Assignment is based on the following study: Kocabas, G., and B.S. Kopurlu. (2010) "An Ex-Post Cost-Benefit Analysis of Bolu Mountain Tunnel Project," EGE Academic Review, 10(4): 1279-1287.
1. Based on the article, describe as best you can:
(i) the reference group for the cost benefit analysis,
(ii) the purpose of the study (i.e., what is the "project" in this case?), and
(iii) the estimated project life over which the project is evaluated.
Explain whether the cost benefit analysis is:
(iv) formative or summative;
(v) ex ante or ex post; and
(vi) social cost-benefit analysis or private cost-benefit analysis.
Explain or define your use of these terms and provide reasoning and evidence (if any) in support of your answers.
2. (a) Briefly describe the major categories of expected benefits and expected costs from undertaking the project, as explained by the authors.
(b) Explain how and where the value of human lives saved or lost might enter this analysis, and explain whether all of these effects are addressed in the article. If human lives are expected to be saved or lost, should some or all of the value of these be itemized separately in estimating Net Present Value, or would they already be incorporated in the measures of benefits and costs given in your answer to
Question 2(a)?
3. (a) An important aspect of any cost benefit analysis is the choice of the counterfactual situation against which project benefits and gains are to be measured. Describe as clearly and succinctly as you can what you believe to be this counterfactual situation [i.e., the "without-project" case]. What is the relative increase in traffic volumes with the project as compared to the counterfactual situation? How much larger (expressed as a multiple) is the volume of traffic using the tunnels (as projected by the authors) after 50 years compared to the first year of use?
(b) Explain clearly whether you agree with the authors' decision to treat the collected road tolls as a cost-reducing item. Support your answer with a diagram if this helps.
(c) Explain clearly whether you agree with the authors' decision to exclude the (VAT) taxes paid on the construction costs. Support your answer with a diagram if this helps.
4. (a) What discount rate do the authors use? (Specify whether it is real or nominal, and social or private.) Does it appear that the authors have calculated the Net Present Value using the so-called Harberger (SOCC) approach or the Marglin approach (STP-SPC)? Explain your answer.
(b) From the description of the project given in the article, prepare a short list of which members of society, that is, of the project reference group, would be relative winners and which would be relative losers if this project went ahead as described. [Your groups need not be mutually exclusive.]
5. (a) Explain by the use of reasoning or evidence, whether the NPV in Table 6 has been estimated using (i) the "domestic price approach," (ii) the "border price approach," or (iii) something else. If you would recommend some changes to the approach used, what would they be?
(b) In your answer to Question 1, you described the estimated project life over which the project is evaluated. What steps appear to have been taken by the author to capture any residual benefits or residual costs after this project life? What changes would you recommend to the approach used?
6. The value of land is not prominent as a cost or benefit described in the article.
(a) Suppose the government has to expropriate or purchase some land to situate the new highway routes, ramps, overpasses and so on. What conceptual approach or criterion should be used to value these lands for the purpose of this study?
(b) If acquired, should these land values be costs to the project (they would involve cash payouts); benefits to the project (the project's real estate holdings have increased); neither, or both? Explain.
7. Assume for the moment that all of the author's data-and all of the numerical calculations that employ the data-were correct and the best available for the 2010 study.
In your view-calculations aside-what are other major potential sources of inaccuracy, omission, or error which might make the net benefits of the project evaluated in this article be much higher or lower than estimated there? List three or four which might work in each direction. (Your answer may repeat some of the issues raised in other questions).