Infrastructure Australia will use the national and State and Territory guidelines on economic appraisal as the primary framework in which to assess the economic costs and benefits of all transport initiatives. The main area of departure from the existing guidelines is that where appropriate, Infrastructure Australia may take into consideration what have been referred to as "wider economic benefits" (WEBs) of initiatives, such as agglomeration effects.
WEBs are improvements in economic welfare that are acknowledged, but which have not been typically captured, in traditional CBA. Importantly, WEBs are not the same as the economic benefits determined by CGE (computable general equilibrium) or input - output models. WEBs can be disaggregated into a number of specific sources of benefit. The most significant is agglomeration, the notion that similar firms are drawn towards to the same location since 'proximity generates positive externality'. These are the benefits derived from face to face contact, information exchange and networking only available to industries working close to each other.
Another source of benefit covered by WEBs is that related to imperfect competition in the labour market. Travel time savings are used as a measure of improved productivity following the reduction in journey time associated with a transport improvement. However, if the labour market is imperfect, the value of the travel time change is not equal to the production change, so that the travel time benefit will underestimate the true production improvement.
Finally, WEBs can include changes in welfare which result from a deepening of the labour market and changes in productivity which result from improved job matching when they are directly attributable to the transport initiative.
While it is recognised that the calculation of these wider benefits is still in its infancy, both in Australia and internationally, Infrastructure Australia believes the correct interpretation and accurate calculation of WEBs (using the most suitable data available) can add texture to the decision making process for certain initiatives. However, it is crucial to acknowledge that:
• Only certain initiatives, addressing a specific set of economic fundamentals, will generate WEBs;
• Significant WEBs will only be found in initiatives with strong traditional benefits, since WEBs require high levels of behaviour change, e.g. strong demand for the new asset
• WEBs may be negative for some initiatives; and
• the availability of Australian specific data needed to calculated WEBs is currently sub-optimal.
Therefore, Infrastructure Australia will treat WEBs separately to the traditional CBA. It is recommended that any proponent seeking to calculate WEBs consults with Infrastructure Australia before proceeding with the analysis. Any subsequent study should base the justification for inclusion of WEBs on the economic theory and applicability of this to the initiative's strategic objectives and impacts upon the transport and labour market. The quantitative analysis should follow the latest guidance and use well informed assumptions about the most appropriate, initiative specific data. Applying a broad percentage up-lift to the results of the traditional appraisal does not provide any additional or meaningful information for Infrastructure Australia to consider in the decision making process.
The following links provide additional information on WEB and their calculation to assist those preparing economic appraisals:
• General guidance on wider economic benefits is included at the UK Department of Transport site: http://www.dft.gov.uk/pgr/economics/rdg/webia/
• Specific technical guidance on the calculation of wider economic benefits is in the UK Department of Transport document titled, Transport, Wider Economic Benefits and Impacts son GDP, June 2006, and The Wider Impacts Sub - Objective, April 2009, available at the following site: http://www.dft.gov.uk/webtag/webdocuments/doc_index.htm.