Question

The city of Springville is considering to raise the speed limit on a certain road from 60km/hour to 75km/hour.

a) Identify one benefit and one cost that would result from this change in speed limit.

b) Identify the simple or complex method that can be used to monetize each impact that you have mentioned in part ‘a’. Briefly explain the methods.

c) Are there reasons why the CBA Analyst should be cautious about any of the approaches that you explained in part ‘b’.

Answer 1

a)

One benefit is that the commute will be faster and more number of vehicles will try to use the road in order to reach a destination faster.

One cost that would result from the change in speed limit would be increase in the number of accidents as people will drive faster.

b)

One method which could be used to monetize the impact would be toll collection so that vehicle owners who use the road, have to pay in order to access the road. Thus whenever vehicles pass the road, they will have to pay a certain amount in order to access the road. The more the number of vehicles using the road, more will be the toll collection.

One method which could be used to monetize the cost of accidents would be insurance cover for vehicles so that even if there are accidents, the vehicle is insured. Thus making it compulsory for vehicles to be insured, which will increase the number of vehicle insurance agents.

c)

CBA Analyst should be cautious about not setting the toll amount too high, otherwise consumers will be reluctant to use the road as it leads to increased expenditure. Secondly the insurance amount shouldn't be too high, otherwise consumers will opt out of taking insurance for their cars.