Cost-benefit analysis of road safety measures: applicability and controversies

This paper discusses the applicability of cost-benefit analysis as an aid to policy making for road safety measures. A framework for assessing the applicability of cost-benefit analysis is developed. Five main types of criticism of cost-benefit analysis are identified: 1. rejecting the basic principles of cost-benefit analysis as not applicable to road safety, 2. excluding some types of issues from the scope of calculation of costs and benefits, 3. setting policy objectives that are not amenable to cost-benefit analysis, 4. rejecting the need for maintaining a separation between policy objectives and policy programmes as required for cost-benefit analysis, and 5. rejecting, or denying the possibility of ever obtaining, acceptably valid and reliable economic valuations of the consequences of alternative policy programmes. It is concluded that rejecting the basic principles of cost-benefit analysis is a difficult position to defend, since these principles are simply a re-statement in economic terms of very general principles of rational choice. These principles are part of the normative basis of all formal techniques designed to aid policy making as well as the democratic system of government. Everybody, including those who advocate the use of cost-benefit analysis, agree that some issues are unsuitable for cost-benefit analysis, in particular those that involve basic human rights and fairness in distribution. There may, however, be disagreement with respect to the perception of a specific policy issue in terms of whether it is mainly about rights and fairness or mainly about the effective use of policy instruments to solve a social problem. Politicians may be tempted to set policy objectives that are ill suited for cost-benefit analysis, but this does not imply that cost-benefit analysis makes unreasonable assumptions. Perhaps the most important issue for the applicability of cost-benefit analysis is whether people in general have sufficiently well ordered preferences for economic valuations based on these preferences to make sense.