The central principle of transport economic efficiency analysis is to estimate the welfare gain which results from transport investment, as measured by the individual's willingness to pay for such an improvement and the financial impact on private sector transport operators. Willingness to pay should be consistent with the demand response to the improved transport opportunities.
The accepted best measure of welfare gain is the change in consumer surplus enjoyed by individuals and the change in producer surplus/deficit accruing to transport suppliers. Consumer surplus is defined as the benefit that an individual enjoys over and above the cost they would be willing to pay. In transport, cost is defined in money and time terms (usually called generalised cost). Thus, if an individual is currently willing to travel for 15 minutes to enjoy an activity and a transport option reduces that to 10 minutes then the time saving of 5 minutes is an accurate measure of their consumer surplus. However, if new users are attracted to use the facility (either by switching from another mode or by choosing to travel when otherwise they would not have) in response to this time saving, then it is not normally clear at what time cost they would have been willing to switch. Here, the convention is to assume that the switch would have occurred, on average, halfway between the do-minimum and do-something costs. This approximation would attribute 2.5 minutes of benefit to new users in the above example. This approximation normally holds but where a wholly new mode (e.g. light rapid transit) is introduced, further guidance should be sought from the Scottish Government and/or Transport Scotland.
As in all aspects of STAG Appraisal, it is important to show significant distributional impacts within the overall TEE performance. For example, a rise in fares will reduce the consumer surplus of existing travellers (and discourage some from travelling by this mode) but will represent a benefit to the public transport provider, assuming demand is inelastic.
The relative importance of different types of distributional effects will depend on the option being appraised. Where public transport operators are affected, the breakdown of costs and revenues by mode should be undertaken. The spatial distribution of time savings can also be of value where it highlights gainers and losers. The distribution of benefits and/or fare changes by user group can also be valuable.
It should be noted that this is distinct from the spatial distributional impacts analysed in the EALI analysis.
The results of economic appraisals should be expressed in the market price unit of account (see Section 9.5 - Appraisal Parameters), i.e. including indirect taxes. This is consistent with the willingness to pay principle underpinning the calculation of benefits.
