ECONOMY STUDIES FOR HIGHWAYS

THE AIM OF THIS PAPER IS TO ADAPT CERTAIN GENERAL PRINCIPLES OF ENGINEERING ECONOMY INTO THE SPECIALIZED CIRCUMSTANCES OF THE HIGHWAY FRAMEWORK. RESULTS OF ECONOMY STUDIES FOR HIGHWAYS MIGHT BE STATED IN TERMS OF ANNUAL COSTS OR SAVINGS, EXCESS OF BENEFITS OVER COSTS, BENEFIT- COST RATIO, OR RATE OF RETURN ON INVESTMENT. PROPERLY EMPLOYED AND INTERPRETED, ALL OF THESE METHODS GIVE CORRECT RESULTS, BUT IMPROPERLY USED, THEY CAN LEAD TO WRONG DECISIONS. THE FIRST PART OF THIS PAPER ILLUSTRATES, BY EXAMPLE, THE PROPER PROCEDURES FOR COMPARING MULTIPLE ALTERNATIVES BY EACH METHOD AND INDICATES SOME OF THE PITFALLS TO BE AVOIDED IN USING EACH OF THEM. MUCH OF THE RAW DATA FOR ECONOMY STUDIES FOR HIGHWAYS ARE BASED ON PREDICTIONS OF EVENTS 20, 30, OR EVEN MORE YEARS IN THE FUTURE. AN EXAMINATION OF PAST HAPPENINGS OVER SUCH PERIODS OF TIME COUPLED WITH ANY CONSIDERATION OF TODAY'S RAPID RATE OF CHANGE, CLEARLY DEMONSTRATES THE UNCERTAINTY OF SUCH LONG-RANGE FORECASTS. IF ECONOMY STUDIES ARE MADE AT ZERO INTEREST RATE, THE EFFECT IS TO GIVE PREDICTIONS AT ALL FUTURE DATES EQUAL WEIGHT. AS THE INTEREST RATE FOR ECONOMY STUDIES IS INCREASED, THE EFFECT OF HAPPENINGS IN THE MORE DISTANT FUTURE IS DISCOUNTED. IN OTHER WORDS, STUDIES MADE AT LOW INTEREST RATES ARE HIGHLY SENSITIVE TO VARIATIONS IN ESTIMATES OF FUTURE EVENTS AND STUDIES MADE AT HIGHER INTEREST RATES ARE LESS SENSITIVE TO SUCH CHANGES. THE SECOND SECTION OF THIS PAPER EXAMINES THE SENSITIVITY OF ECONOMY STUDIES TO ASSUMPTIONS REGRADING ESTIMATED LIVES, SALVAGE VALUES, AND EXPECTED GROWTH OR DECLINE OF BENEFITS. FINDINGS ARE PRESENTED BY MEANS OF EXAMPLES AND GRAPHS. /AUTHOR/

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  • Accession Number: 00201416
  • Record Type: Publication
  • Files: TRIS, TRB
  • Created Date: Jul 1 1994 12:00AM