Wider economic benefits

At a glance

This part of the ATAP Guidelines provides guidance on the estimation the Wider Economic Benefits (WEBs) in appraisal of transport initiatives.

WEBs are improvements in economic welfare associated with changes in accessibility or land use that are not captured in traditional cost–benefit analysis (CBA). They arise from market imperfections, that is, prices of goods and services differing from costs to society as a whole. Reasons include economies of scale and scope, positive externalities, taxation and imperfect competition.

The international literature to date has concentrated on four types of WEBs that arise from major transport initiatives.

  • WB1: Agglomeration economies — productivity gains from clustering by firms
    • Static clustering, which arises from improved access with land-use held constant
    • dynamic clustering, which arises from changed land use
  • WB2: Labour market and tax impacts — productivity gains accruing to governments via the taxation system
    • WB2a: Change in labour supply — changes in transport costs encouraging more labour supply
    • WB2b: Move to more or less productive jobs — changes in jobs between locations with different productivity levels
  • WB3: Output changes in imperfectly competitive markets — profit increases for firms
  • WB4: Change in competition — gains to consumers and more efficient production.

These guidelines provide methodologies and parameter values for estimating WB1, WB2a and WB3. Estimation of WB2b is not supported at this stage because of inadequate understanding of productivity differentials between locations. No methodology is given for WB4 because it is not considered relevant for economies that already have a good base level of transport connectivity such as Australian cities.

Whether it is worthwhile to estimate WEBs for particular transport initiatives is a matter for judgement by proponents. The following guidance is relevant to making those judgements:

  • WEBs are only likely to be significant, and so worth estimating, for sizeable transport initiatives located in or improving access to large urban areas
  • Estimation will require much less effort where benefits have been estimated using a transport model
  • The mix of industries in the area to which access is improved will be a consideration because agglomeration benefits are higher for business services industries (financial, insurance, legal)
  • To have significant WEBs, the transport initiative should give rise to significant demand changes — generated and/or diverted.

WEBs estimates should be accompanied by a narrative describing how each type of WEB estimated arises. The narrative serves as a common-sense test for the reasonableness of the claim that an initiative will generate WEBs of the size estimated. Some suggestions are offered for developing narratives.

The guidelines for assessing WEBs should be used in conjunction with ATAP Part T2 Cost–Benefit Analysis.