This volume presents the most robust and useful methodology for the measurement and derivation of public investment criteria. The methodological approach solves inherent defects of traditional methodology, namely, an ad hoc application of the benefit-cost analysis.
Although this approach originated in the water resources development project of the Harvard group, the authors’ recent methodology has achieved a nonlinear, discrete and dynamic inter regional input-output programming model by which the scale effects, Marshallian external economies, and agglomeration economies formed in very large cities are incorporated. As these benefits make up a source of revenue, difficult noise pollution and congestion problems are coped with automatically in the endogenous model. As an optimal solution, the allocated levels for high-rise building urban renewal (a measure for noise) and environmentally protected trunk transport network (a measure for congestion), as well as for other infrastructural facilities, measured by period and by region, are the results of public investment criteria. In the background of these processes, the imputed price and opportunity costs as a sort of contemporary “god” are always latent.
Readers with basic mathematical knowledge will acquire the concept of opportunity costs (the imputed price). Conquering this small obstacle will be a source of strong self-confidence for society, a worthwhile objective. Other applications of the methodology are also included in this book, which is helpful for practitioners frequently using the feasibility study method as well as experts who wish to understand the theoretical arguments related to public investment criteria. As one of the applications, there is a numerical solution of a composite transport system in which the amounts of roads, railways, and ports are derived quantitatively, not qualitatively. These are authentic public investment criteria evolved from the benefit-cost analysis.
Author(s): Hirotada Kohno, Yoshiro Higano
Series: New Frontiers in Regional Science: Asian Perspectives, 2
Publisher: Springer
Year: 2021
Language: English
Pages: 230
City: Tokyo
Preface
Contents
List of Figures
List of Tables
Chapter 1: Public Investment Criteria: A Tentative-Specific Survey on the Benefit-Cost Analysis in the Early Years
1.1 Underlying Fundamental Concepts of Public Investment Criteria: Significance and Necessity
1.1.1 Definition of Investment Criteria
1.1.2 Significance of Public Investment Criteria
1.1.3 Adjustments with Product Quantity and Investment Quantity
1.2 Benefit-Cost Criteria
1.2.1 Several Variations in Basic Benefit-Cost Criteria
1.2.1.1 Benefit-Cost Ratio Criteria
1.2.1.2 Benefit-Less-Cost
1.2.1.3 Internal-Rate-of-Return Criteria
1.2.2 Present Value Criteria vs. Internal-Rate-of-Return Criteria
1.2.2.1 Benefit-Cost Ratio Criteria vs. Benefit-Less-Cost Criteria
1.2.2.2 Present-Value Criteria vs. Internal-Rate-of-Return Criteria
1.3 Normalization of Various Benefit-Cost Criteria
1.3.1 Mishan´s Theory of Normalization
1.3.2 Elucidation by the Example
1.4 Concluding Comments
1.4.1 Further Examination of the Grave Shortcomings of the Benefit-Cost Analysis
1.4.2 Organization of the Chapters
References
Chapter 2: Economic Effects of Mei-Shin and To-Mei Expressways Based on the World Bank Formula of 50 Years Ago
2.1 Preliminary Consideration
2.1.1 Concept of Economic Effects of the Expressway
2.1.2 Direct Effects of Expressway Construction
2.1.3 Indirect Effects of Expressway Construction
2.1.4 Impacts of the Expressway on the Whole National Economy: Observed Reality in 1970s Through 1980s in Japan
2.2 Basic Data of Various Reduced Direct Costs
2.2.1 Basic Data for the Calculation of Saved Running Costs
2.2.2 Basic Data for the Calculation of the Reduction in the Traveling Time
2.2.3 Basic Data for the Calculation of Decrease in Traffic Accident Rate
2.3 Traffic Volumes of Mei-Shin Expressway
2.4 Measurement of Direct and Indirect Effects of Mei-Shin Expressway
2.4.1 Direct Effects
2.4.1.1 Saved Amounts of Running Costs
2.4.1.2 Saved Amounts of Traveling Time
2.4.1.3 Effects of Decrease in Traffic Accidents
2.4.2 Indirect Effects
2.4.2.1 Effects of the Decrease in the Traffic Congestion on the Competitive Ordinary Road
2.4.2.2 Dispersion Effects of Urban Population
2.4.2.3 Effects of Expanding the Area of the Market
2.5 Appraisal of the Mei-Shin Expressway Construction Project With the Estimated Direct and Indirect Effects
2.5.1 Profitability of the Mei-Shin Expressway as a Toll Road
2.5.2 The Appraisal by Taking into Account Direct and Indirect Effects of the Expressway: The Viewpoint of the Whole National ...
2.6 Consideration of Public Investment Criteria of Mei-Shin and To-Mei Expressway: Benefit-Cost Ratio and Difference Criteria
2.6.1 Benefits (Economic Effects) of To-Mei Expressway in the Year When it was Opened to Traffic
2.6.2 Benefit-Cost Ratio Criteria
2.6.3 Benefit-Less-Cost (BLC) Criteria
2.7 Summary
Appendix 1 Estimation of the Traffic Volume on Mei-Shin Expressway
Opening the Door of Traffic Volume
Other data for the analysis
Method and Practice of O.D. Survey
Roadside Interview Method
Owner Interview Method
Estimation of the Traffic Volumes on the Generation Basis
Forecast of the Traffic Distribution on O-D Basis in the Target Year
Estimation of the Current Traffic Distribution on O-D Basis
Forecast of the Traffic Distribution in the O-D Basis by the Fratar Method
Estimation of the Allocated Traffic Vehicles
Estimated Traffic Volumes on Mei-Shin Expressway at the Opening Year
Estimated Traffic Volumes by Vehicle Type and Section of Interchange
Actual Traffic Vehicles of Mei-Shin Expressway by Section of Interchange
Closing Comments
References
Chapter 3: Generalized Benefit-Cost Criteria: Public Investment Criteria When Benefits Are Previously Measured
3.1 Genealogy of the Public Investment Criteria in the Field of Development Policy of Developing Countries
3.1.1 Public Investment Criteria: Definition 2
3.1.2 Lineage of Typical Public Investment Criteria
3.2 Generalized Benefit-Cost Criteria Which We Should Rely On
3.2.1 Investment Choice Model of Steiner
3.2.1.1 Sectors of the Economy and the Coding of the Projects
3.2.1.2 Forms of the Objective Function
3.2.1.3 Constraints and the Proof of the Equivalence Between (3.1) and (3.2)
3.2.2 Investment Choice Model Over the Multi-Periods: Marglin´s Model
3.2.2.1 Evasion of Myopia Rule
3.2.2.2 Marglin´s Model
3.3 Application of Generalized Benefit-Cost Criteria
3.3.1 Setting Up of Our Problem to be Solved
3.3.2 Code of Activity Variables
3.3.2.1 Formulation of the Optimization a la Steiner=Marglin
3.3.3 Restrictions by the Computer Capacity Constraints
3.3.4 Confining the Investment Targets
3.3.5 Valuation Coefficients
3.3.6 Budget Constraint
3.4 Solutions for the Optimization Problem
3.4.1 Computer and Algorithm
3.4.2 Image of the Integer Programming Format
3.4.3 Optimal Solutions by the Two Methods
3.5 Discussion on the Results of the Optimization
3.5.1 Case Setting and Characteristics of Target Expressway/Highway
3.5.2 Meeting Vehicle Traffic Demand in the Suburb of Tokyo
3.5.3 Strategic Investments in the Developing Regions
3.5.4 Tokyo-Gaikan Expressway
3.5.5 Comparison with Physical Planning of the Ministry of Construction
3.5.6 Total Benefit-Cost Analysis
3.6 Closing Comments
References
Chapter 4: Optimum Allocation of the Capital Funds to the Transportation Infrastructures Using the Interregional Input-Output ...
4.1 Public Investment Criteria Incorporating the Endogenous Measurement of the Benefits-Two Subjects
4.2 Basic Assumptions and Model Structures with the Economy
4.3 Model
4.3.1 Explicit Specification of the Transportation Sector Using Shipment Activities of Moses Model
4.3.2 Capacity Constraints and Modes of Transportation
4.3.2.1 Modes and Routes
4.3.2.2 Production Capacity Constraints
4.3.2.3 Capacity Constraints of the Transportation Infrastructures
4.3.2.4 Value-Added and GRP/NRP
4.4 Interregional Input-Output System of Noncompetitive and Competitive Import Types
4.4.1 System of Regional Account and SNA
4.4.2 Treatment of Interregional Shipments of Goods: Isard type
4.4.3 Interregional Input-Output System of Chenery=Moses Type
4.4.4 Explicit Specification of the Transportation Sector Using Shipment Activities of Moses Model (Again)
4.5 Optimality Criteria Built in the Model
4.5.1 Problem Presentation
4.5.2 Bottleneck of the Development and the Measurement of the Investment Effects
4.5.2.1 Necessity of the General Equilibrium Approach
4.5.2.2 Elimination of Economic Bottleneck and the Measurement of Its Effects
4.5.2.3 Numerical Examples
4.5.2.4 Allocation of the Capital Funds Between the Private and the Public Sectors of Water Resource Development
4.5.2.5 Capital Fund Allocation Matrix of Lefeber´s Type
4.5.2.6 Opportunity Cost Criteria-Simplex Criteria
4.5.3 Description of the Elimination of Economic Bottlenecks
4.5.3.1 Capital Stocks in the Private Sectors
4.5.3.2 Transportation Capacities in the Public Sectors
4.5.3.3 Bottleneck due to Shortages in Other Resources
4.5.3.4 Built-in Resource Allocation Mechanism of Lefeber´s Type
Elimination of the Economic Bottlenecks and Allocation of the Capital Funds
Private Sectors
Transportation Infrastructures
Labor
Water Resources
Limited Resource Allocation Mechanism of Lefeber´s Type
Capital Funds
Labor Assignment
4.5.3.5 Objective Function
4.5.4 The Model with Capacity Constraints and the Funds Allocation of Lefeber´s Type
4.5.4.1 Formulation of the Model
4.5.5 Concrete Image of the Matrix A
4.5.5.1 Coding
4.5.5.2 Definition of Variables
Shipments of Goods
Image with Tables
4.6 Preparation of Basic Data
4.6.1 Ad Hoc versus Proactive prescriptions
4.6.2 Calculation of Input-Output Coefficients of the Competitive Import Type
4.6.2.1 Interregional Input-Output Model of the Competitive Import Type
4.6.2.2 Inter-regional Input-Output Table at Purchasers´ Price
4.6.2.3 Construction of Shipment Activities at Purchasers´ Price
4.6.2.4 Decomposition into Shipment Activities Mode by Mode
4.6.2.5 Estimation of Shipment Activities in the Target Year of 1971
4.6.3 Birdeye View of Interregional Input-Output Model of Shipment Activities: Illustration by Three Regions, Three Sectors, a...
4.6.3.1 Shipment Activities in Region 1
4.6.3.2 Shipment Activities in Regions 2 and Region 3
4.6.3.3 Value-Added by Shipment (Production) Activities
4.7 Simulation Model: Interregional Input-Output Programming Model of Five Regions, Five Industries, and Three Transport Modes
4.7.1 Coding
4.7.2 Simulation Results
4.7.2.1 Optimal Basic Variables
4.7.2.2 Objective Function
4.7.2.3 Shipment of Goods and the Flow Conditions of Market
4.7.2.4 Gross Regional Product and the National Account of the Economy
4.7.2.5 Goods Flow Between Regions and Loads on the Transportation Infrastructures
4.7.2.6 Investments for Increments in Transportation Capacities
4.7.2.7 Investments for Increments in Production Capacities
4.7.2.8 Investment Shares Between the Transportation Infrastructures
4.7.2.9 Allocation of Labor
4.8 Conclusion
4.8.1 Superiority of the Model with the Endogenous Opportunity Cost Criteria
4.8.2 Historical Background and Sprit of Our Main Theme
Appendix 1: BirdEye View of Interregional Input-Output Model of Shipment Activities: Illustration by Three Regions, Three Sect...
Appendix 2: Input-Output Table at Purchasers´ Price and Shipment Activities
Input-Output Table
General Definition
Numerical Example
Final Demand and Gross Value Added
Primitive Input-Output Analysis
I-O Tables at Purchasers´ Price and Producers´ Price
Table of Explicit Trades via Commercial Sectors
Basic Trade Table
Table of Summarized Figures with Commercial Sectors
Explicit Listing of Intermediate Inputs and Final Demand: Input-Output Tables at Purchasers´ Price
Communication Services and Electric Power
CIF (Cost, Insurance, Freight) Price and FOB Price
CIF and the I-O Table at Purchasers´ Price
Input-Output Table at Producers´ Price and FOB
I-O Table at Purchasers´ Price Versus Producers´ Price
Numerical Example 2
Importance of the Basic Trade Table
Treatment of Distributional Costs in the Interregional Input-Output Programming Model
Installment of the Transportation Network Dimension into the Interregional Input-Output Model
Image of Spatial Distribution of the Five Sectors and the Final Demand Sector
Decomposition of the Input-Output Activity into Shipment Activities
Illustration by the Numerical Example: Activities of Agricultural Sector
Illustration by the Numerical Example: Shipment Activities of Manufacturing Sector
Shipment Activities of Service Sectors
A Numerical Example of the Interregional Input-Output Model of Shipment Activities (IRIO-SA)
Construction and Installment of New Shipment Activities
Prediction of Reduction in Transportation Cost
Precise Estimates of Transportation Costs and Shipment Activities
Installment of Shipment Activities in IRIO Model at Producers´ Price
Input-Output Coefficients at Producers´ Price (Again) and Coefficients of the Final Demand Sector: Decomposition
Shipment Activities at Producers´ Price
Appendix 3: Parameter of θ(v,k,q)
Appendix 4: Simplex Criteria
References
Chapter 5: Optimal Comprehensive Transport System and Development of the Model
5.1 Principle of the Comprehensive Transport System
5.2 Points of the Development
5.2.1 Practical Usefulness
5.2.2 Comprehensiveness
5.3 Possible Development of the Model
5.3.1 Incorporation of Leisure Trips and Social Overhead Capitals into the Objective Function
5.3.2 Assignment of Loads Generated by Passenger Trips
5.4 Endogeneity Treatment of Investment
5.5 Nonlinearity
References
Chapter 6: Optimal Allocation of the Public Funds to the Transportation Infrastructures Using the Interregional Input-Output P...
6.1 Achievements with the Minute Specification of the Model
6.1.1 Coding of the Expanded Specification
6.1.1.1 Regional Economies and Sector
6.1.1.2 Transportation Modes
6.1.1.3 Transportation Infrastructures
6.1.1.4 Targets of Public Investments
6.1.1.5 Import and Export
6.1.2 Model Specification
6.1.2.1 Leisure Trips
6.1.2.2 The Capital Stock of Private Sectors and Transportation Infrastructures
6.1.2.3 Incorporation of Social Overhead Capitals into the Objective Function
6.1.2.4 The Public Funds and the Interregional Input-Output Table
6.2 Summary of the Main Results
6.2.1 Scale of the Linear Programming Model
6.2.2 Simulation Results
6.2.2.1 The Objective Function and the Optimal Basic Activities
6.2.2.2 The Assignment of the Public Funds
6.2.2.3 Opportunity Cost of the Public Funds
6.2.2.4 Goods Flow
Basic Data of Shipment Activities
Agriculture, Forestry, and Fisheries
Mining
Chemical
Metal
Other Manufacturing
6.2.2.5 Leisure Trip Pattern
The Final Demand of Leisure Trips Against the Transportation Sector
Private Automobile
Domestic Air for Passenger Traffic
Railway (Except for Kokuden)
6.2.2.6 Optimal Allocation of the Public Funds to the Arterial Transportation Network
Conventional Railway
Shinkansen
Highway
Expressway
6.2.2.7 Consistency and Complementarity Among Transportation Infrastructure Investments
6.3 Conclusion
References
Chapter 7: Optimal Planning of Asian Expressway Network Without Dynamic Interregional Input-Output Programming Model
7.1 Introduction
7.1.1 Characteristics of the Model
7.1.1.1 Dynamic Optimality of Roundabout Production Through Both Time and Space
7.1.2 Public Investment Criteria Endogenously Built in the Model
7.1.3 Subjects to be Solved
7.1.4 Economic Philosophy of Regional Development in Asia
7.1.5 Shipment Activities and Transportation Infrastructures
7.1.5.1 Explicit Treatment of Regions (Countries)
7.1.5.2 Malleability of Goods (Again)
7.1.5.3 Shipment Activities
7.1.5.4 Input-Output Coefficients
7.1.5.5 Commodity Flow Variables
7.1.5.6 Input Coefficients of Logistics Services into Commodity Flow
7.1.5.7 Market Flow Condition
7.1.5.8 Total Supply Condition
7.1.5.9 Gross Regional Product and Gross Domestic Product
7.1.5.10 Which Region Provides Logistics Services
7.1.5.11 A departure from the Conventional Interregional Input-Output Analysis
7.2 Skeleton of the Planning and Framework of the Model
7.2.1 Target Area, Planning Horizon, Industrial Classification, and Network of Expressway
7.2.1.1 Zone Classification of the Target Area, Link Node, and Zone Node
7.2.1.2 Classification of the Economy
7.2.1.3 Planning Horizon
7.2.1.4 Specification of Proposed Asian Expressway Network
7.2.1.5 Specification of Routes by Origin-Destination
7.3 Structural Equations
7.3.1 Flow Conditions
7.3.1.1 Market Flow Condition 1: Non-Service Industry
7.3.1.2 Market Flow Condition 2: Other Service
7.3.1.3 Market Flow Condition 3: Transportation Service
Truck (Freight) Transportation Service
Railway Transportation Service
Coastal/Water Shipment Service
Harbor Distribution Service
7.3.1.4 Shipment Balance Equations
Shipment Balance Equation 1: Shipment from a Region in China (Including Exports to Other Countries)
Shipment Balance Equation 2: Definition of Export from China to Other Countries
Shipment Balance Equation 3: Definition of Imports from Other Countries to China
7.3.1.5 Balance of International Payments: Cumulative Deficit Constraint
Definition of Accumulated International Deficit at Period t
Control of Deficit Balance
7.3.2 Conditions of Stock Variables
7.3.2.1 Balance Between Demand and Supply Against Capital Stock, Labor, and Housing Stock
Balance Between Demand and Supply of Industrial Capital
Balance Between Demand and Supply of Labor
Balance Between Demand and Supply of Housing Stock
7.3.2.2 Balance Between Demand Against and Supply of Transportation Infrastructure
7.3.2.3 Balance Between Demand and Supply of Social (Overhead) Capital (Other Social Capitals)
7.3.2.4 Formation of Industrial Capital
7.3.2.5 Formation of Housing Capital
7.3.2.6 Formation of Social Capital (Other Capitals)
7.3.2.7 Formation of Transportation Infrastructure
7.3.2.8 Population Growth and Migration
Natural Growth
Migration: Social Population Growth
Population Growth: Natural Plus Social Growth
7.3.3 National Income Accounting of China
7.3.3.1 Gross National Income (GNP/GNI)
7.3.3.2 Net National Product (NNP)
7.3.3.3 Gross Investment (INV)
7.3.3.4 Net Investment (NI)
7.3.3.5 Consumption
7.3.4 Objective Function
7.3.4.1 Maximization of GNP of China
7.3.4.2 Maximization of NNP
7.3.4.3 Welfare Maximization with Lower Constraint on the Accumulation of Industrial Capital Stock at the End of Period
7.3.4.4 Consumption Maximization with Lower Constraint on the Accumulation of Industrial Capital Stock at the End Period
7.3.5 Boundary Conditions for the Differential Equations
7.4 Simulation Cases
7.4.1 Presumptions
7.4.1.1 Scope of the Spatial Area for Planning
7.4.1.2 Borrowing from Abroad
7.4.1.3 Disposition of Person Trip
7.4.1.4 Capital and Labor Productivity
7.4.1.5 Load on Transportation Infrastructure Capacity
7.4.1.6 Population Movement
7.4.1.7 Commodity Flows Induced by International and Interregional Trade
7.4.2 Variants for Cases of Analysis
7.4.2.1 Supposed Interest Rate of Borrowing from Abroad
7.4.2.2 Upper Limit on Accumulating External Debt
7.4.2.3 Objective Function
7.4.2.4 Case (Scenario) for Simulation
7.5 Simulation Results
7.5.1 Optimal Allocation of Funds to Expressway Links by Period
7.5.1.1 Period 2 (t = 1; 1990-1994)
7.5.1.2 Period 3 (t = 2)
7.5.1.3 Period 4 (t = 3)
7.5.1.4 Period 5 (t = 4)
7.5.2 Commodity Flow
7.5.2.1 Overview
Period 1 (t = 0)
Period 2 (t = 1)
Period 5 (t = 4)
7.5.2.2 Minute Discussion with Visual Flow
7.5.3 Macroeconomic Indicators
7.5.3.1 GNP/GNI
7.5.3.2 NNP
7.5.3.3 Net Investment
7.5.3.4 Value of the Objective Function
7.6 Takeoff Accelerating Effects of Asian Expressway Network on the Chinese Economy
Appendix 1: Mathematical Expression of the Model
Index, Set of Indices, and Index Function
Variables
Parameters
Structural Equation and Objective Function
Market Flow Condition 1: Non-service
Market Flow Condition 2: Other Service
Market Flow Condition 3: Transport/Distribution Service
Truck (Freight) Transportation Service
Railway Transportation Service
Coastal/Water Shipment Service
Harbor Distribution Service
Shipment Balance Equation 1: Shipment from Zones in China
Shipment Balance Equation 2
Export of China
Import of China
Balance of International Payments: Cumulative Deficit Constraint
Shipment Balance Equation 3: Between Foreign Countries (Regions)
Balance Between Demand and Supply of Industrial Capital
Balance Between Demand and Supply of Labor
Balance Between Demand and Supply of Housing Stock
Balance Between Demand Against and Supply of Transportation Infrastructure
Balance Between Demand and Supply of Social (Overhead) Capital (Other Social Capitals)
Formation of Capital Stock
Formation of Industrial Capital
Formation of Housing Capital
Formation of Social Capital (Other Capitals)
Formation of Transportation Infrastructure
Population Growth and Migration
Natural Growth
Migration: Social Population Growth
Population Growth: Natural Plus Social Growth
National Income Accounting of China
Gross National Income (GNP/GNI)
Net National Product (NNP)
Gross Investment (INV)
Net Investment (NI)
Consumption (CC)
Objective Function
GNP(GNI) to Be Maximized
NNP to Be Maximized
Welfare Maximization with Lower Constraint on the Accumulation of Industrial Capital Stock at the End of Period
Consumption Maximization with Lower Constraint on the Accumulation of Industrial Capital Stock at the End of Period
Initial Conditions
Appendix 2: Dynamic Programming Model and Roundabout Production Through Space and Time
Production Function
Flow Condition of the Markets
Stock Formation
Dynamic Equation
Highway Capacity Constraint
Definition of Vector Variable
Feasible Trajectory of the Economy
The Objective of the Planning
Necessary Conditions for the Optimality
Roundabout Production Through Time
Roundabout Production Through `Space´
Roundabout Production Through Space and Time
Dynamic Optimality and Dynamic Model
Dynamic Programming (Optimization) Model
Bang-Bang Solution
Expanding the Production Possibility Frontier
Balanced Development
Positioning of the Dynamic Programming Model
References
Postscripts
Connection with the Monograph by Leon N. Moses
Argument for Optimal Composite (Comprehensive) Transport System
Relationship with PPBS
Shipment Activities Initiated by Moses
Acknowledgments
Colleagues with Whom We Had Broken Bread
Gratitude to My Family
Two Teachers to Whom I have Been Greatly Indebted
