HIGHLIGHTS

OF AN

EXPERT PANEL 

GAO-05-423SP 

May 2005 

GAO-05-423SP 

U.S. Government Accountability Office

The Benefits and 

Costs of Highway and 

Transit Investments

May 2005 

The Benefits and 

Costs of Highway and 

Transit Investments

What Participants Said

United States Government Accountability Office

Why GAO Convened This 

Expert Panel

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-423SP.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine 

Siggerud at (202) 512-2834 or 

siggerudk@gao.gov. 

Highlights of GAO-05-423SP

May 06, 2005

HIGHLIGHTS OF AN EXPERT PANEL

The Benefits and Costs of Highway and 

Transit Investments 

GAO asked expert panel participants to discuss how to conceptualize, 

measure, improve, and use information about the benefits and costs of 

highway and transit investments. The expert panel was not designed to 

reach a consensus on these issues, but several themes emerged from the 

panel’s discussion, including the following: 

• Benefit-cost analysis can be a useful tool to inform transportation 

investment decisions. 

• Requiring benefit-cost analysis can be useful if it is fully integrated

into the decision making process and not seen as a compliance 

checklist. 

• Transportation investments seldom are compared across modes. 

• Better analytic tools are needed to evaluate land use and 

distributional impacts of investments. 

• Quality of state and local transportation data needs to be improved 

so that travel models can accurately predict patterns, trends, and 

needs. 

The nation’s economy and its 

citizens’ quality of life depend on 

our transportation system. While 

all government levels have made 

significant investments in 

transportation, projections of 

future passenger and freight travel 

indicate that considerable 

investment will be needed to 

maintain the system. However, 

this comes amid growing concern 

about the size of the federal 

budget deficit and increasing 

demands on state and local 

government revenue. As a result, 

careful decisions will need to be 

made to ensure that transportation 

investments maximize the benefits 

of each dollar invested. 

The House Appropriations 

Committee report accompanying 

the fiscal year 2004 Departments 

of Transportation and Treasury 

and Independent Agencies 

Appropriations Bill, required GAO 

to review the benefits and costs of 

various transportation modes. 

(See GAO-05-172.) As part of this 

study, GAO convened an expert 

panel that included some of the 

leading transportation economists 

and practitioners from throughout 

the nation. The panel discussed 

the benefits and costs of highway 

and transit investments.
2
3

Contents

Abbreviations 5

Message from the Comptroller General of the United States 7

Introduction: Expert Panel on the Benefits and Costs of Transit and Highway Investments 9

Highlights of the Expert Panel Discussion 11

Appendix I: Scope and Methodology 14

Appendix II: Overview of Expert Panel and Opening Remarks 19

Appendix III: How Should We Think About Transportation Benefits and Costs? 24

Opening Comments by Dr. Lewis and Dr. Wachs 24

Panel Discussion 28

Summary of Panel Responses to Audience Questions 36

Appendix IV: How Are Benefits and Costs of Transit and Highway Investments Best Measured? 38

Opening Comments by Dr. Small and Dr. Pickrell 38

Panel Discussion 42

Summary of Panel Responses to Audience Questions 58

Appendix V: How Could Benefit-Cost Analysis Be Improved? 59

Opening Comments by Dr. Forkenbrock and Dr. Kirby 59

Panel Discussion 63

Summary of Panel Responses to Audience Questions 72

Appendix VI: How Can Benefit-Cost Analysis Be Most Useful In Investment Decisions? 73

Opening Comments by Dr. Meyer and Dr. Gomez-Ibanez 73

Panel Discussion 78

Summary of Panel Responses to Audience Questions 83

Appendix VII: Panelists’ Closing Remarks 85

Appendix VIII: Selected Biblography and Related GAO Products 88

Appendix IX: GAO Contacts and Acknowledgements 90

GAO Contacts 90

Acknowledgments 90

Endnotes 91
4
5

Abbreviations

AASHTO American Association of State Highway and Transportation Officials

CAAA Clean Air Act Amendments

CMAQ Congestion Mitigation and Air Quality

DOT Department of Transportation

EIS Environmental Impact Statement

EPA Environmental Protection Agency

FHWA Federal Highway Administration

FTA Federal Transit Administration

GDP Gross Domestic Product

GPS Global Positioning System

HOT High Occupancy Toll

HOV High Occupancy Vehicle

ISTEA Intermodal Surface Transportation Efficiency Act

MPO Metropolitan Planning Organization

NAS National Academy of Sciences

NCHRP National Cooperative Highway Research Program

NEPA National Environmental Policy Act

OMB Office of Management and Budget

ROI Return on Investment

TANF Temporary Assistance for Needy Families

TCRP Transit Cooperative Research Program

TEA-21 Transportation Equity Act for the 21st Century

TRB Transportation Research Board
6
7

Message from the Comptroller General of the United States

In speeches and presentations over the past several years, I have called attention to our large and growing 

long-term fiscal challenge and the risks it poses to our nation’s future. Simply put, our nation’s fiscal 

policy is on an unsustainable course. As long-term budget simulations by GAO and others show, we face 

a large and growing structural deficit over the long term due primarily to known demographic trends and 

rising health costs. These trends are compounded by the presence of near-term deficits arising from new 

discretionary and mandatory spending as well as lower revenues as a share of the economy.

Continuing on this unsustainable fiscal path will gradually erode and may suddenly damage our economy, 

standard of living, and ultimately our national security. Given the size of our projected deficit, we will not 

be able to grow our way out of this problem—tough choices will be required. We need nothing less than a 

fundamental reexamination of all major existing spending and tax policies and priorities. While prompted 

by fiscal necessity, such a fundamental review of major program and policy areas also serves the vital 

function of updating the federal government’s programs and priorities to meet current and future challenges. 

Many current federal programs and policies were designed decades ago to respond to trends and challenges 

that existed at the time of their creation. The transportation sector is one of many areas where emerging 

challenges necessitate difficult decisions about investments and priorities.

I want to thank the distinguished experts who participated in our panel on the benefits and costs of highway 

and transit investments for their willingness to share their knowledge and time to examine issues with 

immediate importance and serious concern. Their insights about maximizing the benefits of federal dollars 

invested in transportation will be of value to Congress and the transportation community. I look forward to 

working with the panelists and others on this and other issues of mutual interest and concern in the future.

David M. Walker

Comptroller General of the United States
8
9

The nation’s economic vitality and its citizens’ quality of life depend substantially on the soundness, 

security, and availability of its transportation system. The transportation system provides people with 

access to goods, services, recreation, and jobs; provides businesses with access to materials, markets, 

and people; and promotes the movement of personnel and material to meet national defense needs. Given the 

importance of the transportation system, all levels of government have made significant investments in the 

system. However, future decisions about investments in the transportation system are set to collide with new 

realities and emerging trends. In particular:

• Securing funding for transportation investments is becoming increasingly difficult. Federal 

transportation grant programs—including the nation’s highways and transit programs—are funded by the 

Highway Trust Fund. Revenues to the Highway Trust Fund are drawn from fuel taxes and user fees. The 

purchasing power of these revenues is declining, and future fuel tax revenues could be further eroded by 

the increasing fuel efficiency of vehicles. Many experts question whether the current financing scheme for 

transportation is ultimately sustainable. As a result, decision makers are increasingly looking more to the 

general fund to finance transportation programs, and state and local governments are increasingly relying on 

property and sales taxes to fund transportation improvements. Attempts to secure funding for transportation 

from these other sources come amid growing concerns about the size of federal budget deficits and future 

Social Security and Medicare commitments that will consume a greater share of the nation’s resources. 

Moreover, transportation faces increasing competition from education, Medicaid, and other public uses for 

state and local government revenues.1

• The gap between travel needs and the transportation system’s condition and capacity is growing.

Increasing passenger and freight travel has generated substantial congestion throughout the national 

transportation system. Travel projections indicate that considerable investment will be needed to prevent 

congestion from overwhelming the system, while maintaining system safety and condition. The Department 

of Transportation (DOT) estimated that the nation’s highway and transit systems will require $90.7 billion in 

annual capital investment through 2020 to maintain their current level of conditions and performance, while 

up to $127.5 billion in annual investment would be required to improve conditions and performance.2

• The transportation investment decision-making process is increasingly complex. Transportation 

investment decisions are inextricably linked with land use, economic, environmental, and energy policy 

concerns, among other things. Therefore, when making investment decisions, decision makers must 

consider a number of factors as well as the diverse, and sometimes conflicting, interests of numerous 

stakeholders. For example, the Intermodal Surface Transportation Efficiency Act of 1991 (ISTEA)3

 and the 

Transportation Equity Act for the 21st Century (TEA-21)4

 require that a number of factors—including safety, 

Introduction: Expert Panel on the Benefits and Costs of 

Transit and Highway Investments
10

environmental impacts, system connectivity, and accessibility—be considered in investment decisions and 

that state and local transportation agencies involve numerous stakeholders in the decision-making process. 

ISTEA and TEA-21 also gave local and state transportation agencies greater discretion in planning for and 

selecting transportation investments that meet local needs and priorities. As a result, the transportation 

investment decision-making process has been broadened to a wider range of viewpoints and interests. 

Moreover, new security imperatives in a world after September 11, 2001, present additional challenges for 

the transportation system that must be considered in the decision-making process.

These trends raise questions about how to make transportation investment decisions in an increasingly fiscally 

constrained and complex environment. GAO and other federal agencies—including the Office of Management 

and Budget (OMB) and DOT—have identified benefit-cost analysis as a useful tool for integrating the social, 

environmental, economic, and other effects of investment alternatives and for helping decision makers identify 

projects with the greatest net benefits. In addition, the systematic process of benefit-cost analysis helps decision 

makers organize and evaluate information about, and determine trade-offs between, alternatives.

The use of benefit-cost analysis in transportation investment decision making was the subject of an expert panel 

that GAO convened on June 28, 2004, to discuss four key issues—how to conceptualize, measure, improve, and 

use information about benefits and costs of highway and transit investments. We convened the expert panel, in 

collaboration with the National Academy of Sciences, as part of a larger study of the benefits and costs of transit 

and highway investments. The panel included top transportation economists and practicioners from throughout 

the country, including David J. Forkenbrock, Jose A. Gomez-Ibanez, Ronald F. Kirby, David L. Lewis, Michael D. 

Meyer, Donald Pickerell, Kenneth A. Small, Brian D. Taylor, and Martin Wachs. (See app. I for the methodology 

we used in convening the panel and a profile of each panelist.) We included the major themes that emerged 

from the panel in our January report to the House and Senate Appropriations Committees.5 However, the panel 

produced many additional important insights that were beyond the focus of our January 2005 report. Given 

the importance of these issues to decision makers and the transportation community, we decided to publish a 

separate report devoted exclusively to the results of the panel. We conducted the work to prepare this report 

from February through April 2005 according to generally accepted government auditing standards.

Following is a summary of the discussion among the panel participants. The summary reflects the major 

themes that surfaced at the panel, and we used boldface type in the report to highlight points that these experts 

emphasized. Appendixes II to VII contain an edited transcript of the panel’s discussion as well as subsequent 

comments received from the panelists based on a draft of this report. The views expressed by the panelists do 

not necessarily represent the views of GAO or the National Academy of Sciences. Appendix VIII contains a 

select bibliography and a list of related GAO products.

This report will be posted on our Web site at www.gao.gov. For additional information on our work related to 

transportation decision making, please contact Katherine Siggerud on (202) 512 2834 or at siggerudk@gao.gov.

Key contributors to this report are listed in appendix IX.
11

Several themes emerged as the panelists responded to the four major 

issues that we presented for discussion—(1) conceptualizing, 

(2) measuring, (3) improving, and (4) using information about the 

benefi ts and costs of highway and transit investments. Although the expert 

panel was not designed to reach a consensus on these issues or specifi c 

questions that we presented, a number of themes emerged from the panel’s 

discussion, as shown in table 1.

Table 1: Major Themes from the Expert Panel Discussion

• Benefi t-cost analysis can be a useful tool to inform transportation 

investment decisions. Benefi t-cost analysis can provide important 

information to transportation decision makers about transportation 

investments and a structure for discussing benefi ts and costs of 

alternative investments with public and private stakeholders. In 

particular, it provides an analytic framework that decision makers can 

use to consider a range of factors in a systematic manner and clarifi es 

what is and is not known about the impacts of a transportation project. 

However, efforts to increase the use of benefi t-cost analysis need 

to be tempered with the knowledge that the results of benefi t-cost 

analysis represent only one factor of many that are considered in 

investment decision making. Factors such as federal funding, public 

Highlights of the Expert Panel Discussion

Table 1: Major Themes from the Expert Panel Discussion

Benefit-cost analysis can be a useful tool to inform transportation 

investment decisions.

Transportation investments are not often compared across modes.

Requiring benefit-cost analysis can be useful if it is fully integrated

into the decision-making process and not seen as a compliance checklist.

Better analytic tools are needed to analyze land use and distributional

impacts of transportation investments.

Quality of state and local transportation data needs to be improved so that

travel models can accurately predict patterns, trends, and needs.

�

�

�

�

�

Source: GAO analysis of expert panel discussion.
12

comment, limitations imposed by existing infrastructure, and political 

considerations also influence investment decisions.6

• Transportation investments are not often compared across modes.

Alternatives in other modes are seldom systematically analyzed 

to determine how efficiently and effectively they could meet the 

transportation need. The highly compartmentalized structure and 

funding of federal highway and transit programs work against an 

advantage of benefit-cost analysis—the ability to evaluate how well 

alternative investments meet transportation problems. Separations 

between federal programs and funds give state, regional, and local 

agencies little incentive to systematically compare the trade-offs 

between investing in different transportation alternatives to meet 

passenger and freight travel needs because funding can be tied to 

certain programs or types of projects. In addition, the modal structure 

of federal programs gives rise to advocacy for specific modes or 

investments.

• Requiring benefit-cost analysis can be useful if it is fully integrated 

into the decision-making process and not seen as a compliance 

checklist. Since systematic analyses of the benefits and costs of 

highway and transit investments are not often conducted voluntarily,

7

requiring a benefit-cost analysis for new highway and transit 

investments could be useful. However, past experience with federal 

benefit-cost analysis requirements shows that they can either be 

treated in a pro forma way or “gamed” by the affected agencies. This 

experience indicates that mandates alone are not sufficient. Both 

incentives to conduct analysis and enforcement mechanisms would be 

needed to ensure that the analytic requirement is fully integrated into 

the decision-making process, thereby ensuring meaningful compliance. 

Experts noted that lessons can be learned from other federal analytic 

requirements. One expert also noted that the National Environmental 

Policy Act of 1969 (NEPA)8

 requirements are not typically manipulated 

because such manipulation could result in a lawsuit. 

• Better analytic tools are needed to evaluate land use and 

distributional impacts of transportation investments. Land use 

impacts are often major drivers of investment choices. However, 

benefit-cost analysis and other types of economic analysis usually 

pay limited attention to land use issues, in part, because land-use 

issues—as well as other indirect benefits—are difficult to estimate. The 

panel also highlighted the importance of taking into account which 

groups benefit from a project and which bear the costs. Although the 

distribution of transportation investments’ benefits and costs is an 

important local concern, it is frequently not considered adequately in 

the evaluation of a project’s benefits and costs.
13

• Quality of state and local transportation data needs to be improved 

so that travel models can accurately predict patterns, trends, and 

needs. Local and state transportation agencies require valid, reliable 

data in order to conduct analyses, including benefit-cost analysis. 

Yet, experts expressed concerns about the quality of local and state 

transportation data. Data quality is a pivotal concern in transportation 

modeling, as the available data provide critical input for travel models. 

For example, data about traffic flow throughout the day, rather than at 

a single time, are crucial to producing valid representations of travel 

needs and problems. However, reliable and complete data are not 

always available—which can result in forecasting errors. Collecting 

the data needed for modeling is growing more expensive and difficult. 

For instance, a home survey of travel habits, which identifies basic 

transportation needs and travel patterns of a region and is the 

foundation of transportation modeling, is now beyond most local 

transportation agencies’ annual budgets, according to one expert.
14

We contracted with the National Academy of Sciences (NAS) to 

convene a balanced, diverse panel of experts to discuss the use 

of benefit-cost analysis in highway and transit project decision 

making and gather views about options to improve the information 

available to decision makers. The NAS Transportation Research Board 

(TRB) identified potential panelists who were knowledgeable about 

benefit-cost analysis, transportation policy and planning, highway and 

transit use, and transportation decision making. We worked closely with 

TRB to select panelists who could adequately respond to our general and 

specific questions about conceptualizing, measuring, improving, and using 

benefit and cost information in investment decisions. In keeping with 

NAS policy, the panelists were invited to provide their individual views, 

and the panel was not designed to reach a consensus on any of the issues 

that we asked them to discuss. We also asked the panelists to submit 

two published articles related to the subject, which were disseminated 

to the audience the day of the panel. (See app. VIII for the list of articles 

submitted by the panelists.) 

The panelists convened at the National Academy of Sciences’ Keck Center 

in Washington, D.C., on June 28, 2004, after reviewing discussion questions 

that we provided in advance. To start the day, the panel moderator, Brian 

Taylor of the University of California, Los Angeles, provided an overview 

of the issues to be discussed; and during the remainder of the day, the 

panelists addressed the questions we had provided for their consideration. 

We did not verify the panelists’ statements, although we did ask the 

panelists, in some instances, to clarify certain details. The views expressed 

by the panelists do not necessarily represent the views of GAO or NAS.

After the expert panel was conducted, we used a content analysis to 

systematically analyze a transcript of the panel’s discussion in order to 

identify each expert’s views on key questions, and we used boldface type 

in the report to highlight points that they emphasized. We also used the 

content analysis to highlight principal themes that emerged from the 

panel’s discussion. To ensure that we accurately represented the panelists’ 

comments in our report, we provided each panelist the opportunity to 

review and comment on the edited transcript. We incorporated changes 

Appendix I: Scope and Methodology
15

or clarifications provided by the panelists to the draft report. Finally, 

we added endnotes to the transcript to define terminology used by the 

panelists, where appropriate, and to reference cited publications, laws, 

and programs.

The discussion summarized in this report should be interpreted in the 

context of two key limitations and qualifications. First, although we were 

able to secure the participation of a balanced, highly qualified group of 

experts, there are other experts in this field who could not be included 

because of the need to limit the size of the panel. Although many points of 

view were represented, the panel was not representative of all potential 

views. Second, even though GAO, in cooperation with NAS, conducted 

preliminary research and heard from national experts in their fields, a 

day’s conversation cannot represent the current practice in this vast arena. 

More thought, discussion, and research must be done to develop greater 

agreement on what we really know, what needs to be done, and how to 

do it. These two key limitations and qualifications provide contextual 

boundaries. Nevertheless, the panel provided a rich dialogue on the 

benefits and costs of transit and highway investments, and the panelists 

provided insightful comments in responding to the questions posed to the 

panel.

Participants in the expert panel included the following:

David J. Forkenbrock is Director of the Public Policy Center, Director 

of the Transportation Research Program, Professor in Urban and Regional 

Planning, and Professor in Civil and Environmental Engineering at the 

University of Iowa. His research and teaching interests include analytic 

methods in planning and transportation policy and planning. From 1995 

through 1998, Dr. Forkenbrock chaired a National Research Councilappointed committee to review the Federal Highway Administration’s 

(FHWA) Cost Allocation Study process. He is a member of the College 

of Fellows, American Institute of Certified Planners, and a lifetime 

National Associate of the National Academies. He is chairman of the TRB 

Committee for Review of Travel Demand Modeling by the Metropolitan 

Washington Council of Governments and a member of the TRB Committee 

for the Study of the Long-Term Viability of Fuel Taxes for Transportation 

Finance. In 2004, he received the first-ever TRB William S. Vickrey Award 

for Best Paper in Transportation Economics and Finance for his work on 

mileage-based road user charges. He received the Michael J. Brody Award 

for Excellence in Faculty Service to the University and the State, from 

the University of Iowa in 1996. He earned a Ph.D., from the University of 

Michigan; a Master of Urban Planning, from Wayne State University; and a 

B.A., from the University of Minnesota.

Jose A. Gomez-Ibanez is Derek C. Bok Professor of Urban Planning 

and Public Policy at Harvard University’s John F. Kennedy School of 
16

Government and Graduate School of Design. His research interests are 

primarily in the areas of transportation policy and urban development 

and privatization and regulation of infrastructure. He has served as a 

consultant for a variety of public agencies. His recent books include 

Regulating Infrastructure: Monopoly, Contracts, and Discretion; 

Regulation for Revenue: The Political Economy of Land Use Exactions 

(with Alan Altshuler); Going Private: The International Experience with 

Transport Privatization (with John R. Meyer); and Essays on Transport 

Policy and Economics (ed.). 

Ronald F. Kirby is Director of Transportation Planning for the 

Metropolitan Washington Area Council of Governments. He began his 

career in the United States as a Senior Research Associate with Planning 

Research Corporation. He joined the Urban Institute as a Senior Research 

Associate and became a Principal Research Associate and Director of 

Transportation Studies. He has served on several TRB committees and is 

currently a member of the TRB Executive Committee. He has a B.S. and 

a Ph.D., in applied mathematics, from the University of Adelaide, South 

Australia.

David L. Lewis is President and CEO of HLB Decision Economics.

His credits include a range of widely adopted applications in cost-benefit 

analysis, productivity measurement, risk analysis, and approaches to 

establishing public-private investment partnerships. He has authored three 

books, including Policy and Planning as Public Choice: Mass Transit 

in the United States (Ashgate Press), 1999. His past positions include 

Partner-in-Charge, Division of Economics and U.S. Operations, Hickling 

Corporation; Chief Economist, Office of the Auditor General of Canada; 

Executive Interchange Program and Principal Analyst, U.S. Congressional 

Budget Office, Congress of the United States; and Senior Economist and 

Director of the Office of Domestic Forecasting, Electricity Council. He has 

a Ph.D. and an M.S., in economics, from the London School of Economics; 

and a B.A., in economics, from the University of Maryland.

Michael D. Meyer is Professor of Civil and Environmental Engineering 

at the Georgia Institute of Technology. Prior to coming to Georgia Tech 

in 1988, he was the Director of the Bureau of Transportation Planning 

and Development at the Massachusetts Department of Public Works for 

5 years. Prior to his employment at the Massachusetts Department of 

Public Works, he was a professor in the civil engineering department 

of the Massachusetts Institute of Technology. His research interests 

include transportation planning and policy analysis, environmental 

impact assessment, analysis of transportation control measures, and 

intermodal and transit planning. He is a Professional Engineer in the State 

of Georgia, and a member of the American Society of Civil Engineers 

and the Institute of Transportation Engineers. He has chaired TRB’s 
17

Task Force on Transportation Demand Management, the Public Policy 

Committee, the Committee on Education and Training, and the Statewide 

Multimodal Transportation Planning Committee. He is a former member of 

the National Research Council policy study Panel on Statistical Programs 

and Practices of the Bureau of Transportation Statistics. Currently, he is 

a member of TRB’s Executive Committee and Standing Committee on 

Statewide Multimodal Transportation Planning.

Donald Pickrell is DOT’s Volpe Center’s Chief Economist. Prior 

to joining DOT, he taught economics, transportation planning, and 

government regulation at Harvard University. While at the Volpe Center, 

he also was a lecturer in the Department of Civil Engineering at the 

Massachusetts Institute of Technology. He has authored over 100 

published papers and research reports on various topics in transportation 

policy and planning, including transportation pricing; transit planning and 

finance; airline marketing and competition; travel demand forecasting; 

infrastructure investment and finance; and the relationships of travel 

behavior to land use, urban air quality, and potential climate change. He 

received his undergraduate degree in economics and mathematics from 

the University of California at San Diego; and Master’s and Ph.D. degrees, 

in urban planning, from the University of California at Los Angeles.

Kenneth A. Small is Professor of Economics at the University of 

California at Irvine, where he served 3 years as chair of the Department 

of Economics and 6 years as Associate Dean of Social Sciences. He 

previously taught at Princeton University and was a Research Associate 

at The Brookings Institution. He has written numerous books and articles 

on urban economics, transportation, public finance, and environmental 

economics. He serves on the editorial boards of several professional 

journals in the fields of urban and transportation studies and has served 

as coeditor or guest editor for four of those boards. In 1999, he received 

the Distinguished Member award of the Transport and Public Utilities 

Group of the American Economic Association. During 1999 to 2000, he 

held a Gilbert White Fellowship at Resources for the Future. He has served 

on two TRB policy study committees—the Committee for a Review of the 

Highway Cost Allocation Study and the Committee for a Study on Urban 

Transportation Congestion Pricing.

Brian D. Taylor (Moderator) is Associate Professor of Urban 

Planning and Director of the Institute of Transportation Studies at the 

University of California at Los Angeles as well as Vice-Chair of the Urban 

Planning Department. His research centers on transportation finance 

and travel demographics. He has examined the politics of transportation 

finance, including the influence of finance on the development of 

metropolitan freeway systems and the effect of public transit subsidy 

programs on system performance and social equity. His research on 
18

the demographics of travel behavior has emphasized access-deprived 

populations, including women, racial-ethnic minorities, the disabled, 

and the poor. He also has explored relationships between transportation 

and urban form, with a focus on commuting and employment access 

for low-wage workers. Prior to coming to the University of California at 

Los Angeles in 1994, he was Assistant Professor in the Department of 

City and Regional Planning at the University of North Carolina at Chapel 

Hill. Prior to that, he was a Transportation Analyst with the Metropolitan 

Transportation Commission in Oakland, California.

Martin Wachs is Professor of Civil and Environmental Engineering 

and City and Regional Planning, and Director of the Institute of 

Transportation Studies at the University of California at Berkeley. He 

was formerly Professor of Urban Planning and Director of the Institute 

of Transportation Studies at the University of California at Los Angeles 

where he served three terms as Head of the Urban Planning Program. 

Dr. Wachs’ research interests include methods for evaluating alternative 

transportation projects; relationships among land use, transportation, and 

air quality; and fare and subsidy policies in urban transportation. Most 

recently, he chaired the TRB policy study Committee for the Study on 

Urban Transportation Congestion Pricing. He is past Chairman of the TRB 

Executive Committee. Dr. Wachs holds a Ph.D., in transportation planning, 

from Northwestern University.
19

DR. TAYLOR (Moderator): 

To examine the use of benefit-cost analysis in transportation decision 

making, the panel will examine four issues– conceptualizing the benefits 

and costs of transit and highway investments; measuring benefits and 

costs; improving benefit-cost analysis as an evaluation tool; and using 

benefit-cost analysis to inform public decisions. Two panelists will offer 

comments to begin the discussion of each issue. 

A key question is implied in these four major issues that GAO asked the 

panel to discuss: Why does benefit-cost analysis play a relatively limited 

role in transportation decision making? I see three possible answers:

• it's the wrong analytical tool– we have other, better tools for this 

purpose;

• it's the right tool, but often improperly applied; or 

• it's the right tool, but hard to apply – in other words, we need better 

data, a more sophisticated application of this tool, or a more formal 

incorporation of this tool into decision making. 

Regardless of what may explain the relatively limited role of benefit-cost 

analysis in transportation decision making, there are at least four unstated 

premises to this issue that warrant reflection:

• first, that transportation investments sometimes are misguided;

• second, that improper evaluations or failure to conduct evaluations 

have played a role in misguided investments;

• third, that improved analyses can better inform transportation 

decision making (or, put another way, if decision makers have better 

information, it will be harder for them to make bad decisions); 

• and fourth, that better informed decision making can reduce the 

number of misguided transportation investments. 

Brian D. Taylor

is an Associate 

Professor of Urban 

Planning and Director 

of the Institute of 

Transportation Studies 

at the University of 

California at Los 

Angeles as well as ViceChair of the Urban 

Planning Department.

Appendix II: Overview of Expert Panel and Opening Remarks
20

Collectively, these premises suggest links between information, evaluation, 

and decision making that are far from settled in my view. The panel faces 

an important question: 

Will public officials actually find better, more transparent 

evaluations of the transportation merits of proposed 

projects “threatening” to the current, well-established 

processes of transportation decision making?

I would contend that benefit and cost comparisons do, in fact, guide all 

public investments in transportation, but not in the way that students of 

benefit-cost analysis might expect. In practice, such comparisons center 

on geopolitical benefits and costs—that is, they concern bargaining by 

elected officials over the distribution of limited public resources.

In such a world, transportation benefits and costs are secondary. Thus, 

geopolitical benefits and costs trump consideration of transportation 

benefits and costs, so that programs and projects become the ends of 

public investments, rather than means to transportation ends. 

Further, the rise of legislative earmarking,9 which bypasses many 

evaluation processes, increases the extent to which concerns over

geopolitical distribution of benefits and costs trump transportation project 

analyses. 

• ISTEA in 1991 included earmarks for 40 rail transit projects.

• TEA-21 in 1998 increased the number of earmarked rail transit projects 

to 191, many of which were in places not normally viewed as ideal 

environments for rail investments.

• All three versions of legislation pending in Congress in June 2004 

to reauthorize surface transportation programs contain significant 

increases in earmarking over TEA-21.

Why the earmarking? First, earmarking bypasses evaluation processes 

that vest bureaucrats with significant authority over transportation 

investments. Second, most (though not all) earmarks are capital projects 

that provide good “ribbon-cutting” opportunities, and attendant media 

attention, for elected officials. Further, projects like new rail transit lines, 

highway bypasses, and maintenance facilities generate local economic 

benefits that are clear and unambiguous to both public officials and the 

people who elect them. But while earmarked projects may be the products 

of a careful geopolitical calculus, they may provide few transportation 

benefits in relation to their costs. Our goal is to recognize, and separate, 
21

our consideration of these two effects—political and transportation—in 

analyzing the benefi ts and costs of public investments in transportation.

Elected offi cials and transportation analysts think about 

transportation investments in different ways, and this is the source 

of confl ict about analytical techniques. Transportation analysts 

and economists have long advised us to focus on the transportation

effects of public investments, and not on the expenditure effects of such 

investments. The former concern whether and how public investments 

lower transportation costs—such as by reducing congestion, increasing 

safety, reducing emissions, etc.—and the latter concern the direct effects 

of spending public dollars to hire construction workers, pay truck drivers, 

and so forth. Indeed, most analysts would argue that transportation 

investments should be judged, fi rst and foremost, on how they reduce 

transportation costs, rather than on their local expenditure effects. Such 

transportation benefi ts make it cheaper to produce current goods and 

services, make new forms of goods and services possible, and benefi t the 

economy by lowering transportation costs for system users and society at 

large, as described in table 2.

Table 2: Differing Views of Transportation Investments

For transportation analysts, the redistributive effects of expenditures 

are largely a zero sum game. Although transportation expenditures 

can generate signifi cant local economic activity, much of it is simply 

redistributed from other taxpayers and places that lost out in the 

geographic competition for subsidy dollars. From this point of view, policy 

makers are simply missing the point when they focus almost exclusively 

on the local expenditure effects of transportation investment decisions.

Despite such admonitions from analysts, however, many elected offi cials 

and other policy makers view the transportation effects of public 

investments as abstract, arcane, and arbitrary. While a new freeway 

ramp metering project might smooth traffi c fl ows, which in turn lower 

“Will public offi cials 

actually fi nd better, 

more transparent 

evaluations of the 

transportation 

merits of proposed 

projects threatening 

to the current, wellestablished processes of 

transportation decision 

making?” 

Table 2: Differing Views of Transportation Investments

Source: Dr. Taylor's presentation at GAO's June 28, 2004, expert panel.

Elected Officials – 

Expenditure Effects

Analysts/Economists – 

Transportation Effects

Focus on how resources are

collected from and distributed to

jurisdictions, and, in the process,

how these resources redistribute

economic activity among

jurisdictions.

Focus on how transportation

improvements stimulate economic

activity by lowering transportation

costs, which allows current activities

to be accomplished less expensively

and makes new activities

economically feasible.

- Dr. Taylor
22

production costs for a particular set of firms, which in turn increase 

sales, which in turn add to total employment, such effects are difficult 

to unambiguously link to the highway investment. In contrast, the 

consequences of the public expenditures on transportation projects in a 

given congressional district are clear and unambiguous—dollars get spent, 

projects get built, people get hired. New highways and transit investments 

are dramatic and highly visible and generate economic activity, especially 

during construction. That much of this activity is simply shifted from 

taxpayers in other jurisdictions is almost beside the point to most elected 

officials.

For most elected officials responsible for transportation taxation and 

spending, the overriding concern is with the equity of transportation 

funding among states, districts, and jurisdictions. Concerns over 

who pays and who receives are paramount. This concern ensures a 

political focus on the expenditure effects of transportation investments 

and makes it all but impossible for elected officials to consider the 

transportation effects of investments. From the perspective of most 

public officials, it’s the transportation analysts and economists who miss 

the point by focusing on transportation effects and tools like benefit-cost 

analysis in making investment decisions. A Member of Congress from 

a western state, for example, may find a study showing that rail transit 

investments in a densely developed, older east coast city are likely to 

yield far greater transportation benefits than those in his/her city all but 

irrelevant to debates over the equitable geographic distribution of federal 

transportation funds.

These divergent views pose several related questions:

• How do public officials view the benefits and costs of transportation 

benefit-cost analyses? Are transparent evaluations of transportation 

benefits seen as conflicting with and a direct threat to the geopolitical 

logic of political bargaining? If so, does this conflict explain why many 

benefit-cost analyses are conducted after the fact to gather evidence to 

support decisions, and why many analyses are of an already preferred 

alternative and some straw men? In my experience as a metropolitan 

planner during the 1980s, it was evident that alternatives were selected 

very carefully to ensure that they would not be too effective in 

competing with the clearly preferred alternative.

• If public officials perceive benefit-cost analyses as shifting decisionmaking power and authority to analysts, does this help to explain 

some of the criticisms leveled against the technique? For example, 

unpopular benefit-cost analyses frequently are dismissed for excluding 

factors that are difficult to measure. While such criticism may be 

well founded, the results often are not very sensitive to the excluded 
23

factors. But, this frequently is lost in “attack and defend” debates over 

unpopular analysis results.

• How can we cope with deep conflicts over what constitutes good 

transportation systems and good cities? While most transportation 

analysts see lowering transportation costs (both for travelers and 

shippers, and for society at large) as a principal objective, many 

transportation activists and environmental advocates view declining 

transportation costs as a problem. This is a vexing, often unspoken 

issue that underlies many debates over benefit-cost analyses.

• Can evaluations focus more on clearly defined problems and 

less on solutions to poorly defined problems? Analysts rarely are 

asked to generate and evaluate alternative approaches to address 

a transportation problem in the current project-focused political 

climate. Instead, they usually are asked to evaluate/compare poorly 

defined solutions—rail transit, increased highway capacity, high 

occupancy vehicle (HOV) lanes, or bus rapid transit—to poorly defined 

problems.10
24

Opening Comments by Dr. Lewis and 

Dr. Wachs

DR. LEWIS:

There are two key points about conceptualizing benefi ts and costs.

• Analysts and economists need to help decision makers look at their 

choices, including highway versus transit choices, on a level playing 

fi eld—something we palpably lack today.

• We should reinvent benefi t-cost analysis so that it facilitates decision 

by discussion. Benefi t-cost analysis needs to shift from a study 

presented in a report and delivered by remote experts who stand aloof 

from the decision-making process to a facilitated analysis framework 

in which stakeholders can participate in formulating values.

Decision makers have many single choices or combinations of 

choices, yet we rarely help them to look at their choices on a 

level playing fi eld. As Dr. Taylor pointed out, decision makers very 

rarely and certainly never systematically ask for—nor do analysts 

provide—a comparative analysis of the payoffs associated with 

David L. Lewis is 

President and CEO 

of HLB Decision 

Economics.

Appendix III: How Should We Think About Transportation 

Benefi ts and Costs?

GAO Questions:

• What types of benefits and costs are associated with public

investments in transit and highways and how should they

be reflected?

• What types of externalities are associated with these

investments?

• What is known about cross-modal comparisons at the national,

state, and/or local levels?
25

investment alternatives. These may be alternatives in design, scope, 

or mode pricing and various other alternatives. These also may be 

investments in education, health, or even tax reductions. Nor are 

alternatives analyzed in relation to timing—a consideration because 

there are many good projects whose time has not come. When 

Dulles Airport opened in 1963 it was empty. Today, it is unbelievably 

crowded. (See fig.1 for passenger traffic trends at Washington Dulles 

International Airport.)

Figure 1: Passenger Traffic at Washington Dulles 

International Airport, 1962 to 2004

Dulles Airport was empty for the first 25 or 30 years of its life. Does that 

mean we were visionary in anticipating the huge crowds that would 

ultimately use it? No. We could have used those billions of dollars (in 

current prices) in much better ways in the meantime and still have beaten 

inflation by a lot in building the facility 20 or 30 years later. There are 

alternatives in scope, design, and time and ways to compare alternatives.

Everybody understands and is generally comfortable with Return on 

Investment (ROI) calculations.11 Any and all options and combinations 

can be boiled down to their ROI’s. Decision makers could be treated to a 

clear, honest portrayal of a “risk-adjusted” comparative ROI of widening a 

highway versus building a light rail line down the corridor, versus doing a 

bit of both, versus doing nothing, versus delaying bits and pieces of it, etc. 

Maximizing ROI is a good, very accessible way for most decision 

makers and stakeholders to appreciate how alternatives differ.

0

5

10

15

20

25

Year

Number of passengers in millions

1962196519681971197419771980198319861989

1992

1995

19982001

2004

Source: GAO presentation of data from the Metropolitan Washington Airports Authority.

“Benefit-cost analysis 

needs to shift from a 

study presented in a 

report and delivered 

by remote experts 

who stand aloof from 

the decision-making 

process to a facilitated 

analysis framework 

in which stakeholders 

can participate in 

formulating values.” 

- Dr. Lewis
26

Second, benefit-cost analysis needs to shift from studies delivered by 

remote experts who stand aloof from decision making to reinventing 

benefit-cost analysis as a means of facilitating decision by 

discussion.

We analysts take fundamental values—the value of human life, the value 

of reducing environmental emissions and greenhouse gases, the value of a 

job—as data. We have sophisticated techniques for measuring how people 

feel about things and expressing those feelings in the form of people’s 

willingness to pay monetary equivalent values by empirically measuring 

transactions in the marketplace and through survey data. But these values 

are not data. Some modern economists and philosophers, like Amartya 

Sen,12 argue convincingly that discussion is the melting pot in which 

values tend to form. Analysts and economists can help the public, decision 

makers, and stakeholders discuss values by using benefit-cost analysis 

as a powerful framework and facilitation tool. Welfare economics13 has 

provided an incredibly powerful way of thinking that people drink up 

when it’s presented to them in a digestible format.

The conceptual benefits and costs of transportation solutions to 

congestion, development, and mobility and the macroeconomic effects 

of these solutions on jobs, income, and the tax base—including the 

redistributional or expenditure impacts that Dr. Taylor discussed—can 

be laid out to enable people to discuss things in a logical, reasonable way. 

This process can help isolate the minority who wish to game the system 

or bend the discussion to suit a particular outcome. Economic analysis, 

benefit-cost analysis, welfare economics—whatever you want to call it—

brings reason to a debate if it is transformed into a facilitation tool.

DR. WACHS:

Two examples from California show the different poles at which benefitcost analysis is being discussed and used.

First, the California Department of Transportation (CALTRANS) provides 

a benefit-cost analysis template on its Web site. It assists local planners 

and decision makers with problems at the project level—an intersection, 

a small corridor, something in a metropolitan area, or a grade crossing. 

Project alternatives can be evaluated using CALTRANS’s list of benefits 

and assumptions about the value of time, of a life, of property damage, 

of accidents, etc. It is possible to get an answer about the benefits of 

highway widening versus traffic signal timing improvement options. It is 

very useful to compare alternatives when you have limited resources and 

can approach decision making with an analytical framework that is readily 

available on line.

However, enumerating benefits (such as time savings, which often is the 

largest benefit category) raises enormous questions and important 

Martin Wachs is 

Professor of Civil 

and Environmental 

Engineering and 

City and Regional 

Planning, and Director 

of the Institute of 

Transportation Studies 

at the University of 

California at Berkeley.
27

assumptions that require answers. Do we believe that non-work and 

work travel should have the same value of time? We may not believe 

that they should, but we make assumptions and operationalize these 

assumptions on the Web site. Do we see the value of time as linear or 

nonlinear with respect to the amount of time saved? I do not—I cannot 

usefully use one minute saved in the same way that I can use 20 minutes 

saved. Do rich and poor people have the same value of time? I think 

not. Do we believe that the value of an old person injured or killed in an 

accident is the same as the value of a young person? Yet, these important, 

implied questions are addressed by assumptions and set aside for the 

purpose of analysis. At the narrow scale of an intersection or a mile, this 

does not do much harm.

The second example from California is that benefit-cost analysis is being 

advanced as the appropriate way to debate a major state public policy 

issue. The question is whether California should build a high-speed rail 

system among San Diego, Los Angeles, the San Francisco Bay Area, and 

Sacramento at a cost of about $35 billion and 30 years to build. Voters 

will be asked to tax themselves by voting on a statewide proposition. The 

high-speed rail debate, couched in benefit-cost analysis terms, is highly 

politicized. Proponents state that the project will provide enormous time 

and travel time savings for high-speed rail users and car and air travelers, 

based upon assumptions about the growth of car and air travel over the 

next 20-30 years. Some say it will achieve smart growth by concentrating 

new community development for a population growth of 30 million people 

in these corridors, preserving open space, and reducing development and 

preserving agricultural land outside of these corridors. What does this 

really mean? Are there really large transfers involved? If one saves time 

using one mode, is this somehow a net saving for the state or a transfer of 

benefits from one system to another, one set of users to another, and/or 

one geographic area to another? We’re told that one enormous benefit will 

be reduced air pollution and energy consumption. But Dr. Forkenbrock’s 

article asks whether this is actually a secondary effect of travel time 

savings.14

How can we conceptualize the difference between costs that will accrue 

to those who use highways, air transportation, and rail 30 years from now 

aside from making rather heroic assumptions? Are we not saying it is the 

secondary effect that is very important in policy terms—the secondary 

effect of the principal effect? Isn’t that all an artifact of the assumptions 

that we make? I have no difficulty making assumptions when I am 

comparing one intersection configuration to another because assumptions 

are necessary to get useful outcomes. Here, assumptions are being made 

about matters of such enormous ethical, moral, and political consequence 

that I am much more uncomfortable saying that benefits exceed costs by 

a substantial margin, as proponents say. Their argument is based upon 
28

assumptions that are reasonable if you are a proponent, but not reasonable 

if you are an opponent. This argument is entirely about redistribution, but 

the benefit-cost analysis is entirely about the benefits to whomsoever they 

accrue, while the total cost is borne by every state citizen.

Dr. Lewis said in the paper he shared with us that the benefit-cost 

framework enables us to have a debate because it facilitates dialogue.15

But at what level? It does so at the intersection or corridor level where you 

might have bus rapid transit versus standard bus transit. But does the 

benefit-cost framework confound or clarify the dialogue about an 

enormously important statewide project? Can we focus on making 

benefit-cost analysis more transparent and useful so that it plays 

a positive role in such debates? Currently, benefit-cost analysis 

appears to be limiting rather than enhancing this debate.

Panel Discussion

DR. SMALL: Dr. Wachs’s last remark raises the question of why highspeed rail proponents have couched their arguments in benefit-cost 

analysis terms, particularly if the analysis is overshadowed by politics or 

other considerations. If we can decide why other people are using benefitcost analysis, perhaps we can figure out how we might structure it to make 

better decisions.

DR. MEYER: Conceptualizing benefits and costs depends on 

scale. At the intersection or perhaps corridor levels, benefit-cost analysis 

is a very important force in decisions. The benefits and costs are quite 

clear, but the congressional earmarking level is off this scale. My state 

and metropolitan government experience has indicated that geographic 

distribution and political considerations increase as the scale increases. 

We need to be careful in presenting benefit-cost analysis as the 

primary tool for determining trade-offs, because it is only one 

piece of information in decision making at a higher scale. In fact, 

cost effectiveness may be preferable to benefit-cost analysis.

DR. LEWIS: I disagree. The question of scale is a red herring

because you can find benefit-cost analysis—not necessarily great 

applications of it—conducted at huge scales. The Three Gorges Dam, 

which changed the lives of millions of people along China’s Yangtze River, 

became the framework for a great deal of political and divisive discussion. 

It was not a paragon of benefit-cost analysis and should have been done 

much better, according to many critics. But it did not cause controversy 

because of anything inherent in benefit-cost analysis theory or practice.

Benefit-cost analysis is something we offer to help people to think 

through problems at any scale. If we lose political reality in doing that, 
29

it is because we are not looking at the options, alternatives, and complex 

policy arrangements that people want to include in benefit-cost analysis. 

Nothing about benefit-cost analysis limits the scope or range of 

choices that we look at—including comparing a rail system from Los 

Angeles to San Francisco to options that would reconcile the losses 

or redistributional problems that people far from the Los Angeles/San 

Francisco corridor might perceive.

DR. TAYLOR: Does the definition of potential benefits change or evolve 

at higher scales? 

DR. LEWIS: What changes are functions of the scope, policy 

dimensions, and range of choice. The problem with California’s high-speed 

rail analysis is that it is not compared to a baseline of not having that 

investment. Since many other things could happen to those transportation 

dollars, this should be explicit.

DR. KIRBY: Dr. Lewis’s notion of benefit-cost analysis as an 

instrument of discursive democracy in the paper he shared with us 

is a truly valuable concept and a very constructive way for us to 

bring these techniques into decision making. Benefit-cost analysis 

is about more than just informing discussion—it also is about facilitating 

a decision. I also liked the statement that the objective of discursive 

democracy is to reach consensus without minority dissent, but I feel 

less optimism about that. In many major and even smaller projects, we 

have minority dissent that does not preclude a decision to move forward.

Lawsuits also may affect decisions, but that is the nature of the process. 

Good analysis and communication with the public could resolve a lot of 

issues through facilitation and discussion.

A major project to widen Washington’s Wilson Bridge is an example of how 

information and facilitation can help get people on the same page about 

a problem. (See fig. 2 for photographs of the Woodrow Wilson Bridge 

Project.) In this instance, opposing views of the problem were resolved 

by simply looking at the data. A citizen group was determined that the 

solution to congestion was building another bridge to handle all Miami 

to Boston truck traffic. This posed the empirical question—what is the 

composition of traffic on the Wilson Bridge? Data from our consultants, 

models, surveys, and counts indicated that trucks were only 15 percent of 

bridge traffic. Only 4 percent of trucks were coming into the region and 

exiting at the other end of the region. The other 11 percent were trucks 

doing business here, with one origin or destination in the region—often at 

a local grocery store. The citizen group reacted with disbelief and decided 

to do its own traffic count. At the next meeting, they agreed with our data 

and our conclusion that this was primarily local traffic and very much a 

local issue. 
30

Figure 2: The Woodrow Wilson Bridge Project

DR. WACHS: This relates to the scale debate because it occurred at the 

scale of an individual bridge and there was something to count. It was very 

relevant to the success of the technique in this deliberative, democratic 

setting. If the debate were about the benefits of high-speed rail versus 

airport expansion over 40 years, could the citizens have done the same 

thing?

DR. KIRBY: It definitely would be more difficult—especially in the 

longer term. Regarding scale, it is very often the project’s nature rather 

than scale that determines the degree to which different groups are 

engaged. A left turn lane to improve safety can be as contentious as a 

major highway if it moves traffic onto a local street. It will bring the 

neighbors out. A huge highway interchange project—hundreds of 

millions of dollars—in our metropolitan area generated virtually no public 

comment. This was because the project had virtually no local impact. Vast 

amounts of land around the interchange already were owned, and there 

were only a few houses that owners did not mind leaving that needed to 

be demolished. It is really a question of the impacts and whom the impacts 

affect. It just depends on the situation, as Dr. Meyer said.

However, the idea of discursive democracy is relevant. Objectively 

presenting data analysis can help people focus on real issues, as 

opposed to arguing about unrealistic issues, even in longer term decisions. 

DR. GOMEZ-IBANEZ: I echo Dr. Kirby’s comments and make two 

points. First, Dr. Small raised one of the most interesting questions—why 

do proponents of California’s rail transit system justify it by benefit-cost 

analysis when it is so hard to do a benefit-cost analysis of something so 

large and long-term? It may reflect the appeal of systematic thinking 

and rationality in modern Western culture, i.e., if you propose to 

The Woodrow Wilson Bridge Project is a 7-1/2 mile corridor that begins in Maryland and connects to 

Virginia by a bridge over the Potomac River. The project consists of the replacement of the existing 

Woodrow Wilson Bridge, among other things. Pictured on the left: Traffic crosses the existing 

structure as the new bridge rises in October 2004. Pictured on the right: One of two V-shaped piers 

that will support the draw span of the new bridge is constructed in December 2004.

Source:Woodrow Wilson Bridge project.
31

spend $35 billion, you should have good reasons that you can explain. 

This is a very important, powerful leverage. It means that people are 

open to the challenge of making explicit their assumptions in thinking 

that this $35 billion investment is viable or in the public interest. They 

must appeal to something beyond parochial self-interest. Their appeal 

essentially must be similar to benefit-cost analysis—benefits to society will 

be larger than costs.

Second, I agree with Dr. Kirby that scale does not mean less 

controversy, but also with Dr. Wachs that the broader the scale, the 

more difficult it is to apply benefit-cost analysis and reach a single 

number with confidence. This does not mean that benefit-cost analysis 

or something like it is not extremely helpful at a large scale. The California 

rail transit program requires listing and thinking systematically about a set 

of assumptions. 

• Is it true that you would concentrate all the growth in this corridor?

• What does our experience suggest—is rail transit enough or is highspeed rail better?

• What are the benefits of Smart Growth?16

• Since one benefit usually is reducing air pollution, would the project 

result in less driving?

• Would it lead to less local infrastructure?

• What does the literature say?

• Are we going to save $35 billion on cheaper sewers, sidewalks, and 

narrower roads or not?

Although you might not be able to reduce the discussion to a single 

benefit-cost ratio or internal rate of return, you would force both sides to 

be systematic about the assumptions that they are making and focus the 

discussion in an extremely helpful way.

One thing that discredits benefit-cost analysis is that it does not 

pay much attention to the land use effects of major transportation 

capital investments. There may be enormous benefits from 

density or sprawl, depending on your side of the argument. But 

transportation planners do not join that debate because they 

have such poor tools for forecasting the land use effects and they 

find it hard to adapt benefit-cost analysis to that context. They 

understand the travel time savings, but how should we think about the 

“One thing that 

discredits benefit-cost 

analysis is that it does 

not pay much attention 

to the land use effects of 

major transportation 

capital investments...

transportation planners 

do not join that debate 

because they have 

such poor tools for 

forecasting the land use 

effects and they find it 

hard to adapt benefitcost analysis to that 

context.”

-Dr. Gomez-Ibanez
32

land use impacts? Are land use impacts just a reflection of the travel 

time savings? If infrastructure is under-priced, should it be? Doing more 

land use evaluation of transportation investments rather than straight 

transportation evaluation would help because it would force an open 

discussion about the assumptions on both sides.

DR. FORKENBROCK: I agree and would build on these points with 

three words—visioning, scale, and assumptions. Visioning is the key.

• What do we want our community to become?

• What do we want our region to aspire to?

• What sorts of economic progress are we pursuing through the project 

being considered?

In Lewis Carroll’s Through The Looking Glass, one character asked 

another, how do I get there? The other character said, where do you want 

to go? Well, I don’t know. Then how do you expect me to tell you how to 

get there? This is a difficult problem with benefit-cost analysis, i.e., what 

do we want our city to become? What urban form do we aspire to? If we 

spend all our time on the “big three measures”—the value/reliability of 

travel time, safety, and vehicle operating costs—we can miss the whole 

point. We can get a nice benefit-cost ratio for the wrong project. It is 

something we have to worry a great deal about.

Getting things right is a function of scale. It is much easier to vision what 

will happen with a left turn lane than with Boston’s Central Artery or some 

other very large project that will have a big impact on urban form, travel 

patterns, activity patterns, and quality of life. (See fig. 3 for photographs of 

Boston’s Central Artery Project.) Questions about the valuation of external 

costs or the effects on air quality in an area, or about putting a value on air 

quality changes versus travel time saved, all bring us back to scale. 

We should spend more time identifying the problem and less time 

analyzing the wrong problem, especially as we get into big projects. Once 

we have done that, we need to worry about assumptions and attaching 

values to key parameters. This follows the major point on visioning. What 

are we trying to accomplish? What will be the long-term effects? 

DR. LEWIS: I sense at least two broad questions on the table: what is 

the nature of benefit-cost analysis and what is the nature of transportation 

benefits and costs? They are two different questions—both are very 

operational, practical, and important questions.
33

Figure 3: Boston’s Central Artery/Tunnel Project

There is no reason why the answer to the first question cannot be that 

benefit-cost analysis is technically broad enough to frame a discussion 

about the kind of community we want, rather than, given the kind of 

community we want to be, which option is the most efficient and cost 

effective to get us there. Benefit-cost analysis is a framework to think 

about big questions. When it is all done, the accuracy of numbers 

becomes less relevant than the framework or the fact that a 

community has been able to systematically work through enough options 

to take a course of action that commands some broader support.

But what is the nature of benefits and costs? We are hearing that in 

addition to traditional time, reliability, and safety effects, other effects 

have value and benefit-cost analysis is remiss in not dealing with them. If 

it is hard to predict the effect of a transportation program or project on 

achieving a land use outcome that the community values, then benefit-cost 

analysis is a good framework for admitting that the decision you take or 

delay has the following risks and rewards and that there are things we do 

and do not know. Benefit-cost analysis gives us a frame within which 

to logically address any and all of the effects to which we attach 

value, both positive and negative, and their costs and benefits.

DR. TAYLOR: What would happen if there is such profound 

disagreement about the visioning that Dr. Forkenbrock discussed that 

there is essentially a tacit agreement to disagree, and individual projects 

that collectively may be at odds with one another are pursued to satisfy 

 “Benefit-cost analysis 

gives us a frame within 

which to logically 

address...effects to 

which we attach value...

and their costs and 

benefits.” 

The Central Artery/Tunnel Project replaced the six-lane elevated highway (Central Artery Highway) that

ran through downtown Boston, MA, with an eight-to-ten lane underground expressway directly beneath

the existing road. The project spans almost 8 miles of highway, about half in tunnels.

Source: Central Artery/ Tunnel Project.

-Dr. Lewis
34

different groups? For example, some may want a compact, transit-oriented 

city and projects that make sense on those merits. Others may want 

single -family detached dwellings outside of town and to drive cars and 

projects to pursue that. 

DR. GOMEZ-IBANEZ: Where I disagree and think Dr. Small’s earlier 

comment has power is that proponents of different viewpoints usually 

see the need to explain their position—it may be why a compact city is 

desirable or why sprawl is desirable—in terms that you can test. This 

may be whether a more compact city generates less pollution, has less 

infrastructure expenditures per capita, etc. Sprawl proponents say sprawl 

will result in lower housing prices and more housing choices. Those are 

testable propositions. People feel they should have reasons for their 

positions, and benefit-cost analysis offers a way to structure the debate 

that Dr. Lewis wants.

DR. KIRBY: Land use impacts are absolutely critical. One reason 

for conflict between local transit project proponents and the Federal 

Transit Administration (FTA) is that proponents (e.g., the transit agency, 

local politicians, and land developers) have land use development goals. 

But when they go to FTA, these groups are supposed to explain how 

they are saving travel time and cost, which can be expressed in terms of 

“generalized time savings.” A lot of creative work is done to turn a land 

development project into a travel time savings project. This is where a 

lot of technical conflict arises. FTA now requires a procedure that tacks a 

travel time savings component on the end of a four step modeling process. 

However, it has a problem dealing with land development impacts, as the 

following examples illustrate.

A new rail station in the Washington region is going into an 

old, dilapidated warehouse area where the current land use 

forecast predicts no activity. This station will stimulate much 

new development (evidenced by the fact the developers are paying 

one-third of the station’s cost). But we are told that the same land 

use forecast is needed to evaluate both alternatives—building 

the station and not building the station. This is somewhat 

problematic. 

Building commuter rail lines is another example. A transit user 

moves to a distant suburb and takes commuter rail, thereby 

substantially increasing the user’s transit costs and trip time. 

It seems unreasonable, but actually this is a true benefit of the 

commuter rail project. From the regional perspective, focusing 

development along these transit corridors offers choices and is 

what we are trying to do. Yet, this does not match up with FTA’s 

evaluation criteria, which are overly focused on travel time 
35

benefits and used to compare projects around the country. That is 

a real glitch in this process and one of many conflicts.

DR. TAYLOR: Panelists seem to be saying that analytical tools 

do a poor job of addressing a range of benefits that are central 

to local concerns and local decision makers. Is there a fundamental 

problem emerging in applying these tools?

DR. KIRBY: Absolutely. Tools that are being mandated from the top are 

not always appropriately applied. For example, DOT lists 13 environmental 

streamlining projects around the country to be moved expeditiously 

through the environmental process to demonstrate that you should not get 

bogged down with paperwork. One that got through the process recently 

was blocked in court because the Environmental Impact Statement (EIS)17

process did not address the land use impacts of a circumferential roadway 

proposed in the project. Despite the project having gone through the 

entire federal review and approval process, some local groups felt that 

the land development impacts of this project were adverse. They readily 

identified an EIS provision on secondary and cumulative impacts and went 

to court. The judge basically said he would defer to the Federal Highway 

Administration (FHWA), unless a legal requirement was not addressed. 

He concluded that secondary and cumulative impacts were not addressed 

and stopped the project. It is a technical process failure when a special 

streamlined project goes through formal review and is blocked in court for 

what appears to be a very valid reason.

DR. SMALL: I endorse the idea that land use is a major category that 

is omitted in benefit-cost analysis. The difficulty is that analysts worry 

about not double-counting benefits and distinguishing between transfers 

of benefits and real net benefits. Land use involves considerable transfers. 

It goes to Dr. Taylor’s point that you are in the middle of everybody’s selfinterest and their effort to get their piece of the pie when you talk about 

land use. So, land use arguments that are couched in terms of benefits 

are difficult to distinguish from the transfers of benefits. That is where 

analysts could help. While we do not have great tools for doing this, we 

understand some things about agglomeration18 and its value as well as 

positive and negative externalities from one parcel of land to a neighboring 

one.19 Improving benefit-cost analysis to distinguish between the 

net benefits and transfers deserves attention.
36

Summary of Panel Responses to Audience 

Questions

What is the effect of transit—particularly rail transit—on 

reducing congestion and on land use? 

• Dr. Lewis said that unlike highway travel times, which slow as more 

people use the system, transit travel times remain similar regardless of 

the number of people using the system due to transit’s fixed schedules; 

this creates congestion stability rather than reducing congestion. He 

added that the level of benefits created through this stability varies. 

• Dr. Small noted that transit can (a) encourage consolidation of 

employment in a downtown area and (b) enable people to live further 

out and travel downtown along the transit corridor. In contrast, he 

said highways encourage residents and employment to spread out 

to the countryside. He added that a model might show that transit 

would be good for downtown employment and suburban residences, 

whereas highways would tend to encourage suburban employment and 

residences.20

• Dr. Pickrell added that all rapid transit capacity investments therefore 

promote decentralization—at least of residences. He said that the 

conventional thinking that transit will create more urban area density 

or that highways will promote decentralization is incorrect.

When comparing highway versus rail benefits for both freight and 

passengers, what additional user benefits—beyond travel time 

savings—and additional costs do we need to consider?

• Dr. Forkenbrock mentioned a number of issues related to freight 

transportation investment, 21 including (1) whether in some 

circumstances it can make sense to invest in truck-only lanes on 

interstates and major highways, (2) whether states can invest in rail to 

reduce the need for investment in facilities that serve trucks, (3) the 

concern of the business community that a rail system for freight would 

need to have a comparable arrival time reliability as trucking, when 

the trucking industry is one of the most competitive industries in the 

country while rail is exactly the opposite; and (4) the lack of data to 

create a good investment analysis comparing the two modes. 

• Dr. Pickrell said that there is a whole separate category of freight 

benefits from the construction and use of highway infrastructure. 22
37

• Dr. Lewis conjectured that highway network improvements could 

encourage freight shippers to reorganize their production and logistics 

technology, resulting in a gain in productivity and a net gain in Gross 

Domestic Product (GDP).23

• Dr. Forkenbrock stressed that trucks do not pay their full cost 

responsibility for operating on the road and that if billions of dollars 

are to be spent on truck-only lanes, it would be better to have a proper 

pricing mechanism upon which to base those decisions.
38

Opening Comments by Dr. Small and 

Dr. Pickrell

DR. SMALL: I would like to raise some problems that are likely to 

generate a discussion of techniques for measuring costs and benefi ts:

• Measuring the value of life.

• Measuring how benefi ts and time vary with income.

• Identifying the real decision being analyzed.

The fi rst problem is measuring the value of life. Dr. Pickrell gave us a 

reading on DOT’s guidance on the value of life and time, showing 

that DOT backs away from a literal application of benefi t-cost 

methodology regarding these measurements.24 Although the guidance 

recognizes and articulates the value of life concept quite well in the 

summary memo that guides DOT staff on its use, the guidance is very, very 

cautious about using it. It basically says—don’t let anyone know you are 

valuing life. Instead, it suggests using what is chiefl y a cost-effectiveness 

analysis—you analyze all other parts of benefi t-cost analysis but leave out 

Appendix IV: How Are Benefi ts and Costs of Transit and Highway 

Investments Best Measured?

GAO Questions:

• What are the most common problems in measuring the 

benefits and costs of transit and highway investments?

• Which problems pose the greatest obstacles to accurate 

measurement?

• What are the best approaches to examining benefits and costs?

• To what extent can benefits and costs of transit and highway 

investments be measured at the national level?

Kenneth A. Small is 

Professor of Economics 

at the University of 

California at Irvine.
39

the value of life. Then you rank projects by safety and the cost of each life 

saved. Following this guidance poses a difficulty for benefit-cost analysts 

because it asks us to treat differently one area that is considered too hot to 

handle—or at least too hot to handle explicitly.

The second problem is that DOT’s guidance backs away from a 

literal application of benefit-cost methodology with respect to 

how benefits vary with income. It is well recognized that the value of 

time varies with income. In fact, the guidance directs us to value time 

as a percentage of wage rates. Yet the guidance declares that we do not 

want the value of time to vary with income in project analyses. This is 

understandable—we do not want any variations on the value of life—and 

this is not unique to the United States. A little more surprising is that value 

of time recommendations do not vary by mode. The rationale for this in 

the guidance is that the information is not good enough. This may be true, 

but the real rationale may have been the distributional issue again—that is, 

not wanting to get into the issue that more poor people take the bus and 

their value of time is lower, so we do not have to pay as much attention 

to them in terms of valuing time saved via bus travel. While all these 

positions have political explanations, they create difficulties in performing 

benefit-cost analysis.

The third problem is that understanding the real decision being 

analyzed is a critical, continuing problem for benefit-cost analysis. 

Figuring out how to use a value of life calculation is a good example. You 

can say someone’s life is worth $2.5 million if you make that explicit and 

recognize that you are not analyzing a decision that will take someone’s 

life away—you are analyzing a decision that will change the safety level 

that people perceive. Usually, you are considering very small changes in 

the safety level, for example, going from a 0.001 to a 0.0012 probability of 

some adverse event. This is well articulated in DOT’s basic guidance. 

While this process may suggest a way of successfully incorporating the 

value of life into an analysis, it brings up another problem related to the 

issue that Dr. Wachs raised when he questioned whether, when analyzing 

the amount of time saved, you can use 1 minute versus 20 minutes. The 

question is what decision is being analyzed. If you are considering an 

infrastructure improvement that will last 20, 30, or 40 years, are you really 

giving some identifiable person a minute and asking them how much 

do you care about this minute over 40 years? No. You are changing the 

environment. Many people will buy and sell houses and change jobs and 

alter their daily lives over many years. All those people are going to face 

a 1-minute difference in some parameter that affects them, and analysts 

will try to identify what effects will occur. This changes the way of looking 

at it from whether somebody can use 1 minute versus 20 minutes to the 

broader context of how decisions will affect the environment over time.
40

I generally advocate that benefit-cost analysis should not overconcretize the benefits. We all tend to use ourselves as examples. While 

this can keep us connected with the real world, it is a little dangerous. We 

tend to make decisions more concrete to a particular situation—yours, 

your daughter’s, etc. In fact, these decisions are likely to be altered and to 

affect circumstances in many ways that might not be immediately obvious.

DR. PICKRELL: An invaluable first step in identifying and measuring 

benefits and costs is to develop explicit descriptions of the cause and 

effect paths by which alternative decisions or investments may 

lead to their anticipated effects. This step has hidden value for several 

reasons: 

• It requires decision/investment advocates to articulate not only the 

impacts that they expect and alternatives they prefer, but also the 

pathways through which they expect those impacts to occur, as Dr. 

Gomez-Ibanez said.

• It forces us to think clearly about how and how extensively each 

alternative is expected to produce speed, safety, quality, or other 

desirable transportation service characteristics.

• It helps clarify the magnitude and timing of specific resource 

commitments that would be necessary to produce these service 

characteristics.

In this process, it is important to develop quantitative estimates of 

as many of each alternative’s expected impacts as practical. This is 

not to say that whatever cannot be quantified and denominated in dollars 

should be ignored, as many critics of the practice occasionally argue. The 

fact that we do not know how to monetize or quantify important impacts 

should not be a reason to avoid quantifying impacts that we know how to 

quantify and whose monetary value we can estimate.

It generally is useful to measure impacts as close to their source 

as possible. This ensures the correct attribution of the impact to the 

characteristics of the alternative that we expect to cause it. For example, 

it is better to measure travel time savings produced by an investment 

that extends some transportation service into a relatively undeveloped 

area than to measure property value increases that theoretically will 

result. We have discussed the importance of clarifying land use impacts 

of transportation investments. But, as Dr. Small reminded us, doing so 

involves wading into the morass of transfers and multiple counting of 

benefits that are best, most reliably measured at their primal source. Land 

use impacts represent the consequences of these primal benefits working 

their way through the complex urban economy in which we make most 

investments.

Donald Pickrell is DOT’s 

Volpe Center’s Chief 

Economist.
41

Measuring impacts at their source will greatly improve prospects 

for heeding another deceptively simple sounding, but often violated 

guideline—count each impact only once. Measuring impacts as close to 

their causal sources as possible and stopping there helps to avoid the most 

obvious multiple counting that tends to occur primarily on the benefit 

side of the ledger. Similarly, one needs to be extremely circumspect 

about including indirect impacts25 of infrastructure investments 

because most of these represent multiple counting. While we want to 

think about how primal project benefits are transformed into other forms 

through the urban economy, we should not count them in a variety of 

places where it may be convenient to identify them. 

One also needs to be especially careful of including employment and 

so-called multiplier induced benefits in benefit-cost analyses.

26 Here 

is an example of what not to do:

Seven Midwestern states that were purchasing rail branch lines 

being abandoned by their operators were surveyed. The survey 

showed that employees’ wages from shippers that would remain 

in business along these lines (as a result of state acquisition and 

operation of these lines) was the major benefit category for continued 

operation of these branch lines. So the states moved costs of the 

employees’ wages to the benefit side of the ledger. To make matters 

worse, regional impact multipliers were applied to these payments. 

Not only were costs that were completely irrelevant to the decision 

included as benefits, they often were counted twice or more in 

evaluating the advantages of doing so.

One needs to be very careful about indirect impacts—they often 

count something that we already have counted and included. A 

related issue is that measuring impacts in their naturally occurring or 

generic terms enormously facilitates comparisons among alternatives with 

different designs or technologies—such as highways and rail systems. 

Generic measures are those denominated in units—a person’s hours of 

travel or expected injuries—customarily used to measure consequences of 

most transportation projects.

There is considerable hand-wringing in public debate and literature 

about the difficulty of evaluating intermodal investments. However, 

transportation is quite well equipped to do intermodal comparisons 

because of the benefit measures that we customarily collect. There 

still are pressing questions about how to value service quality differences 

in different modes, but we are making progress in identifying specific, 

measurable dimensions of quality such as travel time reliability and its 

more esoteric aspects like privacy and security.
42

A final caution: do not confuse the effects of seemingly related 

but ultimately separate decisions in evaluating benefits. The most 

common violation is including the costs of proceeding with an alternative 

investment as a benefit of making a completely separate decision— 

although the first may bear on the subsequent desirability of the second, as 

shown in the following example:

Proponents of constructing high-speed rail lines in inter-city travel 

corridors through a state argue that the benefits include savings 

from avoiding new highway and airport investments that otherwise 

would be needed to accommodate growing travel volumes. This 

contorted logic suggests that investing heavily to move people in the 

corridor is the only alternative. This is incorrect, given the degree to 

which public infrastructure investments commonly are mispriced. It 

suggests that competing investments have only costs but no benefits. 

If this logic is pursued to its extreme and we avoid spending on 

airport capacity by building a high-speed rail line, we forego any 

benefits that expanding airport capacity might have had without 

having considered those benefits. 

The importance of separating decisions that can and will be made 

separately and have logically separable impacts relates to what Dr. 

Forkenbrock wanted us to think about—the collective impact of our 

infrastructure investment decisions on evolving urban forms. In high-speed 

rail corridors, the impacts may extend even to the forms of development in 

corridors connecting major urban areas. While it is important to consider 

the cumulative impact of separate investments on metropolitan area forms 

and their desirability, it is very important to logically separate decisions to 

avoid confusing their benefits and costs.

Panel Discussion

DR. TAYLOR: You just cautioned us against focusing too much on 

secondary effects, double-counting effects that are too often doublecounted, and using the cost of avoided expenditures in some other mode 

but not the associated benefits in an analysis. Are these mistakes the result 

of incompetence, error, or a desire to count as many benefits as possible 

for a project? Does this speak to motivations of the people doing the 

analysis?

DR. PICKRELL: I don’t know. The modal structure of most state 

agencies and the federal DOT gives rise to more advocacy in 

evaluating alternative infrastructure investments than one would 

wish to see. As Dr. Gomez-Ibanez said, many participants in debates 

about major public infrastructure investments focus on what benefit-
43

cost analysts regard as secondary impacts. These impacts are primary 

concerns for noneconomists who, after all, represent the majority of the 

world. Including these impacts is often motivated by a desire to refocus on 

decision consequences that noneconomists view as the most important, 

contentious, or debatable impacts. Often simple advocacy is at work.

Finally, financing for many locally planned/selected infrastructure 

projects in which the federal government has a significant share 

tends to transform costs into benefits before the eyes of local 

political officials. Some focus on indirect benefits, such as job creation, 

is an expected consequence of this financing structure.

DR. FORKENBROCK: Regional economic models are one of the 

main sources of double-counting—the problem is outsourcing. 

This often happens when an operating agency such as a Council of 

Governments or state transportation agency subscribes to a very good 

model like REMI.27 First, the traditional travel time savings analysis 

for freight carriers like trucks is added to the model. The model then 

generates employment changes, tax revenue, etc., that result from 

economic activity moving into the region by virtue of lower transportation 

costs. Lower transportation costs experienced by trucking are then added 

to the economic tax revenue and employment. This is blatant doublecounting that probably reflects poor understanding of how the model 

actually works, rather than incompetence. 

Four more words—behavior, dread, philosophy, and rhetoric—are relevant 

to this discussion. Dr. Small’s comments about valuing time, etc., have 

several important elements that relate to behavior. There is very good 

research about how people value their own time. However, when we 

simplify behavior, we miss a lot. For example, people have a five times 

greater disutility of time when they are waiting for the bus than when 

they are riding it and know they are en route to their destination.28 The 

highest disutility of time occurs when people get off a bus in a strange 

neighborhood and wait for another bus to come. People hate that. It really 

is a question of different kinds of disutility.

Ian Savage at Northwestern University wrote an excellent piece that 

illustrates dread.29 Dread is willingness to pay to avoid the risk of losing 

your life—it is essentially the way we value saving lives. However, his 

survey respondents were much more willing to pay to avoid dying from 

stomach cancer than from the similar risk of dying in a car crash. People 

regard themselves as better drivers than someone who would be involved 

in an accident.

Discount rates illustrate the philosophy issue. If your philosophy favors 

small government, you will want a high discount rate because benefits 

“...by compressing 

everything into a 

single metric, you lose 

the ability to discuss 

impacts that cannot be 

quantified.” 

-Dr. Forkenbrock
44

accrue over a long period of time. When Richard Nixon raised the discount 

rate to 10 percent, he declared that there was too darned much money 

going into the public sector and that we were building too many things. 

This is a really good way to reduce public sector investment because many 

studies show how sensitive a project using benefit-cost analysis is to the 

discount rate. It really matters.

Finally, rhetoric. We cannot measure some things, as Dr. Pickrell said, such 

as the impact that a pound of carbon dioxide has on global climate change. 

There has been much debate about the right value to give to such 

intangibles. Should we exclude them? The answer is no.

If we want a single measure at the end of the day—net present value, 

benefit-cost ratio, or internal rate of return—how can we do this? I would 

choose benefit-cost analysis because, as Dr. Lewis said, the purpose of 

benefit-cost analysis is to help improve decision making and allow us 

to discuss impacts that cannot be quantified but need to be part of the 

dialogue. An important problem is that by compressing everything 

into a single metric, you lose the ability to discuss impacts that 

cannot be quantified.

DR. GOMEZ-IBANEZ: All of us probably would agree that there 

are indirect impacts, such as employment or land use impacts, from 

transportation projects. If you create a job for someone who is 

unemployed, most of us also would agree that that person’s wages are 

not a real social cost because there is no opportunity cost of putting that 

person to work.30 The opportunity cost is not the wages, as it normally 

is with someone who is otherwise employed. And there are legitimate 

land use benefits. The problem of valuing these indirect impacts 

centers on mispriced complements to transportation, especially the 

possibility that other complementary infrastructure such as water 

and sewer needed to develop a project is under-priced. But zoning 

made historic land use choices. It is difficult to argue that markets for 

transportation complements and substitutes are perfectly competitive and 

function smoothly since project developers, users, and residents often do 

not pay the full cost of infrastructure that their projects use.

While each viewpoint about land use ought to be included in the 

debate because it has some legitimate role, there are several 

reasons that we fight so hard against including them.

• First, land use effects are often taken much farther than the limited 

circumstances in which we believe they should be included.

• Second, it is hard to forecast the path between policy and predicted 

outcome. Land use transportation models are by far the weakest 

part of urban and inter-city transportation demand forecasting.
45

• Third, most of us believe that if you systematically measured these 

indirect benefits, they would be small. 

This presents a strategic decision—how to handle areas that are so 

confusing and difficult to forecast that they become the refuge for 

scoundrels who want to exaggerate a project’s benefits. Discussing 

indirect land use benefits is their opportunity to do so with the least 

chance of being embarrassed by demonstrably true facts. Yet it is a 

real problem for us because the public has enough sense to see some 

legitimacy to these arguments. We run the risk of discrediting the entire 

process by denying them. How can you let these views in and still force the 

conversation about them to be reasonably clear sighted and hard nosed?

DR. LEWIS: That goes to my point that we need to consider subjective 

probabilistic analysis as a method or framework of analysis.32 One 

reason that we analysts get cold shoulders from stakeholders and 

decision makers is that they perceive us as pretending to know 

that which we do not and cannot know. Weather forecasters caught 

onto this a long time ago when they started talking about the probability 

of rain. People are much happier working with precipitation or hurricane 

probabilities than trying to suspend their disbelief in the forecaster’s 

ability to know what will occur.

We could take our lead from the biomedical statistical world. The U.S. 

Food and Drug Administration and National Academy of Sciences do 

good work with panels that bring solid statistical data to the table. Then 

experts, stakeholders, and people who work in the field develop another 

estimation layer called subjective or Bayesian—what you believe to be 

true, based upon your experience.33 For example, the Journal of the 

American Medical Association recently published the study of two heart 

attack suppressive drugs based on 10 years of double-blind trial data 

brought to the table by the National Institutes of Health. One drug costs $1 

per vial; one costs $10 per vial. Which drug is more effective? A substantial 

amount of empirical, hard-nosed data indicated that one drug was 1 

percent more effective than the other. However, a facilitated subjective 

probabilistic study with paramedics, nurses, cardiologists, and other 

experts concluded that the efficacy of the two drugs was indistinguishable. 

This study remains the foundation for the American Medical Association’s 

recommendation on the efficacy of these two drugs.

We can allow benefit-cost analysis to be a more powerful, useful 

technique for thinking through a topic based on values and defuse 

the “expert versus expert” mistrust in numbers. We can do this 

by bringing probability distributions of what we think is the value of 

a statistical life, a small time saving, or the likelihood that someone 

unemployed will have a new job along with the basis for these statements 
46

to the table. In doing so, we present everything we know in the context of 

how wrong we might be. People deal with this very comfortably, even if 

they do not have any statistical background.

While Dr. Pickrell’s point about going to the root source of benefits to 

avoid double-counting is very well put, there is a source of danger 

in the land use issue. Empirical evidence suggests that the value of 

time saved does not entirely account for property value increases 

that seem to be the capitalization of time savings. In suburbs where 

commercial and residential developments spring up around transit 

stations, when you account for measured increases in property value 

based on proximity or time-related benefits, there seems to be a residual 

that is left over. People appear willing to pay a premium to live or work in 

a transit-served area and the density, diversity, walking distances, etc., that 

come with that. Even if they do not use the transit system, they are willing 

to pay a premium for office space or to live in these areas. One might call 

it an existence benefit or option value as distinct from a user value. There 

are land use and property values that are not entirely accounted for by 

using the system for time savings.

DR. TAYLOR: If you saw a similar cluster of disparate elements in 

places without transit investment, how do you know that the residual 

is caused by transit investment time savings and not the agglomeration 

itself?

DR. LEWIS: You can never know. You could hypothesize that some 

people are willing to bid up commercial or residential land prices because 

of the direct or indirect effect of the rail station. Then you can study 

neighborhoods that are similar except for the transit and measure the 

change in land values. You can determine to what extent that increment 

may be accounted for by time savings, but you will never know if it was 

actually something else. This is why risk and probability are so important. 

People may accept a 20 percent chance that this is the explanation as a 

basis for accepting that value in a benefit-cost analysis. We do not know 

unless we ask them, and this is a fundamental part of facilitation. Are 

you willing to take an 80 percent risk that this value might be a cause 

and effect link that will produce a certain transit rate of return and some 

effects that you like, or an 80 percent chance it might be wrong? My 

premise is that people do this in their minds anyway. Benefit-cost analysis 

makes it formal and makes the size of the risk understandable.

If the question is how to distinguish the need for values of time that vary 

with income—the answer is that you must allow for it because values 

of time do vary. Demand studies and forecast accuracy would be 

wrong if we blur over that. The answer is to distinguish between 

positive economics—the predictive end of benefit-cost analysis—
47

and normative economics—the valuation end.34 When you assume 

that everyone has the same value of time because we believe it is fairer, 

you need to be very explicit about what you are doing and ask whether 

others agree. If not, let the market reveal values in the benefit-cost 

process. Then you will get a different result for transit that helps poorer 

people, and people will deal with that information.

DR. MEYER: Two of GAO’s questions—what are the most common 

problems in measuring the benefits and costs of transit and highway 

investments and which problems pose the greatest obstacles to accurate 

measurement—may take us in different directions. Much of our discussion 

has related to valuing benefits—that is, the value of time, reliability, and 

life. My field experience suggests that although people may raise their 

eyebrows at valuing human life, they more or less accept it. The problem 

is change—especially over a 25- or 30-year period. How do you predict 

reductions in fatal crashes? How do you predict air quality changes 

such as tons of X emitted? We mentioned developments in intermodal 

comparisons, but that presupposes that our models can look at person 

hours of travel by different modes with some confidence over a 25- or 30- 

year horizon.

While value issues are very important, existing technical tools 

and models at the regional, state, and even more at the national 

level are unable to predict change. In my transportation safety course, 

we spend a considerable amount of time on safety, value of life, etc. 

When asked what will be the reduction in fatalities for a city bus in 2025, 

students accept the value of a life but say there is no way to answer the 

question. In my area, we are examining how to put value and reliability 

into a time perspective so that we can measure this when we evaluate the 

context of our updated regional transportation plan. However, without the 

full microsimulation model35 that can look at freeway system performance 

it is very difficult to predict transportation system reliability in 2030. 

DR. LEWIS: I think our difficulty in forecasting lies more on the 

engineering and science side than the value side of the equation.

An analysis conducted for the National Cooperative Highway 

Research Program sought to deconstruct uncertainty in estimates 

of the economic benefits of reduced highway congestion. Analysts 

found that about 80 percent of the uncertainty is associated with 

potential error in the shape of the speed-flow relationship (an 

engineering problem), while the balance of error lies in uncertainty 

about the value of time (an economic problem).

We are presenting the public with our best guess, but I do not think 

they want our best guess. I think they want to know the likelihood that 
48

the sun will shine. If we are honest and peer into our models for standard 

hours and extract probability information, we can let them know that the 

time savings of a proposal has about a 10 percent chance of being greater 

than 3 minutes per person. If you want 8 minutes per person, it may have a 

5 percent probability of happening. I think we know how wrong we are.

DR. MEYER: I agree and view this as a way to improve benefitcost analysis. On the other hand, it often is very difficult to explain to 

nontechnical, elected officials that it is within plus or minus 5 percent of 

the most likely result.

DR. TAYLOR: Are you getting around uncertainty by presenting 

probability? Certainty and probability are different things.

DR. LEWIS: No. I think including probability makes information more 

useful to decision makers, given the state of the information at any given 

time. The bond insurance industry has been using traditional “four step” 

transportation demand studies36 for revenue forecasts as the basis for 

determining whether and at what price the project bonds are insurable. 

It was something of a surprise to the bond industry to learn that such 

forecasts have fully a 50 percent chance of being too high or low. To obtain 

forecasts with a 99.5 percent certainty of being met or exceeded, the fourstep model must be quite considerably modified.

The probabilistic presentation is not a way of eradicating 

uncertainty, but of making the information more appealing, 

truthful, and useful. This is especially the case when it is used 

to compare a transit project with widening a highway, major 

corridor, or other alternatives. You may get similar results, but 

my experience is that one option has a much higher risk of going 

underwater than the other, even though the risk profile of the 

projects is very different. If we get this information to people, it can be 

more useful.

DR. WACHS: Dr. Lewis has made the point that benefit-cost analysis is 

extremely important to us because it gives us a language for our discourse 

and enables deliberative democracy to take place. I return to that question 

and ask whether what we have just discussed gives us any confidence that 

it helps creates a deliberate discourse and helps us govern ourselves as a 

democracy? Or, does it actually distract us? Does discussing whether or 

not we are double-counting really help elected officials and citizens 

who represent us come to better decisions? This group is experienced 

and committed to benefit-cost analysis and would like to believe that the 

answer is yes. However, there are critics. 
49

I have been reading a book called Priceless: On Knowing the Price of 

Everything and the Value of Nothing.

37 It argues that if you want to invest 

enough public resources to prevent humanity from becoming extinct, 

then the benefit-cost calculus is irrelevant and not helpful. If a public 

decision was made to preserve a species or build a rail line, surely you 

can retrospectively conclude that benefits must have exceeded costs.

In Joseph Berechman’s benefit-cost analysis of investing in the Appian 

Way,38 he concluded that if you valued intangibles at a certain level, 

then it was worth doing; if you valued them at less, it was not worth 

doing. Clearly, their society made a deliberative decision to invest in the 

Appian Way without quantitative analysis. The relevant question is 

whether the measurement questions that we have been discussing 

are so difficult to address that they hinder our ability to have a 

deliberative, democratic discussion. If GAO is asking whether we 

can encourage Congress to be more attentive to this, we have to carry 

this discussion one level farther and demonstrate that these important 

questions actually help make better decisions.

DR. GOMEZ-IBANEZ: All evaluation is relative. I agree with your 

concern about things becoming a distraction and the duel of the analysts 

being irrelevant to most things. What is an alternative? What would you 

propose?

DR. WACHS: I am not sure. I certainly would not give up analysis, 

modeling, prediction, using probabilities, etc. However, I might weaken the 

requirement that everything be done in monetary terms. This requirement 

may force us to make assumptions that govern what we are doing and 

obscure the dialogue. Ordered, analytical approaches are very helpful, but 

it is healthy to keep asking whether our society benefits so much 

from a dollar framework for benefits and costs that we should 

devote all this effort to trying to get the numbers right.

DR. SMALL: The problem with looking solely at the primary benefits, 

rather than the benefits where they finally accrue, is that doing so, 

although absolutely correct in analytic terms, conflicts directly with the 

mandate we’ve been discussing—making benefit-cost relevant to decision 

makers who are not experts in benefit-cost analysis. Land use is one of 

the first things that people consider as a transportation project 

impact, but one of the last things on the chain of causation. We 

cannot afford to ignore it by just presenting final benefit numbers, 

saying that benefits were measured correctly at the source of the primary 

benefit and therefore we can ignore land use effects. Benefit-cost 

analysis could be used in deliberative discussions so that people actually 

understand that the impact they passionately care about is a little further 

down the chain. When you actually do the numbers, you can see if there 

are some real indirect benefits. I hope that terminology can be developed 

to convey this whole difficulty.

“Does discussing 

whether or not we are 

double-counting really 

help elected officials 

and citizens who 

represent us come to 

better decisions? ... we 

have to...demonstrate 

that these important 

questions actually help 

make better decisions.”

-Dr. Wachs
50

Regarding employment as another indirect effect, I disagree a bit with 

Dr. Gomez-Ibanez. We agree if somebody who is unemployed becomes 

employed, that is an extra benefit. However, we may be ignoring other 

related things by being too concrete. If a transportation project throws 

someone out of work, we count it in a certain way. But, other things may 

be happening. The Federal Reserve may be tightening monetary and 

employment policy because it is afraid that the economy will grow too 

quickly. Even something that looks like an obvious benefit, such as putting 

an unemployed person to work, may not be in a broader context where 

there are other policy objectives that cause that person to be out of work 

in the first place.

DR. KIRBY: Regarding Dr. Wachs’s concern about whether monetary 

terms are just getting in the way, I think that if we see benefit-cost 

analysis as distilling everything to a dollar number, then monetary terms 

are getting in the way. There is much work that can illuminate impacts 

in an extraordinarily useful way, but we cannot push it too far. We are 

very focused on quantifying dollar benefits and do not want to 

talk about transfers, distributional issues,39 or externalities—sort 

of second class in terms of benefit-cost analysis. But the reality 

is that this is what people out there really care about. We can 

illuminate those issues enormously as long as we do not overstep 

what we can really do.

Distributional issues regarding affected populations are what decision 

makers discuss. Land development is very important to local jurisdictions 

that are watching their tax base and plays through the decision-making 

process to the governor. If a transportation investment will take an 

attractive new technology into the neighboring jurisdiction, rather than 

mine, I care a whole lot. Dr. Lewis’ example of people paying a premium 

to live near a transit station raises such an issue. Lower income people for 

whom we are trying to provide transit are being bid out of those areas and 

must move to areas without transit. This issue, which is a distributional 

issue, comes to the table in the political discussion. We may not be 

comfortable with including it in our benefit-cost analyses, but it is 

a very important issue.

The value of time in the context of who uses a toll or highoccupancy toll (HOT) lane40 is a tremendously important issue

that Dr. Small’s paper addresses.41 Most highway expansions proposed 

in our region now are toll financed roads because we lack the ability to 

do them any other way. Private firms proposing to build these facilities 

want investment grade analysis from those who will issue and service the 

bonds. They want to know who and how many people will use the road, 

usage at various toll levels, and how much will be paid to investors. This

moves travel demand forecasting to a whole new dimension and puts new 

“We are very focused 

on quantifying dollar 

benefits and do not want 

to talk about transfers, 

distributional issues, 

or externalities....But...

this is what people out 

there really care about.”

-Dr. Kirby 
51

demands on modelers. When we could keep drawing down on the federal 

highway trust fund to finance transportation projects, it was a different 

decision. Now, the project will not go forward unless there is real comfort 

with forecasts. 

The distributional aspect of HOT lanes is fascinating. At first, these were 

seen as Lexus Lanes for rich people who had high values of time—the 

assumption was that poor people would not use them and therefore they 

were bad. This was a showstopper for quite a while. However, monitoring 

these lanes’ usage showed that it is not just the rich—people that value 

reliability at all income levels use them. Women are disproportionately 

represented because they have child care and other responsibilities. 

Dr. Small demonstrates that complex values cause people to use these 

facilities, but that these values can be analyzed. This analysis will play 

into policy and decisions about moving forward with some toll facilities 

because who will use them is a critical issue.

There is a tremendous amount that we can contribute by focusing on 

these issues that appear to be somewhat less tractable. Who else is going 

to do it? The discourse will occur anyway, but in a much less informed 

atmosphere if we do not wade in on these issues.

DR. PICKRELL: To be clear, I did not advocate ignoring downstream 

effects of transportation infrastructure investments. I advocated clearly 

articulating the paths through which primary and secondary benefits that 

become the main focus of public debate are generated so that they can be 

reliably measured. Keeping these paths conceptually separate allows us to 

respond to people who claim that land use consequences of their preferred 

investment have been ignored. 

To some extent, we get in these binds because we do not do our 

homework. Research on taxi cab use that we read as graduate students 

clearly demonstrated that they were not used exclusively by the rich. Taxis 

were used by elderly people going to medical appointments and a variety 

of people making trips that were highly valued. We are our own worst 

enemies because we react to criticisms about so-called Lexus Lanes in a 

way that does a disservice to what we otherwise, in other circumstances, 

would claim that we already knew. 

DR. LEWIS: I agree with Dr. Wachs’s concern that seeking to monetize 

everything could be distracting. As I tried to say in my paper, benefitcost analysis has diverged from what might be perceived as useful 

because it is not consistent with some realities of the last 50 

years. One such reality is that most people are not satisfied with some 

of the restrictive assumptions of conventional benefit-cost analysis. 
52

One convention is the idea that a project can be declared a welfare 

improvement if benefits are sufficiently large to enable beneficiaries 

potentially to compensate losers and still remain better off. Today, 

it matters to people whether such compensation actually is paid. 

Furthermore, it matters whether the project and compensation, as a 

package, garner community consensus.

The debate about making all transit systems accessible to people in 

wheelchairs versus creating a separate transit service for people in 

wheelchairs is an excellent example. When the benefits of creating 

a separate transit service for those in wheelchairs were found to 

be greater than making all transit systems wheelchair accessible, 

something had gone wrong with the analysis. Benefit-cost analysis 

had not stepped into the situation’s reality and facilitated a 

discussion about the value we put on accessibility above and beyond 

monetary considerations.

John Rawls’ book, A Theory of Justice,

42 emphasizes that there are 

certain rights, duties, or obligations that are not necessarily 

enshrined in the Constitution, but which we believe we have 

acquired. These include environmental rights, disability rights, obligations 

regarding greenhouse gas production, etc. They ought to be treated 

as givens, and benefit-cost analysis should then ask how we can 

optimize our world in that context. Economists need to be flexible to 

facilitate this discussion, and benefit-cost analysis needs to morph into 

a framework in which that discussion actually occurs. The Americans 

with Disabilities Act 43 would have been passed 10 years sooner if full 

accessibility had been discussed in that way. There is no reason why a 

benefit-cost process could not have led to that result had we not been 

confined by our view of the analytic process. Converting benefits and costs 

into money is important, but not the Holy Grail. 

DR. GOMEZ-IBANEZ: The benefit-cost analysis of universal 

transit access compared to separate transit systems fits into Dr. Lewis’s 

deliberative model. People realized its limitations through discussion and 

decided to do something else—that is, make all transit systems accessible 

to the disabled. Although a narrow benefit-cost analysis said that the 

benefit of making all transit systems accessible to the disabled is not worth 

the cost, people responded that this is not strictly a benefit-cost question.

DR. PICKRELL: It provoked a discussion about whether making all 

transit systems accessible is a right and the value of enforcing that right. 

DR. TAYLOR: Dr. Kirby said that distributional issues are 

absolutely central. We heard that benefit-cost analysis sometimes 

does not deal with them effectively or effectively enough. Why is this so 
53

important? There is one issue where we can make normative judgments 

about redistribution—we are going to redistribute wealth from the haves 

to the have-nots. Dr. Kirby also described redistribution as a competition 

where there are winners and losers. Such a redistribution may not been 

seen as a loss to anyone at the regional, state, or national level, but stakes 

are enormous at the local level. Can consideration of these stakes—that is, 

winners and losers—be incorporated into the analytical process?

DR. FORKENBROCK: Sometimes the opposite may be true, as with 

regional economic models. We discuss how jobs will come into the region 

if we make a transportation investment, but not where the jobs came 

from. The rule of thumb is that if job redistribution occurs in the same 

jurisdiction that is funding the project, there is no net gain. But when you 

use federal funds, redistribution occurs in the same jurisdiction. A state 

that funds redistribution of jobs from one community to another has 

made a mistake. The difficulty is what I call the moral imperative—that is, 

decision makers know that they have nothing to lose by arguing strongly 

for their project—the federal gas tax will not go up or down as a result of 

a single project. And if the model does not indicate where the jobs came 

from, no other politician is going to tell me that these are jobs off my plate. 

There is an advantage to obscuring this, and models do that so well.

DR. SMALL: I have strong views about distributional issues—they 

are at the heart of benefit-cost analysis and are the central reason 

why we need it. Some decisions are made with unanimity—perhaps 

everyone’s incentives are aligned. Benefit-cost analysis is needed when 

real differences in the outcomes to people must be adjudicated. This 

usually occurs through the hurly-burly of politics. But we are agreeing 

that benefit-cost analysis can help this adjudication process lead to better 

results. Technically, the adjudication process is a way to get potential 

Pareto improvements44 transformed into real Pareto improvements. This 

is because, when a project has positive net benefits, there are still some 

people who are winners and some who are losers—although there are 

more on the winning side. If you apply this methodology consistently to 

many different projects and ensure that it is not always the same group 

of people that loses, then there is an increased chance that you will have 

real improvements for everybody. These distributional issues are so 

fundamental for benefit-cost analysis that in practice we often have to 

carry them out and make them explicit in order to move forward with a 

project.

DR. PICKRELL: I agree that distributional issues are of paramount 

importance. Any analytic process is embedded in an inherently 

political decision-making process that turns on considerations of 

who pays and who benefits. I personally believe that is for the better.

“...distributional 

issues...are at the heart 

of benefit-cost analysis 

and are the central 

reason why we need it.”

-Dr. Small
54

I was adamant about systematically tracing the mechanisms by which 

public infrastructure investments are expected to produce direct and 

indirect benefits because this naturally leads us to tally the benefits and 

costs borne by different participants in the political decision calculus. 

At the very least, it helps provide systematically forecasted rather than 

speculative or woefully misrepresented information about the impacts’ 

nature and magnitude. It also produces the advantage that Dr. Small is 

describing—we can examine whether the succession of decisions from 

this political and analytical process tends to work to the advantage of 

some groups or others over time.

DR. KIRBY: I do not disagree, but I am concerned that we tend not to 

focus on things that we are less comfortable with analytically or 

less able to quantify. As a result, we may be vulnerable to a challenge 

that we failed to comprehensively assess a project and a judge is going 

to stop it. If it was a good project that does not get built because the 

process failed to address a legitimate issue, it is a real criticism of us as 

practitioners and something to be very concerned about. You cannot make 

every project a winner for everybody—and do not need to. If projects are 

in a large enough context to show overall net benefits and that no group is 

systematically without benefits, then I think you can proceed.

However, in our very elaborate public involvement process, you may be 

unable to take action if anyone loses. The electorate is very well informed. 

People articulate the disbenefits45 to them and this can be enough 

to overwhelm the more diffuse beneficiaries. This may be where 

we are in transportation. Project after project goes on the shelf—it 

really is a big concern. A county transportation director recently said 

that numerous studies—but not one single project—were proceeding 

in his county. High benefit transportation improvements were not going 

forward—paralysis by analysis. If we do not recognize that there are some 

disadvantaged groups early in the process, we will not be able to deal with 

the issues they raise in an effective manner.

DR. TAYLOR: Perhaps we are not doing a good job of compensating the 

losers if we have situations where a concentrated set of opponents can kill 

projects for which the benefits overwhelmingly outweigh the costs. Are 

there legal or procedural limitations to the ability to compensate losers?

DR. KIRBY: No. But we often fail to recognize that there are those who 

do not benefit, never mind thinking about how we can compensate them. 

These groups do not feel that their issues have been fully addressed and 

sometimes use legal challenges to stop a project. Our failure to address 

this is rather critical, as is shown in the following example:
55

These issues came up in a large project that involved land use 

questions. People were concerned about the induced demand46 caused 

by a major highway expansion project completed 20 years ago. We 

went back 20 years and looked at the forecast. Traffic did exceed the 

original projections, largely because the development shifted to that 

corridor away from other areas relative to the forecast. There was 

no question—it was not from the outside, it was a shift. Another 

jurisdiction used the study to argue that a proposed new highway 

facility would take development away from that jurisdiction. Based 

on that earlier study we are now saying that each jurisdiction must 

revisit its land use and activity forecast under the assumption 

that this proposed new highway facility will be built. Employment 

forecasts relative to the project may be reduced for some areas and 

come out on the table as part of the political discussion. There is no 

way of avoiding that. But, we must put that topic on the table and 

recognize that there will be some marginal effect. We cannot expect 

everyone to win on everything—otherwise, nobody will get anything. 

If we discuss this type of issue explicitly, we will be much better off.

DR. FORKENBROCK: The issue of compensating losers is fascinating, 

but extremely elusive. A new highway is going to raise noise levels and 

people are upset. But, what if the access value has raised property values? 

Looking at many different dimensions, deciding on winners and losers, and 

summing it all up could show that overall, the people who are upset lose 

little or not at all, but the analysis would be extremely difficult.

DR. LEWIS: I agree with Dr. Kirby—there is evidence to suggest that 

making the redistributional effects and the winners/losers more 

explicit and transparent is likely to speed decisions more than slow 

them down.

We did a large discursive benefit-cost exercise47 for building a new 

airport runway in a large Canadian city. The proposal had been on 

the table for nearly 20 years and modifications had been knocked 

down by noise advocates. Although the airport authority was 

reluctant, we engaged the community in a very scientific discussion 

of measuring noise and the empirical evidence on depreciation. We 

even used loss of household as surplus in addition to financial losses 

of value. Through an analytical process, we got quite wide assent 

that there would be $100 million of property value losses over 30 

years due to the additional noise over a specific area. But that was 

put in the context of about $4.5 billion in economic benefits. The 

benefits lost without the runway were mainly in time savings and 

resources, not jobs.
56

This precipitated some compensation proposals that were integrated into 

the solution—noise insulation, etc.—nothing terribly dramatic. There is a 

runway there now, for better or worse. I think that the numbers created 

political will that did not exist before in the environmental review office, 

the litigation domain, and runway supporters. The numbers simply made 

the case. I think you can make things real and the truth sort of bubbles up 

to the surface.

DR. FORKENBROCK: The problem is that the objector is the same as 

the loser.

DR. LEWIS: In airport cases, they often are. When you get to valuable 

development around transit stations, perhaps you are gentrifying the 

community and what was an affordable housing community is no longer. 

What do you do with that? In this case, objectors are rarely the people 

who would be displaced. If there is awareness that this could happen, then 

simply acknowledge and analyze it. This was not done in the Model Cities 

program, otherwise the removal of ghetto residents to even worse, poorer 

ghettos might have been anticipated and Model Cities would not have been 

the disaster that it was. On the other hand, if people living near a station 

now have to walk a little bit further, we might acknowledge that this is 

a reality of the market system. Being explicit about it makes all the 

difference.

DR. GOMEZ-IBANEZ: I will throw a little cold water on this love fest 

for distributional analysis. I do not disagree that keeping track of projects’ 

distributional consequences is ethically important—the whole Pareto 

Principle depends on compensation—as well as politically prudent. If you 

ignore them, you’re going to fail. 

However, I worry that we are not being honest about the technical 

difficulty of some of what we are proposing. We are discussing 

several kinds of redistributions. One is between different income 

groups; the other is between different jurisdictions or locations. Both of 

them are really difficult. What you need is some general equilibrium model 

that traces out how these direct effects get transferred to other parties. 

The classic example has been mentioned—that is, a lot of transportation 

improvements’ value does not end up with a traveler, but is capitalized into 

the land values of an owner’s property when the improvement is made. 

But that is just one example.

In addition, economists are not very good at tracing the subtle ways 

in which things get passed along. If the chain gets too complicated, 

as when you make downtown more accessible and try to assess how 

much goes into downtown property values or higher wages and profits 

for downtown workers and businesses, it is very tough for us to give you 
57

an answer with much confidence. Focusing on jurisdictions is at least as 

bad and is compounded by confusion about whether growth necessarily 

benefits a jurisdiction. Often it is not clear—at least to existing residents—

that job or residential growth is such a benefit. So a probable benefit to 

landowners may not be a benefit to all the citizens.

In addition, we are not very sophisticated about the implications of 

some of the distributional effects, particularly geographically. On 

one level, I agree that the arguments for tracing distribution are pretty 

strong. On another level it is garbage in, garbage out. You may end up with 

some quite naive and misleading estimates of distributional consequences. 

The example of noise from airport runways probably is one of the places 

where it is easiest and clearest. Many other things we deal with are more 

complicated.

DR. MEYER: I agree with what Dr. Gomez-Ibanez just said because I 

face both the geographic and the population distribution issues. 

They are very, very difficult, and benefit-cost analysis is only part of 

the total evaluation framework. For example, to get the message about 

real distribution issues in regional investment, we did not look so much 

at benefit-cost analysis as we indicated on a map where the investment 

was going. We also indicated how this investment related to the poor and 

minority population. This distributional impact got people’s attention. 

This visual relationship initiated a discussion about equitable distribution 

of investment vis-á-vis population location and where the revenues are 

coming from. We really should be talking about evaluation and the role for 

benefit-cost analysis in this much broader framework.

 “...the geographic 

and the population 

distribution issues...are 

very, very difficult, and 

benefit-cost analysis is 

only part of the total 

evaluation framework.”

-Dr. Meyer
58

Summary of Panel Responses to Audience 

Questions

Could benefits and costs be measured at the national level so that 

Congress had a framework for deciding, for example, whether to 

spend $1 billion on transit or highway projects? If it is possible, is 

it a good idea?

• Dr. Forkenbrock stated that the only way to do such an analysis would 

be to use major projects undertaken in the past decade as sample 

data—and this would be precarious.

• Dr. Pickrell said that the Highway Economics Requirements System 

(HERS)48 model attempts to do this for highways by simulating the 

most beneficial improvement projects on a large sample of U.S. 

highway segments, adding the benefits of these projects, determining 

the spending level required to generate those benefits, and expanding 

to a national estimate of how much you would have to spend on 

highways to achieve various criteria such as maximum benefits. He 

said that there is no corresponding model for transit investments or 

one that incorporates both potential highway and transit investments. 

• Dr. Meyer said that we do not have the analytical tools needed to 

provide Congress such a framework.

• Dr. Taylor noted that evaluating transit investments at the national 

level is particularly problematic because the consumption of transit 

services is so spatially asymmetric: since most transit riders are in the 

centers of the largest and oldest U.S. cities, most of the benefits of 

transit projects will be in these locations.
59

Opening Comments by Dr. Forkenbrock and 

Dr. Kirby

DR. FORKENBROCK: To stimulate discussion, each of you has my 

handout, “Improving Benefi t-Cost Analysis.”49 Several concerns have 

developed from my practical work with state agencies to refi ne benefi tcost analysis for major investments and with a team that conducted 

feasibility analyses of three of the national interest corridors50 identifi ed 

by ISTEA. These problems occur particularly at the metropolitan and state 

agency level, rather than the national level.

• One problem is excessive dumbing down of benefi t-cost 

analyses. When a colleague surveyed state agencies about their 

current benefi t-cost analysis practices, he found that a series of them 

do not even discount their benefi t and cost streams51—they just add 

them up. Many state agencies and metropolitan planning organizations 

(MPOs)52 use computer software that contains a range of assumptions 

that are not explicitly chosen and that the user does not understand. 

A good example is using national averages for the value of time. 

Similarly, some analyses ignored network effects—that is, a project’s 

effects on the larger area if, for example, traffi c is diverted. Safety and 

modal shift effects also were ignored.

David J. Forkenbrock 

is Director of the Public 

Policy Center, Director of 

the Transportation Research 

Program, Professor in 

Urban and Regional 

Planning, and Professor in 

Civil and Environmental 

Engineering at the 

University of Iowa.

GAO Questions:

• How can data availability/quality be improved and uncertainty

reduced in estimating the benefits and costs of transit and

highway investments?

• Is there a basis for standardizing benefit-cost methods and is this

desirable?

• What is the best way to help ensure the objectivity of benefit-cost

analyses for transit and highway investments?

Appendix V: How Could Benefi t-Cost Analysis Be Improved?
60

• A second problem concerns questions of who benefits, who 

loses. We have talked today about the Kaldor-Hicks criterion—that is 

extremely important.53 We have just finished a National Cooperative 

Highway Research Program guidebook on taking into account 

distributional effects and incidence that are very important, but 

very commonly ignored, in benefit-cost analysis.54 

• A third problem is that parameter values are very poorly 

chosen.55 In state agency project evaluations, the basis for fatality or 

injury values rarely is explicitly considered. Many states use very low 

values. 

One corridor of national significance runs between two states. 

One state uses a million dollars per life; the other uses $500,000 

per life. My colleague asked the states surveyed why they used 

whatever discount rate they used and found that the basis was 

not well understood. As a result, the impacts of different discount 

rates were very rarely considered. Yet, the choice of discount rate 

and value of time can make a bad project into a very good project 

or a very good project look infeasible. These parameter values 

are incredibly important when evaluating specific projects. 

Moreover, time values rarely are tied to local wage rates, and there is 

no consideration of how the value of time might be varied.

The “second best” issue56 is almost never considered. This means 

that if you are estimating demand on the basis of heavily subsidized prices, 

you are not going to get an efficient evaluation. This fact is almost never 

taken into account by benefit-cost analysis users at the state and MPO 

levels. When I chaired the National Research Council oversight committee 

on the National Highway Cost Allocation Study in 1997, we found that 

certain vehicles—particularly heavy trucks with fewer axles—have a cost 

responsibility that is perhaps 20, 30, 40 times the amount that they pay in 

user fees. There will be very different results if you build a road to serve 

current traffic levels and forecasted traffic increases than if you price 

the road at full cost and see what the demand level is, using that as the 

basis for your investment. The “second best” issue is a major and difficult 

problem.

It occurs to me that one solution to these problems is the American 

Association of State Highway and Transportation Officials’

(AASHTO) new manual on benefit-cost analysis—the Redbook.57

It contains good, useful information on doing benefit-cost analyses in 

transportation. Other solutions may be practical courses on benefitcost analysis sponsored by FHWA, AASHTO, or some other group. 

Courses could pay special attention to using sensitivity analyses58 to test 

the impacts of different parameter values and increasing the use of state or 
61

regional travel demand analyses to estimate network effects. Many times, 

travel modeling that is the basis for determining whether investments are 

called for is done on a partial basis—the models do not actually look at the 

entire travel corridor. State cost allocation studies59 have been improving 

over recent years, but they still have many conceptual and data-driven 

limitations. And, without knowing cost allocation levels, you have no idea 

of exactly how close different vehicles are to paying their full cost. This 

information can drive investment analyses and become a critical element 

in doing confident benefit-cost analyses.

DR. KIRBY: From the perspective of an MPO that does a lot of number 

crunching, modeling and analytical work, what we do does not map very 

well onto an ideal benefit-cost framework. Like other MPOs, we have 

spent the last few years very focused on air quality and computing 

regional emissions to meet Clean Air Act Amendments (CAAA) 

conformity requirements.60 These requirements are very stringent—they 

can block and limit project development. MPOs are required to meet 

fixed “emission budget” levels that are part of a much larger regional air 

quality analysis that looks at all kinds of different sources. We must meet 

a fixed air quality standard. If we are below it, we pass; if we are above it, 

we fail. That is a benefit-cost framework for you. The U.S. Environmental 

Protection Agency (EPA) currently mandates that we use the MOBILE6 

model.61 This model requires us to model 28 different vehicle classes (the 

previous model had eight different vehicle classes). It puts vehicles into 

different weight categories, engine types, etc., and requires information 

that goes way beyond the data that we have for our region.

Air quality modeling has been one of our major preoccupations 

because it could be a fatal flaw. If we do emissions calculations 

incorrectly, we could be challenged by those who might not like a 

particular project and see air quality requirements as a way of slowing 

things down.

Air quality and transportation investment studies are insulated 

from each other—this is a big problem, as Dr. Forkenbrock noted. The 

requirement applies to individual projects and involves intensive work at 

the corridor level. While it draws on regional travel modeling, the EIS is a 

separate undertaking—often employing consultants who take the regional 

models and use them at the corridor level. The focus is on a project and 

corridor—and the process does not look as comprehensively as it should 

at regional implications.

In a case in which citizens requested a study of alternative sites for 

a bridge crossing, the project study team initially responded that 

this was outside the project study scope. Yet, alternative sites were 

within 10 miles of the existing bridge. A month later, the study team 

Ronald F. Kirby 

is Director of 

Transportation 

Planning for the 

Metropolitan 

Washington 

Area Council of 

Governments.
62

thought better of its answer and agreed to test where traffic would 

come from and go to at other crossings. This is the philosophy that 

surrounds some corridor studies. However, as scrutiny of these 

studies increases, we are being driven to look at things much more 

comprehensively. Travel modeling is a big part of MPO work and 

much is being asked of modeling work.

We now are being asked to look at pricing issues in addition to air 

quality issues. Pricing is a whole different approach to project 

planning that puts a different angle on issues and poses very tough 

questions in forecasting the impacts of different pricing strategies. For 

example, we are doing a major corridor study in which the project is a new 

managed roadway—18 miles, 6 lanes, with 50 miles per hour peak period 

speeds in 2030. Our job is to find out what the toll is supposed to be, see 

what the revenues will be, and match this up with additional revenue 

sources. This will press our modeling capabilities more than in the past. In 

addition, groups who have various views about the outcomes they do and 

do not want will scrutinize our modeling procedures. This will be one line 

of challenge to the modeling outcome, and we are going into this project 

knowing that the technical work will be challenged.

Elected officials and citizens now have a very substantial interest 

in knowing everything that is behind modeling. Many things that 

formerly were in-house technical issues are now scrutinized by citizens 

and elected officials. For example, values of time and how well the model 

replicates existing travel patterns, root mean square errors in terms of 

matching model results to traffic counts are going to be very important. 

This is good, but it requires us to explain many more things than 

before.

Data availability and quality need to be improved to improve 

benefit-cost analysis. In my view, we have a tendency to focus too 

much on improving travel models and not enough on improving the 

data that drive the models. For example, there is growing interest in 

time of day modeling—how peak travel periods are spreading at congested 

locations on the freeway systems and how people react to congestion by 

changing their travel behavior. If people react to congestion by traveling 

later or earlier and you increase capacity, those same people will revert to 

the time they traveled before, and congestion will return. Has your project 

failed to eliminate congestion?

Modeling travel at different times of day is important, but travel models 

are not terribly good at dealing with it or other traffic operational effects. 

An obvious question is whether we have good time of day counts. The 

answer is that we do not. We have found instances where the published 

counts are clearly inconsistent. Although this is an important issue, we 

“We have a tendency 

to focus too much on 

improving travel models 

and not enough on 

improving the data that 

drive the models.”

-Dr. Kirby
63

have very few permanent count stations in our region and some are not 

operating. It is difficult to get data from state agencies because it is not a 

priority for them to collect counts at the level of detail that we need. 

Much more attention has to be focused on data if MPO modeling and 

analysis is going to get to this new level of scrutiny. There are obstacles—

home interview surveys are increasingly harder to do, telephone surveys 

are difficult, all survey response rates are going down. Those people 

who have only cell phones are not included in a random selection of 

households. Should we put global positioning system (GPS)63 devices on 

the vehicles and track them around to get data in the future? Refreshing 

our data poses really tough issues.

We really are in a new ball game—dealing with issues that we have 

never been asked to handle before. For example, we need analytical 

methods to help us predict how people will respond to various prices on 

a new lane or—even more complicated—on one or two tolled lanes on an 

existing freeway with lots of entry and exit points along the way. When the 

private sector wants to know travel volumes to decide whether or not to 

finance a project, we are facing an information challenge that we have not 

faced before, namely to get “investment grade” forecasted volumes. Before 

you can ascribe benefits and costs, you really need to know what travelers’ 

responses are going to be to the project. Until you can get a rough handle 

on that, all the other issues—discount rates and everything else—are 

rather academic. 

There are plenty of consumers—the public and elected officials—for the 

things that we are talking about today. But, we will need to do a much 

more comprehensive job than we have done in the past if we are going to 

respond to their interests and meet our planning requirements. 

Panel Discussion

DR. TAYLOR: We have heard that there is less and less willingness to 

put the significant resources required toward refreshing, updating, and 

revising data that are collected in household activity surveys. At the same 

time, there is much more detailed interest in your analyses. That seems 

somewhat contradictory.

DR. KIRBY: The dilemma is that there is a long lead time in getting and 

applying these data. If you want the data now, you should have collected it 

10 years ago and been improving the models over that period of time. The 

increased funding from ISTEA and TEA-21 was a big help in improving our 

data collection and model development. But a whole new home interview 

survey is beyond our annual budget. If reauthorization of TEA-21 helps or 
64

the state agency funds such a survey, it still will be 3 years before we have 

results that are cleaned up, calibrated, and in the models. Currently, we are 

dependent on what we were able to do over the past 10 years.

The idea of a standard national travel demand model disappeared 

20 years ago. There has not been a strong federal presence in this 

area—travel modeling has devolved into independent vendors 

with different software packages. As an MPO, we can choose among 

four or five vendors who tailor models to meet our needs. But, there is no 

standard, as Dr. Forkenbrock’s committee concluded.64 If you ask how 

are we doing or are we doing as well as anyone else—nobody can answer 

these questions because nobody knows the big picture. We hope that DOT 

will fund TRB to prepare a synthesis of modeling best practices to see how 

we can address this problem. We have had 10 or 15 years of everybody 

doing their own modeling, and now it is very difficult to know the current 

state of the practice.

DR. LEWIS: There are analogous data quality problems in other 

areas. One type of solution is suggested by the practice of benefitcost analysis in relation to information technology investments. 

Here, large organizations want to know if the benefit—a productivity 

gain—is going to outweigh the costs. However, the productivity data often 

are as awful as the counts that Dr. Kirby describes. So, what do you do 

about it? Increasingly, we are saying that the quality of the data is what 

it is. The important point is that continuously or periodically measuring 

productivity becomes a necessary project cost. We have a baseline and 

even if we are unable to measure productivity perfectly, we can measure 

it the same way each and every time, starting before the project is 

implemented. For example, the U.S. Department of Homeland Security has 

determined that queue lengths for visitor programs65 will not only remain 

stable but decline by using tools such as biometrics at various points of 

entry in and out of Canada and Mexico. We are measuring the extent to 

which queue lengths are improved by these interventions. The simple 

point is to measure it in the same way for a year before the changes are 

introduced and thereafter. Track performance on the basis of data for 

which one can be reasonably sure there is a standard of measurement. 

We do not have the habit of measuring the after-effects and 

benefits of transportation projects. However, doing so has become 

second nature in the information technology world because there 

were so many large-scale failures that companies are being forced to 

take risks based on whether or not benefits are likely to be realized. In a 

private or public toll road situation, one could imagine something similar. 

For example, the private or public toll authority would promise a certain 

degree of congestion relief, and be willing to assume the risks, in exchange 

for rewards should the results materialize at a level greater than forecast—
65

that is, the authority would get to keep the revenues that were above and 

beyond what was expected. The point is, if we start measuring outcomes, 

we will insist on consistent—not perfect—measurement. We will see 

whether the benefits and costs realized match our projections and more 

importantly, are worthwhile.

While we do not see much retrospective evaluation of how well we are 

doing, we must be able to do it—not so much in relation to ridership 

and revenue, but regarding economic benefit. If a project’s evaluation 

could be extended into the domain of economic outcomes, we might see 

some better data and more frequent counts. If benefit realization must be 

measured, money will be budgeted to do that over a project’s life cycle.

DR. TAYLOR: Do we see less retrospective evaluation in transportation 

than other areas? A huge amount of program evaluation goes on in health 

care and welfare—very detailed evaluations that anticipate changes, look 

back, and make adjustments. Why would there be more evaluation in other 

government endeavors than in transportation? We also have talked mostly 

about projects today. But huge federal and state transportation programs 

also can be evaluated using some of the tools we are discussing. Why a 

focus more on projects than programs?

DR. PICKRELL: Perhaps there is the same answer to those questions. 

My sense is that there have been relatively infrequent attempts to assess 

whether individual projects realized their forecasted costs, utilization, 

or revenue—and almost no assessment of their benefits’ similarity to 

forecasts. However, there has been something of a cottage evaluation 

industry at the program level. I am not sure why, except that we did not do 

benefit-cost analyses of major programs until relatively recently. Transit 

projects in the 1970s and 1980s were planned and constructed under 

NEPA’s environmental impact assessment process. This process provided 

most of the information needed to estimate what should have been a 

project’s benefits, but it was almost never used to estimate benefits in the 

format that we are discussing today.

FHWA has a tall stack of research that attempts to estimate the highway 

program’s benefits using a wide variety of analytic and econometric 

methods. For example, David Aschauer66 and others did work on the 

program’s macroeconomic benefits. Although somewhat uneven, there is a 

wealth of research on the subject—people have not shied away from it.

DR. GOMEZ-IBANEZ: One of my best Ph.D. students wrote a 

dissertation on transportation and poverty. The study compared 20 

families who had cars and 20 families who did not—both poor and living 

in suburbs—and how they managed. Despite my hope that this student 

would have a transportation career, the student went into poverty research 
66

because that is where all the money is. Unlike transportation, where 

we do not evaluate projects—people just want to declare success 

when the streetcar starts rolling and be done with it—this student is 

evaluating demonstration projects. Perhaps there is less of a sense in the 

antipoverty, education, or health communities that they know what works. 

However, there is much more willingness to evaluate these projects. In 

transportation, there is an ideological battle between environmentalists 

and smart growth supporters—each with confidence that truth is on their 

side and demonstration is not needed.

DR. TAYLOR: Perhaps controlled experiments are done much more 

easily and less expensively with individuals than with metropolitan 

areas. Individuals are routinely selected from different groups and the 

eligible pool at random and assigned to different treatments. In the 

metropolitan areas, we would need to treat one city with a light rail 

system and an identical city with an expressway system. It is harder 

to fashion the experimental or research paradigm in our context than 

in theirs. Dr. Gomez-Ibanez described the analysis as being entirely 

different—individuals, households, and smaller neighborhoods rather 

than metropolitan areas. Does that reflect institutional bias in the way 

these things are administered? Why not analyze the travel behavior of 

individuals, households, and firms? It could be like analyzing changes in 

poverty in one city versus another.

DR. GOMEZ-IBANEZ: But the policies we are discussing are applied 

at a metropolitan level. You treat the entire metropolitan area when you 

build or do not build the transit line.

DR. PICKRELL: We were in the waning stages of a very ambitious 

program to design and test various innovations in providing transit 

services—the Services and Methods Demonstration Program—when I 

first worked for the U.S. DOT. Reports produced by that program were 

absolute models of how to generate all the information necessary to 

comprehensively analyze the value of the investment, innovation, and 

service that had been performed. However, the analysis invariably was 

left undone—it was not synthesized in the format that we have been 

advocating.

DR. SMALL: I served on a TRB committee, chaired by Dr. Wachs, that 

assessed the Congestion Management and Air Quality Improvement 

(CMAQ) program.67 One of our recommendations was to systematically 

do post-evaluations of projects, including cost-benefit analyses, because 

evaluations being done were very haphazard and infrequent. In addition, 

because CMAQ projects are experimental and innovative projects, it is 

important to find out about their benefits and what works—especially at 

the federal level.

“...we do not evaluate 

projects—people just 

want to declare success 

when the streetcar starts 

rolling and be done with 

it...”

-Dr. Gomez-Ibanez
67

DR. TAYLOR: There may be another significant difference between an 

antipoverty program like the Temporary Assistance for Needy Families 

(TANF)68 that moves people to paid employment and a building or facility 

where a public official can stand and cut a ribbon. The facility serves 

important political purposes—people have been hired to work and build 

it. It is less abstract than an employment project. On some level, it has 

accomplished things that its promoters argued that it would. A more 

sophisticated evaluation of whether it returns benefits to the degree that 

some other investment might have seems more academic than the fact that 

there is concrete in the ground. What benefit is there in going back and 

saying that—while this may be popular locally—it is a dog project? There 

is much risk and potentially little reward in those analyses.

DR. FORKENBROCK: Alan Altshuler’s excellent book on megaprojects69 exhumes a lot of old projects and points out what might have 

been wrong with the forecasting and the process.

DR. LEWIS: In the information technology sector, companies 

that are proponents of large-scale projects are forced to measure 

outcomes and take risks in terms of their fee in relation to those 

outcomes. Might we not visualize a similar incentive structure in 

transportation? Large engineering and architectural companies often are 

proponents of large transit and highway projects. If they were on the hook 

financially for certain economic outcomes, the information and reason that 

goes into project evaluation and the information about whether transit or 

highway capacity represents the more effective solution—at least at the 

corridor level—might improve. I do not know how realistic that might 

be in the transportation world. However, it certainly did not seem very 

realistic in the information technology world 10 years ago—now it is the 

state of the art.

DR. WACHS: It is not coincidental that project evaluations do not 

occur—they would harm the purposes of many of those who put forward 

the programs. It comes back to the opening point that Dr. Taylor made 

this morning—the issue is the geopolitics of resource allocation, not 

whether benefits exceed costs for a particular project. I have been 

attending symposia, discussions, and conferences for over 40 years where 

this point has been made. We have not just discovered it—it has a life of its 

own. Our elected officials have not responded to admonitions that more 

transportation funds should be spent on evaluation. Their answer clearly is 

that the benefits of doing so are smaller than the potential risks.

DR. MEYER: I am not so sure that the reason evaluations are so 

rarely done is that benefits are perceived as smaller than potential risks 

as much as it is limited money. If I were an MPO or state agency director 

and someone gave us money to do before and after evaluations, I probably 

would do them. The problem is that there is no money to do evaluations. I 

“It is not coincidental 

that project evaluations 

do not occur—they 

would harm the 

purposes of many of 

those who put forward 

the programs...the issue 

is the geopolitics of 

resource allocation, not 

whether benefits exceed 

costs for a particular 

project.” 

-Dr. Wachs
68

do not agree that evaluations are not done because proponents are afraid 

to risk discovering that they did something wrong.

DR. TAYLOR: Then you have to ask yourself, why is it different in health 

and education?

DR. MEYER: There is a very clear answer—evaluation is very common 

to the social sciences’ function and service orientation. Transportation is 

infrastructure. Although we now talk about transportation customers and 

services, infrastructure programs do not have a tradition of doing before 

and after evaluations. It just has not happened.

DR. FORKENBROCK: In some ways, health and transportation have 

similar problems. My academic center has both health and transportation 

policy programs. In health, epidemiology is sort of a dark science. It is 

difficult to decide whether an intervention led to changed health status in 

people because some smoke and some do not, some are obese and some 

are not.

Our legislature created a transportation program to invest in highways to 

promote economic development. Our center tracked each project that was 

funded by the program in order to determine whether it had the intended 

effect—did it create the number of jobs and produce the value added that 

was expected within 3 or 4 years. We ran into the difficulty of economic 

cycles.

Someone promised to generate 400 new jobs, but needed better 

access to an interstate. So, we invested a couple of million dollars 

and poured a road for you. However, you have only increased 

employment by 75 people. Did the economy go bad or the industry 

go through a cyclical perturbation so that things are not the same 

as when we made the forecast? Was the forecast done with very 

sanguine assumptions or did the economic cycle change? The 

truth probably lies somewhere in between. It is very difficult to 

do economic impact forecasts and determine X years later 

whether that promised economic impact really occurred.

Changes in people’s taste, economic cycles, and a hundred other 

things can make that very difficult.

DR. PICKRELL: Something else may be at work here. My contact 

with public officials who oversee construction of major transportation 

infrastructure projects suggests that their view is that when the ribbon 

is cut, the important work is done. In an extremely cynical sense, that is 

what makes the local political machine work. If so, the important political 

part of the project is finished at exactly the time that its transportation 

function begins. I’m not sure I believe this, but offer it as a hypothesis. 
69

People are not consciously trying to cover up presumed failures—Dr. 

Meyer is right. This fear does not underlie the unwillingness to look back. 

It is admittedly inconvenient to know that a project failed to meet criteria 

on which it was justified, but there always is an explanation that has a 

superficial plausibility about it.

DR. GOMEZ-IBANEZ: A less cynical view would be that TANF can be 

redesigned every year so it is worth finding out how the program works 

and adjusting. But then you have to ask why communities that are building 

a transit system are immediately proposing the next extension. Why are 

these communities not interested in what happened?

DR. LEWIS: They could be interested if congressional appropriations 

committees that put a lot of federal money into New Starts,70 light 

rail, heavy rail, and highway projects insisted on performance 

reports and measurements of returns. This would be a means of 

getting a handle on return on the federal dollar, but not limiting it 

to the federal share. One reason this does not happen is no one with a big 

hammer says that you have to do it. If we could agree that doing so would 

be a good thing, this could be an incentive for these committees to write 

language insisting on it and put money into it or insisting that certain funds 

be designated for it.

DR. PICKRELL: What Dr. Lewis is describing is essentially how the 

cooperative research programs71 work—they are funded by a set-aside 

from the program. Moreover, their perspectives tend to be broader than 

an individual project. Perhaps we need a companion provision that a small 

fraction of project level funding be dedicated to post hoc evaluation, as the 

CMAQ report recommended.

DR. MEYER: I would like to ask Dr. Lewis about his discussion of the 

importance of applying risk analysis or its principles to improve benefitcost analysis. What does this mean in practical terms? How would it 

benefit the methodology?

DR. TAYLOR: I would like to ask Dr. Lewis about his comments 

concerning looking at values and risks so that stakeholders define what 

is important. Is this a slippery slope to a completely value-laden process 

where people’s perceptions of outcomes become divorced from empirical 

measures?

DR. LEWIS: I do not suggest that benefit-cost analysis be a broad, freefor-all conversation. I am advocating that the benefit-cost analysis 

discipline be applied both on the quantitative and value sides. 

The discipline—the logic and everything we have learned about 

cause and effect and measured values from revealed and stated 

preference studies72—should be rendered accessible and brought 
70

to the public deliberative process to increase its quality. I am not 

suggesting that we ask people to come up with their own subjective values 

of time without being constrained by that discipline. I am not suggesting 

this in lieu of carefully measured value of time based on a good stated 

preference analysis or econometric analysis. Risk analysis is being done 

in biomedical research, other scientific research, and to some extent in 

transportation.

I was involved in presenting value of time issues to a group that is 

discussing a light rail system for their city. I told them that their 

city’s value of time estimate, based on a stated preference analysis, 

was $14.50 an hour during commuting time and 40 percent of 

that at other times. We tried to explain the statistical meaning of 

an expected value and used other associated statistics to present 

the rest of the curve—which inevitably will be a symmetric, bellshaped distribution because of assumptions that have gone into 

the analysis. People saw that other values were possible. Then we 

layered in another level of uncertainty from studies that came from 

outside the community. We produced estimates from the Journal of 

Economic Statistics that present values of time as low as $3 or $4 

an hour during commuting hours, based on the same kinds of stated 

preference methods.

Bottom line: these other studies seem to provide evidence that 

there are extremes and other possible outcomes that differ from 

the expected value of time—the data also appears skewed toward 

the low end of time values. We redrew the probability distribution 

with a skew to the left, showing the probability that the truth lies 

more on the downside of the expected value than the upside. Then, 

we facilitated a discussion with local MPO planners where the 

subjective element would enter. We asked about the reality of value 

of time choices among communities on this corridor and how they 

would modify what we had. We used elicitation protocols73 that 

have been honed rather nicely in the biomedical world of statistical 

research. These protocols elicited beliefs from local experts and those 

with experience in observing traffic flows and household choices 

to add to the shape of this distribution. Remember, a Bayesian 

probability74 has to start from the frequency with which something 

happens—just a counting exercise. Bayesian is probability. It 

reflects the degree of belief that an expert or someone whose beliefs 

are convincing is right that something will happen with a certain 

probability. We tried to allow for a degree of subjective probability. 

During this discussion, people learned about the data—a bit about 

the central tendency,75 the down sides, probabilities associated with 

the down side. We went through the same exercise for statistical 

lives, injuries, and the environmental value of a ton of carbon 

dioxide. 
71

In my earlier airport runway noise example, we had property distributions 

based on econometric studies of the property value effects of a unit 

increase in overhead noise. We also brought in real estate agents and 

taught them how to think probabilistically so they could contribute to the 

shape of the distribution for that community. We ended up with what we 

believe is a scientific, locally informed representation of the probability 

range for values of time and life. We can do the same thing on the quantity 

side. 

The four-step congestion relief model is how uncertain are we about the 

cross elasticity of transit demand76 with respect to its generalized cost. 

We try to get at the distribution and how evidence from other studies 

informs the shape and breadth of this distribution. We then get local 

people’s beliefs. The value of the elicitation process is its discipline. For 

example, if something is 30 percent likely to happen, then it is 70 percent 

likely not to happen. Simple disciplines like that smoke out some of the 

strategic behavior rather effectively. If you break the problem into its 

logical parts and attack one variable at a time, you can bring the discipline 

to bear on how people behave. Then you put it all into a Monte Carlo type 

simulation77 and see what the results seem to suggest.

The valuation question is not asking people to invent a value of time 

number based on their anecdotal instincts. It is looking at scientific 

evidence and working their beliefs into the context of that evidence. In 

doing so, people are learning a great deal about the science that we bring 

to the table.

Finally, one way to improve benefit-cost analysis as a tool in transit 

is to actually do it. It is not being done today, so I would hate to see 

us move on without that getting into the record. FTA’s New Starts is many 

things, but it is not benefit-cost analysis. This means that neither we 

nor the Appropriations Committee will ever be able to compare 

the rate of return or the net benefit of building a light rail system 

along Highway I-71 to widening it instead. It seems to me that we 

must be able to compare different ways of using transportation 

money. How to improve it? Let’s do it.

“...one way to improve 

benefit-cost analysis as 

a tool in transit is to 

actually do it. It is not 

being done today...”

-Dr. Lewis
72

Summary of Panel Responses to Audience 

Questions

How can the quality and value of transportation data be 

improved to provide better information for decision makers and 

benefit-cost analyses? 

• Dr. Kirby emphasized that the first step is to thoroughly review the 

existing travel modeling process to document the need for better data 

and to focus on which data is most important to collect. He said that 

analysts are likely to need different kinds of information collected 

in different ways, such as GPS and smart cards,78 particularly as old 

methods of data collection such as household surveys are becoming 

more difficult to perform. He added that some transportation programs 

focus all their resources on developing very sophisticated modeling 

techniques rather than on collecting the better data that they really 

need. 

• Dr. Forkenbrock said that there is a need for a better behavioral 

understanding of urban trip making. He noted that researchers like 

Sandra Rosenbloom79 have shown that women’s travel behavior in 

cities is more complex than men’s travel and involves stops along the 

way, while traditional four-step travel modeling generates information 

on trips only from one traffic analysis zone to another. He said that 

an understanding of the complexity of trips is needed to assess the 

benefits of different transportation interventions. 
73

Opening Comments by Dr. Meyer and 

Dr. Gomez-Ibanez

DR. MEYER: I thought it would be interesting to share information 

about how some other countries use benefi t-cost analysis in decision 

making. I recently was in Australia, New Zealand, Japan, and Canada 

with a team to examine transportation performance measures and their 

use at the national, state, and provincial levels. In Australia, we found 

benefi t-cost analysis being a very important part of the support structure 

for infrastructure decisions. As my paper describes, the State of Victoria 

portrays benefi t-cost analysis as an important part of its decision-making 

process and describes it as a risk-based approach. 80 The State of Victoria 

defi nes benefi t-cost analysis in a very traditional way—much the same as 

we do here.

We found that Australian state offi cials monitor some performance 

indicators on a yearly basis. These indicators relate directly to what they 

call a “return on construction expenditure” (RCE) and an “achievement 

GAO Questions:

• What does benefit-cost analysis contribute to transit and highway 

investment decisions, what are the most appropriate roles it can 

play, and when should it be conducted?

• Should benefit-cost analysis be required in planning transit and 

highway investments?

• 

• 

What is the federal role in improving the quality and use of benefitcost analysis?

Do retrospective analyses of the performance of transit and highway 

investments have value?

Michael D. Meyer 

is Professor of Civil 

and Environmental 

Engineering at the 

Georgia Institute of 

Technology.

Appendix VI: How Can Benefi t-Cost Analysis Be Most Useful In 

Investment Decisions?
74

index.” The RCE is essentially a benefit-cost ratio. In Victoria, benefitcost ratios are prepared for all road projects. Interestingly, road officials 

explain projects with benefit-cost ratios of less than one as being “political 

projects.” Australian road officials also conduct before and after studies 

of the benefit-cost ratios themselves. A sample of implemented projects 

is targeted for the collection of after data to determine what the actual 

benefit-cost ratio is after approximately 2 years. The ratio of the “after” 

benefit-cost ratio to the “analysis” benefit-cost ratio is defined as the 

achievement index. One of our first questions was how much time they 

allow for achieving a steady state in benefits. Two years seemed to be 

the common time frame to develop the post-implementation benefit-cost 

ratio, although this varied because of the different scopes of the projects 

(everything from a left turn lane to major highway construction).

The Victoria state government has an auditing agency that audits the 

analysis and the management activities of all state agencies. This 

independent, semiautonomous group actually provides another review of 

the quality of the decision support function in the transportation agencies. 

Australia also has identified performance indicators for the different states 

that are used to compare one state to another. 

Victoria officials emphasized that their approach is important to 

convince Australian parliamentary decision makers that VICRoads 

(the state road agency) has a good technical analysis process in 

place to justify its investments. AUSTRoads—a national organization 

like our AASHTO—recommends that all Australian states take this 

approach. VICRoads also is headed in the direction of putting risk analysis 

into their cost estimates—an issue that Dr. Lewis raised earlier. The risk 

analysis essentially says that the longer you wait to implement a project, 

the greater the uncertainty associated with benefit and cost streams. By 

doing this, VICRoads is trying to incorporate some sense of uncertainty 

into the project implementation time frame. This is interesting because it 

is really a different model than we would usually find in the United States.

Turning to GAO’s questions, the first one concerns the most appropriate 

roles benefit-cost analysis can play in contributing to transit and highway 

investment decisions. Dr. Lewis talked about bringing benefit-cost to the 

discussion of projects and I completely agree. It is a very important piece 

of information for investment planning and decision-making processes. 

It is not the only criterion that one would look at in decision making—no 

one here has said that—but it gives decision makers a sense of what it is 

they can get for the investment they are considering. I view benefit-cost 

analysis as one very important part of an evaluation process and decisionmaking framework.
75

As we said earlier, benefit-cost analysis can be very important for looking 

at distributional calculations, if appropriately done. It can give a sense of 

what distribution may mean in either geographic and/or population group 

terms. In some cases, this can become an incredibly important factor in 

decision making. Benefit-cost ratios can become a very important element 

of how decisions are made about projects that are on a smaller scale.

When should benefit-cost analysis be conducted? Clearly, the answer to 

this is before you make the decision! This is a bit facetious, but really 

an important point from the perspective of local, regional, and state 

government. The evaluation process for these agencies occurs during the 

planning process, when the relative values of projects and strategies are 

considered and when benefits and costs are defined.

Similar to the Australian experience, we need to do some assessment 

of what happens after projects are put in place. VICRoads assesses 

a 10 percent sample of all projects implemented each year—about 40 

projects out of approximately 400 projects. This provides feedback to the 

project analysis process and critically examines the effectiveness of the 

information produced that supports the decisions.

Should benefit-cost analysis be required in planning transit and 

highway investments? Clearly, the answer is yes. Some analysis 

framework that looks at benefits and costs certainly should be required. If 

correctly done, benefit-cost analysis is one approach that could satisfy that 

requirement.

What is the federal role in improving the quality and use of benefit-cost 

analysis? We have talked about providing dollars to improve data 

quality, supplying technical guidance and information relating to 

modeling and the dissemination of information, and distributing 

information about best practices. This is most likely the best 

federal role.

Do retrospective analyses of the performance of transit and highway 

investments have value? Absolutely. Positively yes. No question about it.

DR. GOMEZ-IBANEZ: I am only going to talk about the question of 

whether benefit-cost analysis should be required. The implicit question 

that I imagined was whether Congress should require benefit-cost analysis 

or something like it. One thing that struck me in this session is that Dr. 

Pickrell and Dr. Kirby both essentially said that all the ingredients for 

benefit-cost analysis are there. Local agencies are required, mainly by 

NEPA and the CAAA, to do elaborate analyses and generate much of the 

information you would need. We just do not take that extra step of doing 

the benefit-cost analysis.

Dr. Jose A. GomezIbanez is Derek C. Bok 

Professor of Urban 

Planning and Public 

Policy at Harvard 

University’s John 

F. Kennedy School 

of Government and 

Graduate School of 

Design.
76

One of the interesting questions is whether benefit-cost analysis should 

be required--since it might not be so much of a burden—and what 

the consequences might be. There are many places we could gather 

information about how such a requirement would work. We have made 

analytic requirements, either benefit-cost analysis or something 

similar to it, for projects and local planning in many contexts 

and many ways. The 1934 Water Act mandated that the Army Corps of 

Engineers (COE) execute only projects whose benefits exceeded their 

costs. COE now has been doing benefit-cost analysis for 70 years. The 

FTA’s predecessor, the Urban Mass Transit Administration (UMTA) was 

mandated to use cost effectiveness, which was somewhat like benefit-cost 

analysis.

.

Analytic requirements have also occurred in other contexts. PlanningProgramming-Budgeting (PPB)81 was required for systematic analysis of 

all federal government budgets in 1960. The State of Victoria’s experience 

with analysis is not surprising. The British have required their department 

of transport to do formal benefit-cost analyses of all projects for decades. 

They take economics much more seriously than Americans. Each 

Canadian province has the Crown Corporation Commission do benefitcost analysis of Crown Corporation major investments.

I recall several lessons from requiring and applying analysis. One 

lesson is that two can play this game. When you require analysis, 

you put something at stake—such as when PPB was required or UMTA 

was first required to perform cost effectiveness analysis. With these 

requirements, agencies initially needed help doing the analysis. For 

example, there was considerable confusion in federal departments about 

how to do PPB. That put the Bureau of the Budget (BOB)—later the 

Office of Management and Budget (OMB)—at an advantage in dealing 

with departments. After training these departments, OMB had to 

be an analytic cop as the departments got good at PPB. Federal 

departments learned how to cook the analysis to favor their 

preferred alternative, and they got more and more sophisticated about 

it. At its worst, the analysis requirements ended up being like an arms 

race where no one was much safer than they were before—they were just 

spending a lot more on weapons. 

An even worse outcome at the national level is that analyses 

become so technical that the public drops out. Dr. Lewis’ goal of 

informing local decisions gets lost. You hire two experts to dispute each 

other, newspapers play it up as a dispute, and the public generally reacts 

by thinking that if two economists cannot agree on whether the benefitcost ratio is four or one-fourth, it must just be all garbage and we will 

ignore it.

“I recall several lessons 

from requiring and 

applying analysis...At 

its worst, the analysis 

requirements ended up 

being like an arms race 

where no one was much 

safer than they were 

before—they were just 

spending a lot more on 

weapons.” 

-Dr. Gomez-Ibanez
77

A second corollary is that benefit-cost analysis never ends up being 

the determinant of decisions. Benefit-cost analysis was never the 

determinant of what the COE did. Despite PPB, federal departments ended 

up doing what they always did—the analysis did not seem to change the 

outcome. And UMTA’s New Start analysis—its cost effectiveness index—

did not stop earmarking, which I think was its goal.

DR. TAYLOR: They might argue that it has increased earmarking.

DR. GOMEZ-IBANEZ: It may have. But actually, I am going to counterargue. If you are thinking seriously about requiring benefit-cost analysis 

or revising the FTA cost effectiveness analysis measure as a tool, it really 

would be worth your while to read about COE’s benefit-cost analysis, 

PPB, and UMTA’s cost effectiveness analysis. This history would show 

some success in all these cases. Success is not measured by getting a 

portfolio of projects that is as profitable as what VICRoads is claiming. The 

Tennessee-Tombigbee82 Waterway and other examples of projects that had 

post-analysis requirements certainly belie that. 

An analysis requirement made it harder to advance really 

outrageous projects. Were it not for that requirement, you would have 

had more Tennessee-Tombigbees. In the case of FTA’s cost-effectiveness 

analysis, projects that have actually moved toward substantial 

construction funding are the ones that are not laughable on the costeffectiveness test. In that sense, it has done a service.

I would argue for making the benefit-cost analysis simple and 

understandable rather than too complex. This is where Dr. Lewis and 

I might part company a bit. I was involved in the discussions about 

requiring cost-effectiveness analysis in the federal transit program. Transit 

capital program earmarking really started later—after President Reagan 

was elected and then OMB Director David Stockman was zeroing out 

transit rail New Starts. Congress responded by appropriating the money. 

DOT reacted, in part, by trying not to spend the money. Congress then 

responded by earmarking. Congress was saying that if you are not going 

to spend what we have approved, we are going to tell you exactly what to 

spend.

At this point, DOT realized it had lost control and that the end result 

would not be good for the program’s health. In changing the debate to 

get projects of higher public value implemented, DOT faced the dilemma 

that we face as benefit-cost practitioners—being either precisely wrong 

or approximately right. It decided to calculate cost-effectiveness using 

dollars per new rider attracted—not a full benefit-cost analysis. Instead, 

DOT said if the purpose of New Starts is to get new rail riders, then you 

must calculate cost effectiveness in doing so. This approach required 
78

analytic police because everybody now was cooking the forecasts. Still, 

my impression was that FTA recognized that this was not the only test—it 

was just one of several tests. If you had an embarrassingly low or high 

dollar cost per new rider, it put a greater burden on you to argue that 

your project ought to be earmarked in Congress. In that sense, I think it 

worked.

In this case, DOT did not pretend that this crude cost-effectiveness index 

or benefit-cost analysis should be the sole determinant of which projects 

the federal government funded. It was recognized as only part of the 

debate. However, it did end up shaping the argument in a way that was 

useful to help stop or control the most wasteful projects. Over the years, 

the value of that requirement eroded. It may have been changed to time 

measures—dollars per hour or minutes saved, in response to big cities 

that did not want New Starts, but wanted to improve or renovate existing 

service. Slowly, its power got lost. Still, it was a useful requirement.

My guess is that requiring a benefit-cost analysis or something like FTA’s 

New Starts cost-effectiveness measure would help shape the debate in 

ways that Dr. Lewis wants and not be a complete waste of time. However, 

insisting that benefit-cost analysis determine local or federal 

decisions is asking for a lot of trouble.

Panel Discussion

DR. WACHS: I think we can learn something relevant to Dr. GomezIbanez’s statement by looking at the history of NEPA. When NEPA was 

debated, one proposal was to require the environmental impact review 

to be done by an independent agency, rather than the agency preparing 

the project. The genius of the decision to give the agency that prepared 

the project this responsibility was that it infused these agencies with an 

environmental capacity that they would not have had if this review had 

been done by an independent agency. In addition, the decision embedded 

the environmental impact requirement in a process that forced democratic 

debate. The draft environmental analysis is subject to review, and must be 

presented at a hearing for public comments—and in turn, the comments 

must be responded to by the agency. I would take Dr. Gomez-Ibanez’s 

recommendation and add that if transportation agencies had to 

prepare benefit-cost analyses, they would become more expert.

Such a requirement probably should be embedded in a public process that 

subjects benefit-cost calculations to public comment and review. 

DR. GOMEZ-IBANEZ: Makes sense.
79

DR. SMALL: One question that we did not get to in the last session 

was ensuring the objectivity of benefit-cost analysis. I believe that Dr. 

Pickrell’s article about transit systems and their forecasts83 suggested peer 

review—just as a simple requirement that is not very onerous and 

shines a light on what is done. That seems to fit right into keeping a 

requirement from becoming a total game-playing exercise. 

DR. PICKRELL: I now have a different perspective on the peer review 

requirement and would not make the recommendation again. It may have 

been naive, given the success that project sponsors have had in gaming 

the process by loading peer review boards with people selected from a 

cadre of supporters. There is a bit of log rolling or back scratching. 

However, peer review probably has made things marginally better—

not worse.

Regarding a potential requirement for benefit-cost analysis in public 

decisions, I would observe that these large infrastructure investment 

decisions are inherently political decisions. They should remain 

so, although I would advocate a stronger role for some systematic 

analysis to inform and organize the discussion that accompanies 

that political decision process. In the current funding environment, I 

believe that local officials who make these decisions simply are incapable 

of seeing the benefits and costs accompanying their decision alternatives 

from the broad perspective that is required to accomplish all the objectives 

we have been talking about today—avoiding multiple counts of impacts, 

considering distribution and downstream impacts, and thinking carefully 

about which impacts genuinely add to a project’s benefits versus simply 

shifting benefits around.

The current federal structure and funding for transportation 

infrastructure investment provides no incentive for local political 

officials to engage in the systematic, forthright analysis that we 

are recommending. Recent integrated funding legislation for transit and 

highway programs has helped the situation a bit by moving slightly toward 

a unified funding process for transportation. Superficially, it looks as if we 

have a unified transportation funding structure at the federal level. But 

there is still pretty extreme compartmentalization of the individual 

funding programs under the umbrella authorization legislation.

Firewalls among the funding programs remain relatively strong and tend to 

be flexible—where they are at all—in only one direction.84 In this funding 

environment, there is simply not much incentive for local officials to 

engage in the kind of analysis that most of us seem to be advocating.

My guess is until an infrastructure investment decision imposes 

an opportunity cost on the officials making it by drawing down 

on their ability to make competing investments, any requirement 

“...these large 

infrastructure 

investment decisions 

are inherently political 

decisions. They should 

remain so, although 

I would advocate a 

stronger role for some 

systematic analysis to 

inform and organize 

the discussion that 

accompanies that 

political decision 

process.”

-Dr. Pickrell
80

to conduct systematic analysis will be a pro forma activity in 

somewhat the same way that the EIS has become—checking 

off boxes and listing mitigation measures. Responding to public 

comments on an EIS can become a pro forma process as well. Inevitably, 

it is a process of going down the list and making sure that you have said 

something in response to each of the 43,000 letters that have been elicited 

from property owners along the northeast corridor rail line or something 

like that.

Until the federal funding environment changes, any requirement to 

perform analysis will either be treated in a pro forma way, or worse, 

gamed in the way that Dr. Gomez-Ibanez was describing. A requirement 

will create the need for a policing agency. OMB seems to serve quite 

enthusiastically and capably in that capacity. And this does improve the 

analysis—there is no question. But I do not think you want the threat 

of having to negotiate the completeness and forthrightness of your 

analysis with OMB being the enforcement mechanism. I think you 

want to provide some incentive for project sponsors to willingly engage in 

the kind of process that we are describing.

DR. TAYLOR: I want to go outside the moderator’s role to say that I 

completely agree with your point. Internalizing these opportunity 

costs is really key. The whole federal transportation program is 

currently structured precisely to avoid trade-offs between modes 

and different sorts of investments. There is a lot of uncertainty in that 

process and this creates considerable transaction costs for the people 

involved.85 As a result, the policy makers involved in federal transportation 

funding decisions negotiate politically on how to divide the pie. Then 

the federal funding for different transportation programs is established. 

Regions and states that compete for federal money or projects are simply 

engaging in a gaming process. There are zero opportunity costs involved 

in doing so. Trade-offs can never be internalized, despite enforcement 

or regulatory mechanisms, as long as there are those strict divisions of 

transportation funding programs. The goal is always to maximize funds 

that can be accessed from each funding source. 

A real key is involving those who are trying to divide up the pie in 

project level decisions—this is where the honesty is going to come 

in. It is a pretty fair process when different interests compete for 

dollars and it puts a lot more rigor in the analyses. For example, 

California’s Transportation Development Act essentially ensures that funds 

in smaller counties go first to transit. If all reasonable transit needs have 

been met, the money can be used for streets and roads. Transit agencies 

argue that they need to spend this money, and county road departments 

challenge their analyses. This is much different from situations in which 

entities in the same categorical area are competing. However, federal 

“The whole federal 

transportation program 

is currently structured 

precisely to avoid tradeoffs between modes 

and different sorts of 

investments.”

-Dr. Taylor
81

funding programs are designed specifically to avoid just those kinds of 

choices—I think because of a lack of trust.

DR. GOMEZ-IBANEZ: I have heard for ages that we would be better 

off with consolidated transportation programs to allow trade-offs, etc. 

Richard Nixon tried it with categorical grants and he did not get far. I do 

agree that it would make the incentives very different. But it is a counsel 

of despair to say that, absent consolidation, there is not much we can do. 

This does not recognize that there are other allies for different points 

of view—particularly at the local level. In almost any local project, 

you will find people who are worried that the transit line is not going to 

the right section of the metropolitan area or taxpayers are going to have 

a white elephant on their hands. My guess is there are natural local allies 

on the other side to fuel debate. Even in the transportation agency that 

is advocating a project, there may be people who will tell a city council 

member that benefits will not exceed the costs of light rail for the city. 

There probably were COE people who knew that water systems were 

scarce resources and were glad to have the benefit-cost test to protect 

them from the worst projects being pressed on the Army. 

DR. KIRBY: I agree that discipline has to come from competing 

interests at the local level. Absent a complete restructuring of the 

federal transportation program—which is unlikely—we must do better 

with the process we have. MPO and EIS requirements really bind us, 

particularly conformity requirements with regard to model structure and 

latest data. We struggle to meet conformity requirements because no one 

wants to be responsible for the whole regional plan being disapproved 

when it goes to DOT and federal money held up—which is the prospect 

if we do not do everything right. Similarly, you do not ignore EIS 

environmental requirements or you will be in court and your project will 

stop. So to some degree, those things work. 

Although the conformity rule is very well specified—we know what 

we have to do and we had better do it—other requirements are not. In 

particular, MPOs need much clearer, better specified descriptions 

of what FTA is requiring them to do. It is difficult to find a piece of 

paper that describes FTA’s requirements for technical procedures and the 

requirements seem to change from time to time. This is a process that has 

not been fully specified and is difficult to follow in practice. There could be 

the need for a more prescriptive requirement from Congress through DOT.

There is great potential to really improve our processes and the 

value of what we are doing. Knowing clearly what you must do from 

the start would provide discipline and head off a lot of problems. 

And local level competition plays a role. You are only going to get so 

much funding, and you do not want to put all your effort into a project 
82

that is not going to make it through the approval process. Local interests 

recognize this and will propose working on projects that have the best 

chances of getting through the process.

DR. LEWIS: There are two ways to interpret congressional interest in 

requesting this study.86 Congress can be asking what can or should be done 

to improve the role of benefit-cost analysis in improving decision making.

If that is the question, I buy into what Dr. Gomez-Ibanez and Dr. Kirby have 

just said. However, the question may be what can Congress do to help 

improve things—what Dr. Gomez-Ibanez and Dr. Kirby are saying suggests 

actions to introduce more local level resource trade-off analysis.

One thing that Congress—particularly the appropriators—can do is to 

encourage both FHWA and FTA to look at more than how to spend fixed 

allocations. I think that appropriators want to know if a $1.1 billion 

New Starts budget is well spent compared to alternatives, such 

as highway expenditures, no further expenditures, or noncapital 

projects.

One thing that we have not dealt with today, although Dr. Forkenbrock 

touched on it, is the role of benefit-cost analysis in looking at noncapital 

solutions. If appropriators want to encourage more comprehensive 

appraisal of how New Start projects and highway proposals line 

up against transit alternatives, I would hope that that could be 

a requirement—notwithstanding the fact that an enforcement 

modality is never the best incentive. Then I would agree that the 

apparatus and ingredients for doing that are in place—it is the incentive 

for doing it that is lacking.
83

Summary of Panel Responses to Audience 

Questions

Do the current federal transportation financing and funds 

distribution structures suboptimize the federal dollar, since the 

rate of return for the federal transportation dollar keeps going 

down?

• Dr. Lewis said that while he would not counsel using benefit-cost 

analysis as a wedge to restructure the entire financial and budget 

framework, some small steps would help, including (1) Congress 

legislatively declaring its interest in an economically rational allocation 

and information to address this allocation and (2) Congress insisting 

that modal agencies conduct benefit-cost analysis from a multimodal 

perspective. He added that motivation for efficiency can also come 

from outside the federal financing framework. As an example, he 

said that in one location, there was interest in building a light rail 

system because federal dollars were available, but that industrial and 

commercial executives lobbied to use a benefit-cost framework first 

to determine whether a light rail system or widening highways made 

more sense.

• Dr. Meyer said that what is optimal to one person may not be to 

another. As an example, he said that building an interstate highway 

network benefited some states more than others, but that all states 

agreed to build that national network. When the interstate system 

was complete, many state governments wanted to deal with their own 

problems rather than sacrificing so that others could get the national 

network in place. While this may be suboptimal to some from a 

national perspective, others would say that states have provided their 

contribution and now need to spend money on their states’ problems.

• Dr. Forkenbrock added that the argument for states to get their money 

back for use on local priorities is gaining strength and that many 

people are arguing against having a federal program at all, bringing 

into question FHWA’s future.

• Dr. Taylor added that a recent dissertation showed that the federal 

highway program generally was redistributing funds from those with 

less financial capacity to those with more financial capacity.

What practical advice would you give on structuring an ex post 

analysis87 of a transportation project when the analysis at the 

beginning of the project was not necessarily done for comparison 
84

purposes? The Senate reauthorization bill88 requires some type of 

New Starts ex post analysis that focuses on ridership, and FTA is 

trying something similar. Are there other benefits that are more 

appropriate to analyze?

• Dr. Forkenbrock recommended looking at where ridership comes 

from, as rail ridership often is gained at the expense of bus ridership. 

• Dr. Pickrell said that he thought either substantial travel time savings 

or ridership increases were the primary benefits to measure. He added 

that ex post evaluation is better than anticipatory evaluation because 

in anticipatory evaluation you have to simulate the results of two 

possible decisions; whereas in ex post evaluation at least you know 

the results of one decision—that of building the project—and have to 

simulate only what would have happened if the project had not been 

built.

• Dr. Small said that one need not be deterred if no benefit-cost study 

was done before the project was implemented, as changes during a 

project’s construction often make it difficult to compare studies done 

before and after a project in any case.89

Would clearly specified standards for conducting benefit-cost 

analyses help increase the impacts of these analyses on policy 

decisions?

• Dr. Kirby said that adding requirements to the process would improve 

decisions. He also said that Dr. Lewis’ previous comment about a 

business community’s interest in a benefit-cost analysis of transit lines 

showed that involving more people can create a constituency for good 

analysis, making it more likely that tough questions will be asked and 

that the focus will be on projects that are good for the community. 

He cautioned that bad decisions can result when the agency building 

a project works closely with the agency funding the project. A larger 

constituency asks tough questions and focuses on projects that are 

good for the community.

• Dr. Meyer agreed that a constituency for analysis was important and 

said that adding requirements would increase the constituency for 

good analysis.
85

DR. TAYLOR: What remains on our schedule is for me to offer a 5-

minute summary of what has been 6-1/2 hours of discussion. I have 17 

pages of notes and 444 points that were made. Instead, I will ask each 

panelist to repeat what he thought was the most important thing for 

people to carry away from all of this. 

DR. PICKRELL: I have been encouraging you to think about how to 

revamp the funding structure for transportation infrastructure programs 

to encourage investors—public agencies—to get benefits and costs on 

the correct side of the ledger. If you could do that one thing, you will have 

accomplished more than I will have in my entire career.

DR. SMALL: One of the strengths of benefit-cost analysis is that it offers 

a unifying principle or consistent measure that can cut across many of the 

questions that we have discussed today—secondary benefits and so on. If 

you consistently keep in mind the key principle that the benefits we are 

trying to measure are people’s willingness to pay for things and the costs 

are what people would be willing to pay to avoid, you can answer many 

conundrums about double counting and externalities.

DR. KIRBY: A major feature of the federal transportation program 

is the process you go through to use federal funds, for example, the 

environmental impact statement and planning process. Many people value 

that process very highly, and I would consider that to be one reason for the 

federal government to be funding transportation. If you can strengthen the 

benefit-cost requirement in that process through something analogous to 

the present conformity rule and environmental impact statement process 

and get more people involved in looking at these projects, you will get 

better projects and have a stronger rationale for federal involvement in 

transportation.

DR. GOMEZ-IBANEZ: The reading that most struck me was Dr. 

Lewis’s piece about requiring benefit-cost analysis—not in the false hope 

that it might be the answer and determine everything, but with the idea 

that it would stimulate a better debate and wiser decisions. Since Dr. 

Kirby says that we require everything short of a benefit-cost analysis 

already, it seems a small step to require that of federally-funded projects.

Appendix VII: Panelists’ Closing Remarks
86

DR. LEWIS: The main point I want to leave with you is the importance 

of comparing major capital projects across modes. I think we have the 

tools, the apparatus, and—even with huge imperfections—the models 

and the data. What we lack is a demand from Congress and from the 

broader constituency for good analysis for information about returns 

on investment among transit versus highway alternatives. Benefit-cost 

analysis makes this possible.

DR. FORKENBROCK: I agree. I would extend it to my great 

concern from watching MPOs, state transportation agencies, and other 

transportation agencies that many people who do benefit-cost analyses 

are not doing them very well. Perhaps one reason is that they have never 

really been given the opportunity to learn the rudiments about costs. 

There is this tremendous gap between the state of the art in benefit-cost 

analysis and the state of the practice. Anything that GAO can do to help 

MPOs, state DOTs, and other agencies to do better benefit-cost analyses 

would be a huge step forward. If benefit-cost analyses are not being 

done correctly, you run the risk of creating misinformation or—even 

worse—disinformation for decision makers. That leads to bad investment 

decisions.

DR. MEYER: Much of our discussion has revolved around the question 

of how to enhance the role of benefit-cost analysis in decision making—

and we all agree that decision making is inherently a political process. I 

think you do this through a requirement that makes benefit-cost analysis 

part of the process for looking at federally supported transportation 

investments. This is not to say that decision makers will necessarily do 

what benefit-cost analysis indicates, but it brings more information to the 

table that will become much more useful for that decision-making process 

over time.

DR. WACHS: I have three points in closing. 

• First, benefit-cost analysis and the political nature of our decision 

making about large public works projects, including transportation 

projects, is a constant struggle to find the right balance between 

subjective judgments that our elected officials can make very 

effectively and being informed by the rational analysis that benefitcost analysis contributes to the process. We will probably not be very 

effective if one of those two strains completely dominates the other. 

What we are trying to find is a balance. We are trying to inform the 

political decision making with good information. To me, that requires 

attention to the process in which the benefit-cost analysis is embedded 

as well as to the tools, techniques, and data. I would be really careful 

to ask questions about public hearings, about process, about the 

order in which analysis and debate take place and about feedback 
87

from the analysis to the political process. It is possible to have a very 

good benefit-cost analysis that is completely politicized, and the goal 

would be to have an informed political process in which the analysis is 

reasonably objective. That is a process design problem more than it is 

dealing with the subtleties of benefit-cost analysis itself.

• Second, I heard that the quality of data, data collection and analysis, 

and tools and techniques of benefit-cost analysis are very, very 

important. 

• Third, this is a very homogenous group. It might be useful to have 

other constituencies address the same questions that we did—

environmentalists, shippers, state highway officials who were not 

terribly well represented in this group. You might find some other 

answers that would complement our perspectives. 

DR. TAYLOR: I am hearing some consensus that the decision making 

process can only be improved by incorporating a federal requirement 

for benefit-cost analysis. However, it is important to incorporate such 

a requirement into a deliberative process. The debate we had about 

the idea of a checklist and the danger of developing requirements that 

become like a bureaucratic checklist is really important. A bureaucratic 

checklist probably is the worst alternative we could envision. Any federal 

requirement needs to be crafted to ensure that benefit-cost analysis 

informs decision making as opposed to complying with requirements.
88

Related Articles Suggested by Panelists

Brian Taylor

Hill, M.C., B. Taylor, A. Weinstein, and M. Wachs, “Assessing the Need

for Highways,” Transportation Quarterly, Spring, 2000, pp. 93-100.

Taylor, B. and K. Samples, “Jobs, Jobs, Jobs: Political Perceptions, 

Economic Reality, and Capital Bias in U.S. Transit Subsidy Policy,” 

Public Works and Management, Vol. 6, April 2002, pp. 250-263.

David Forkenbrock

Forkenbrock, D.J. “Some Technical Issues in Benefit-Cost Analysis of 

Potential Transportation Investments,” July 2004.

Forkenbrock, D.J. and Norman S.J. Foster, “Economic Benefits of a 

Corridor Highway Investment,” Transportation Research-A, Vol. 24A, 

No. 4, 1990, pp. 303-312.

Michael Meyer

T. Partridge & Associates Ltd, “Translink Transportation Evaluation 

Guidelines,” October 11, 1999.

Kenneth Small

Small, K.A., “Project Evaluation” in Essays in Transportation 

Economics and Policy—A Handbook in Honor of John E. Meyer

(Jose Gómez-lbánez, W. B. Tye, and C. Winston, eds.), Brookings 

Institution Press, Washington. D.C: 1999.

Brownstone D. and K.A. Small, “Valuing Time and Reliability: Assessing 

the Evidence from Road Pricing Demonstrations.” Abstract, October 9, 

2003.

David Lewis

Lewis, D., “Making Cost-Benefit Analysis More Useful in Policy 

Making” in The Reform of Cost-Benefit Analysis by David Lewis, 

forthcoming from Ashgate Press.

Appendix VIII: Selected Biblography and Related GAO Products
89

Lewis, D., “The Case for Increasing Transit Capacity to Mitigate 

Congestion,” presented at Conference on Traffic Congestion: Issues 

and Opportunities, UCLA Extension Public Policy Program and 

Institute of Transportation Studies. Washington, D.C.: June 26-27, 2003.

Don Pickrell

Mohring, H., “Maximizing, Measuring, and Not Double Counting 

Transportation Improvement Benefits: A Primer on Closed- and OpenEconomy Cost-Benefit Analysis,” Transportation Research-B, Vol. 27B, 

No.6, 1993, pp. 413-424.

U.S. DOT, Office of the Secretary, “Treatment of Value of Life and 

Injuries in Preparing Economic Evaluations,” January 8, 1993 and 

revised January 29, 2002.

U.S. DOT, Office of the Secretary, “Departmental Guidance for the 

Valuation of Travel Time in Economic Analysis,” April 9, 1997 and 

revised February 11, 2003.

Cohen, J.P. and C.C. Coughlin, “Congestion at Airports: The Economics 

of Airport Expansions,” The Federal Reserve Bank of St. Louis, May/

June 2003.

Related GAO Products

Federal-Aid Highways: FHWA Needs a Comprehensive Approach to 

Improving Project Oversight, GAO-05-173 (Washington, D.C.: Jan. 31, 

2005)

Highway and Transit Investments: Options for Improving 

Information on Projects’ Benefits and Costs and Increasing 

Accountability for Results, GAO-05-172 (Washington, D.C.: Jan. 24, 

2005)

Federal-Aid Highways: Trends, Effect on State Spending, and 

Options for Future Program Design, GAO-04-802 (Washington, D.C.: 

Aug. 31, 2004) 

Surface Transportation: Many Factors affect Investment 

Decisions, GAO-04-744 (Washington, D.C.: June 30, 2004)

Mass Transit: FTA Needs to Better Define and Assess Imp[act of 

Certain Policies on New Starts Program, GAO-04-748 (Washington, 

D.C.: June 25, 2004)

Freight Transportation: Strategies Needed to Address Planning 

and Financing Limitations, GAO-04-165 (Washington, D.C.: Dec. 19, 

2003).
90

GAO Contacts

• Katherine Siggerud (202) 512-2834

• Nikki Clowers (202) 512-4010

Acknowledgments

In addition to those named above, Jay Cherlow, Libby Halperin, 

Sara Ann Moessbauer, Andrew Von Ah, and Alwynne Wilbur 

made key contributions to this report.

Appendix IX: GAO Contacts and Acknowledgements
91

1National Association of State Budget Officers. 2003 State Expenditure Report, 2004 (Washington, D.C.).

2U.S. Department of Transportation, 2002 Status of the Nation’s Highways, Bridges, and Transit: 

Conditions and Performance, Report to Congress (Washington, D.C.: 2002). Estimates are in 2000 dollars.

3ISTEA (P.L. 102-240) authorized federal transportation programs for highways, highway safety, and transit 

for fiscal years 1992 to 1997.

4TEA-21 (P.L. 105-178) authorized federal surface transportation programs for highways, highway safety, and 

transit for fiscal years 1998 to 2003. The act has since been extended.

5GAO, Highway and Transit Investments: Options for Improving Information on Projects’ Benefits and 

Costs and Increasing Accountability for Results, GAO-05-172 (Washington, D.C.: Jan. 24, 2005).

6GAO, Surface Transportation: Many Factors Affect Investment Decisions, GAO-04-744 (Washington, D.C.: 

June 30, 2004).

7For more information about the use of benefit-cost analysis in transportation investment decision making, 

see GAO-05-172.

8NEPA (P.L. 91-190) declares that it is national policy to use all practicable means to create and maintain 

conditions in which man and nature can exist in productive harmony, among other purposes. It requires 

federal agencies to integrate environmental values into their decisions by considering the environmental 

impacts of their proposed actions and reasonable alternatives to those actions.

9Earmarking refers to dedicating appropriations for a particular purpose.

10HOV lanes promote ridesharing by providing dedicated lanes on a highway for buses, vanpools, and 

carpools. Bus Rapid Transit is designed to provide major improvements in the speed, reliability, and quality 

of bus service through barrier-separated busways, high-occupancy vehicle lanes, or reserved buses or other 

enhancements on arterial streets. For more information about bus rapid transit, see GAO, Mass Transit: 

Bus Rapid Transit Shows Promise, GAO-01-984 (Washington, D.C.: Sept. 17, 2001).

11ROI is one of several approaches that decision makers use to evaluate the investment potential of projects 

or actions. ROI is a ratio that compares the net benefits of a project to its total costs.

Endnotes
92

12Professor Sen was awarded the Nobel Prize in Economic Sciences in 1998 for his contributions to welfare 

economics. See Amartya Sen, “The Possibility of Social Choice,” Lecture Delivered in Stockholm, Sweden, 

on December 8, 1998.

13Welfare economics studies how efficiently an economy distributes income and the consequences that are 

associated with it. It is concerned with the welfare of individuals—rather than groups or societies.

14David J. Forkenbrock and Norman S. J. Foster, “Economic Benefits of A Corridor Highway Investment,” 

Transportation Research-A. No. 4, (1990), 303-312.

15David Lewis, “Making Cost-Benefit Analysis More Useful in Policy Making.” Paper (June 22, 2004) drawn 

from the manuscript of Dr. Lewis’s forthcoming book from Ashgate Press.

16Smart Growth seeks to accommodate development by focusing on environmentally sensitive land 

development with the goals of minimizing dependence on auto transportation, reducing air pollution, and 

making infrastructure investments more efficient.

17NEPA requires federal agencies to integrate environmental values into their decision making by 

considering the environmental impacts of their proposed actions and reasonable alternatives to those 

actions. To meet this requirement, agencies prepare a detailed statement known as an EIS for all major 

federal actions that could have significant effects on the environment.

18Agglomeration refers to the tendency of firms to cluster close to each other, or to residences, presumably 

due to advantages this gives them in production. 

19Externalities are direct spillover effects on third parties that result from production and/or consumption of 

goods and services for which no appropriate compensation is paid. 

20 Dr. Small noted that he owed this answer to a discussion with Anthony Downs and Katharine Bradbury. 

Downs is a Senior Fellow at the Brookings Institution in Washington, D.C. He is the author or co-author of 

numerous books, including “Still Stuck in Traffic: Coping with Peak-Hours Traffic Congestion,” Brookings 

Institution Press. Washington, D. C., 2004. Katharine Bradbury is a Vice President and Economist at the 

Federal Reserve Bank of Boston. Her research focuses on the regional economy and state and local public 

finance and income inequality.

21Dr. Forkenbrock mentioned a study by a number of Midwestern states: Transportation Economics 

& Management Systems, Inc., in association with HNTB Corporation, Midwest Regional Rail System 

Executive Report, September 2004. Prepared for the Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, 

and Wisconsin Departments of Transportation, the Nebraska Department of Roads, and the Ohio Rail 

Development Commission.

22Dr. Pickrell recommended the following paper: Herbert Mohring and Harold F. Williamson, Jr., “Scale and 

‘Industrial Reorganization’ Economies of Transport Improvements,” Journal of Transport Economics and 

Policy 3. September 1969, pp. 251-271. 

23GDP is the total value of all goods and services produced within a territory during a specified period.
93

24Guidance from the U.S. Department of Transportation/Office of the Secretary, “Treatment of Value of Life 

and Injuries in Preparing Economic Evaluations,” January 8, 1993; Revised on January 29, 2002.

25Indirect impacts include changes in land use and development, changes in decisions to locate homes 

and businesses, etc., and changes in operations that businesses make to take advantage of improved 

transportation system speed and reliability. These impacts lead to increased property values, increased 

productivity, employment, and economic growth. There also can be indirect costs, such as reduced land 

values for regions that might lose economic activity that is diverted to an area where transportation is 

improved.

26Multiplier refers to the cumulatively reinforcing interaction between consumption and production that 

amplifies changes in investment, government spending, or exports. Multipliers are called estimators of the 

“ripple effect” in an area.

27REMI Policy Insight is the economic forecasting and policy analysis model of Regional Economic Models, 

Inc.

28Disutility of time refers to the value that people place on reducing time spent in a particular activity. To the 

extent that travel time is less pleasant than time spent in other ways, people may be willing to pay to reduce 

their travel time. Therefore, travel time can be said to have disutility. See Jay R. Cherlow, “Measuring Values 

of Travel Time Savings,” Journal of Consumer Research Vol. 7 (March 1981).

29Ian Savage, “An Empirical Investigation into the Effect of Psychological Perceptions on the Willingness-toPay to Reduce Risk,” Journal of Risk and Uncertainty 6(1): pages 75-90, 1993.

30Opportunity cost is the value of the best alternative given up when making a choice.

32Probabilistic analysis allows for the range of all possible outcomes rather than the single most likely 

outcome.

33Bayesian logic applies to decision making and inferential statistics that deal with probability inference—

using the knowledge of prior events to predict future events. The way to quantify a situation with an 

uncertain outcome is to determine its probability.

34Positive economics deals with objective, relatively testable statements that focus on descriptions that do 

not reflect obvious value judgments and predictions about economic relationships. Normative economics 

deals with subjective statements based on opinion about “what ought to be.”

35A microsimulation model is a tool used to evaluate the impact of changes on a system. For example, 

such an approach to travel demand forecasting might integrate household activities, land use distributions, 

regional demographics, and the transportation network to estimate the impacts of converting a highway 

intersection into a cloverleaf.

36The Four-Step Urban Transportation Planning Process integrates various aspects of travel behavior 

(trip or mode choices) with information on land use patterns and the transportation network. The four 

steps include: trip generation, trip distribution, mode choice, and assignment to specific parts of the 

transportation network.
94

37Frank Ackerman and Lisa Heinzerling, Priceless: On Knowing the Price of Everything and the Value of 

Nothing. The New Press, 2004.

38Joseph Berechman, “TransportationcEconomic Aspects of Roman Highway Development: The Case of Via 

Appia.” Transportation Research Part A, Vol. 37 (2003), pp. 453-478.

39Distributional issues refer to who gets what and how much they get of benefits or items, such as money, 

land, transportation facilities, services, etc.

40HOT lanes are limited access, barrier-separated highway lanes that provide free or reduced cost access 

to qualifying high-occupancy vehicles and also provide access to other paying vehicles that do not meet 

passenger occupancy requirements.

41D. Brownstone and K.A. Small, “Valuing Time and Reliability: Assessing the Evidence from Road Pricing 

Demonstrations,” Working Paper. Oct. 2003.

42John Rawls, A Theory of Justice, 1971, (Revised edition, 1999). Belknap Press. 

43The Americans with Disabilities Act of 1990 (P.L. 101-336) prohibits discrimination of various sorts against 

persons with physical or mental handicaps. It emphasizes employment and outlaws most physical barriers.

44A Pareto improvement is based on the notion that an action improves efficiency if it is possible for one 

person to benefit without anyone else being harmed. A Pareto improvement is possible if the economy has 

idle resources or market failures that can be corrected without hurting others.

45Disbenefits also can be described as disadvantages.

46Induced demand is the phenomenon that more of a good/service is consumed after the supply increases. 

47A discursive benefit-cost exercise is the conduct of a benefit-cost analysis within a formal public process 

that engages stakeholders in the analysis process.

48The Federal Highway Administration uses the HERS model to estimate future investment requirements 

of the nation’s highway system for Congress. The HERS-ST model is a version of the HERS model that 

allows states to simulate future highway conditions and performance levels and identifies deficiencies using 

engineering principles. It then simulates the selection of improvement projects, applying economic criteria 

to estimate the most cost-beneficial mix of improvements for system-wide implementation.

49David Forkenbrock, “Improving Benefit-Cost Analysis” (Washington, D.C.: 2004. Photocopy).

50Section 1105 of ISTEA contained corridor provisions and identified 21 corridors of significance. This 

identification allowed states to give funding priority to these corridors, provided federal funding to specific 

projects on these corridors, and directed other benefits to these corridors. When TEA-21 was enacted, there 

were 29 corridors, which increased to 44 by 2002.
95

51Discounting is the process of comparing current and future values that finds the present worth of a future 

amount of money.

52MPOs are regional transportation policy bodies made up of representatives from various government and 

other organizations. The Federal-Aid Highway Act of 1970 required that such agencies be developed in areas 

with populations of more than 50,000 to carry out cooperative planning at the metropolitan level. MPOs 

are responsible for planning, programming, and coordinating federal highway and transit investments in 

urbanized areas.

53The Kaldor-Hicks criterion holds that for a change in policy to be viewed as beneficial, the gainers should 

be able to compensate the losers and still be better off. The criterion does not require that compensation 

actually be paid.

54Distributional effects also are described in OMB Circular No. A-94, Office of Management and Budget—

Guidelines and Discount Rates for Benefit-Cost Analysis of Federal Programs. (Washington D.C.; 1992).

55Parameter values are assumed or estimated values of key components of an analysis (such as a statistical 

life saved). These values are used with observations on key explanatory variables (such as the number of 

lives saved) to estimate the value of the variable being studied (such as benefits).

56In general, the economists’ theory of the second best says that the application of policy rules that are 

designed to enhance net economic welfare—such as benefit-cost analysis for public investment decisions— 

might not enhance economic welfare if elsewhere in the economy there are distortions from economic 

efficiency. In this context, the second best issue is that the demand for travel on a new road would be much 

less if users had to pay the full cost that their additional travel causes than if, as is true under current road 

pricing policies, users pay only part of the cost. Hence, the benefit-cost ratio of an investment decision could 

be quite different if the distortions introduced by the fact that individuals and businesses do not take into 

account the full benefits and costs of making their decisions are removed.

57American Association of State Highway and Transportation Officials, A Manual of User Benefit Analysis 

for Highways, 2003.

58Sensitivity analyses assess how sensitive outcomes are to changes in assumptions. The assumptions that 

deserve the most attention should depend largely on the major benefits and costs and areas of greatest 

uncertainty in the program or process that is analyzed.

59Highway cost allocation studies are used to evaluate the highway-related costs attributable to different 

vehicle classes and the user fees they pay. Comparing user fees and cost responsibility indicates the relative 

equity of highway user fees.

60The CAAA were passed in 1990 (P.L. 101-549). The CAAA’s conformity requirements specify that MPOs and 

the U.S. DOT determine that transportation plans and programs in areas that do not meet federal air quality 

standards set by the National Ambient Air Quality Standards move toward reducing pollutant emissions to 

meet these standards.
96

61MOBILE6 Vehicle Emission Modeling Software is a model for predicting gram per mile emission of 

hydrocarbons, carbon monoxide, nitrogen oxides, carbon dioxide, particulate matter, and other toxics.

63GPS is a system of satellites, computers, and receivers that is able to determine the latitude and longitude 

of a receiver on earth.

64TRB’s Committee for Review of Travel Demand Modeling conducted by the Metropolitan Washington 

Council of Governments (Sept. 8, 2003/ first report).

65The purpose of the United States Visitor and Immigrant Status Indicator Technology Program is to improve 

border management at ports of entry by capturing more complete arrive/departure data for those who 

require visas to enter the United States.

66David A. Aschauer is the Elmer W. Campbell Professor at Bates College. His primary research field is 

macroeconomics. He is currently conducting research on the relationship between fiscal and monetary 

policy in the U.S. as well as the relationships between real interest rates and real exchange rates in an openeconomy setting.

67TRB Special Report 264, The Congestion Mitigation and Air Quality Improvement Program: Assessing 

10 Years of Experience, April 2002. Washington, D.C

68TANF is a block grant program to help move recipients into work. The Office of Family Assistance in the 

U.S. Department of Health and Human Services administers this program.

69Alan Altshuler and David Luberoff, Mega-Projects: The Changing Politics of Urban Public Investment,

Lincoln Institute of Land Policy, 2003.

70FTA’s New Starts program helps pay for designing and constructing certain rail, bus, and trolley projects.

71The National Cooperative Highway Research Program (NCHRP) is administered by TRB and sponsored by 

the member departments (individual state departments of transportation) of AASHTO in cooperation with 

FHWA. Support is voluntary and funds are drawn from the states’ Federal-Aid Highway apportionment of 

State Planning and Research funds. The Transit Cooperative Research Program (TCRP) functions under the 

direction of the Federal Transit Administration, the National Academies (acting through the Transportation 

Research Board) and a nonprofit research/education organization established by the American Public 

Transportation Association.

72 Revealed preference studies use data from real consumer behavior to obtain information about demand, 

values, etc. Stated preference studies employ data from a particular kind of consumer survey.

73Elicitation is the process of obtaining knowledge from experts or persons to be used in decision making or 

producing a design.

74In the Bayesian approach, the probability of an event is a person’s degree of belief that the event will occur, 

given all the relevant information currently known to that person. Thus, the probability is a function of both 

the event and the state of information.
97

75Central tendency is the average outcome of any given phenomenon (travel time, etc.) as distinct from the 

range of other outcomes—both above and below the average—that occur.

76Cross elasticity of demand is the percentage of change in quantity demanded in response to a 1 percent 

change in the price of another good.

77A Monte Carlo simulation is a problem-solving and investigation technique used to approximate the 

probability of certain outcomes by running multiple trial runs (simulations) using random variables.

78A smart card is a plastic card with a built-in microprocessor and memory that is used for identification or 

financial transactions.

79Sandra Rosenbloom is Professor of Planning and Director of the Roy P. Drachman Institute for Land 

and Regional Development Studies at the University of Arizona. Her work has centered on transportation 

problems of poor people, working women with children, and the elderly.

80Michael Meyer, “Paper Distributed to Expert Panel” (Washington, D.C., 2005. Photocopy).

81PPB, which was grounded in systems analysis, was the process of defining objectives and designing 

alternative systems to achieve them.

82The Tennessee-Tombigbee Waterway is a canal located in northeast Mississippi and west central Alabama.

83Pickrell, Donald H., “A Desire Named Streetcar: Fantasy and Fact in Rail Transit Planning,” Journal of the 

American Planning Association, 1992, pp. 158-76.

84TEA-21 established firewalls, or new budget categories, that ensured that highway user fee revenues would 

be used for transportation programs.

85Transaction costs are the full costs of making an exchange.

86See GAO, Highway and Transit Investments: Options for Improving Information on Projects’ Benefits 

and Costs and Increasing Accountability for Results, GAO-05-172 (Washington, D.C.: Jan. 24, 2005) for 

information about the request.

87Evaluations can be conducted ex ante (before the intervention is initiated or outcomes have been 

produced) or ex post (measures the outcomes produced by the interventions to date).

88S. 1072, 108th Cong.(2004). This bill would have authorized funds for federal-aid highways, highway safety 

programs, and transit programs and for other purposes.

89As an example, Dr. Small said that several authors pulled together three different studies of the Coquihalla 

Highway in British Columbia—one study was done before it opened, one was done part way through 

construction, and one was done when it was near completion. The numbers are phenomenally different, 

but there is not an obvious bias in this case. Many things changed along the way, including the scope of the 

project.
98