# **----------------Box 4.6: Wider economic benefits and transport appraisal---------------------**

UK cost-benefit appraisal of transport projects is based on user-benefits (and a generalized version of the rule-of-half) and adds several sources of ‘wider economic benefit’, one of which is a productivity effect created by increasing the ‘effective density’ of economic activity. The approach is an attempt to combine direct (user-benefit) and indirect (agglomeration economies) effects in a rigorous framework, subject to rigid guidelines set by the UK Department for Transport.

The method is based on two steps: Transport  effective density  productivity.

The first stage employs a formula _EDi =_ Σ _j f_ ( _dij_ ) _Employmentj_ which computes the effective density ( _ED_ ) of each place _i_ as the sum of employment in all areas, weighted by the reciprocal of a measure of economic distance, _dij_ . The second step uses a relationship _Pi_ = ( _EDi_ )<sup>α</sup> where P is productivity and α is the elasticity of productivity with respect to effective density. This is drawn from econometric studies which seek to capture agglomeration externalities and has value approximately 0.04. A transport improvement reduces _dij_ and hence (given employment) increases the effective density of effected places. This raises the productivity of _all_ workers in the affected area according to elasticity _α_ . The productivity increment is a welfare gain that is added to the user-benefits derived from the transport improvement.

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Even without any land use change, residents may re-sort within the city. More specifically, residents that depend more on public transport may choose to relocate close to the new BRT station. This resorting of residents leads to serious complications when assessing the value of the BRT project. Resorting may imply that any increase in transit trips observed with the new BRT may be just a substitution for transit trips that were taken elsewhere before, rather than residents switching from car to transit and relieving congestion. This does not imply that the project is not socially worthwhile. Residents that now have easy access to the new BRT may have previously used other forms of transit that were further from their residence, slower, and less frequent. This is a clear benefit to them, but it is not the same as a social benefit from reduced congestion.

Then, this BRT project may lead to changes in land use with, for instance, higher residential densities close to the new stations near the center and new residential developments towards the end of the line. Easy access to transit for an increased number of residents is of obvious value to these residents. For residents that relocate to new residential developments at the periphery, the calculation is more complicated. Their total transport cost may actually increase. These residents in newly developed peripheral areas may be willing to incur higher transport costs through longer distances because it allows them to consume more housing at a lower cost. While these are private gains for these residents, the calculation of these gains is extremely challenging.

A new transit line may not only affect the residential “origins” of trips. It may also change the destination of trips, workplace or other. For instance, with better transport, some firms may decentralize and relocate to the periphery of the city. Retail may also relocate from the center of 58