  22101
• Authors:
  • Miller, T
  • Whiting, B
  • Taylor, P
  • Zegeer, C
• Publication Date: 1985-7

Media Info

• Pagination: 138 p.

Subject/Index Terms

• TRT Terms: Costs; Countermeasures; Crash reports; Crashes; Discount; Highway safety; Mathematical models; Programming (Planning); Reports; Sensitivity analysis
• Uncontrolled Terms: Accident costs; Fund allocations; Reporting
• Old TRIS Terms: Unreported accidents
• Subject Areas: Economics; Finance; Highways; Safety and Human Factors; Society; I10: Economics and Administration; I81: Accident Statistics;

Filing Info

• Accession Number: 00457060
• Record Type: Publication
• Source Agency: Federal Highway Administration
• Report/Paper Numbers: FHWA/RD-85/092 8311-8506, FCP 31K4-052
• Contract Numbers: DTFH61-83-C-00034
• Files: TRIS, USDOT
• Created Date: Jul 31 1987 12:00AM