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Economic Analysis Primer

Note from the Director

Office of Asset Management, Federal Highway Administration

How do we know if a highway project is worth undertaking, when it should be done, or what is the most cost-effective means of accomplishing it? What will the effects of the project be on the regional economy? These are among the questions that economic analysis will help to answer when it is coordinated with transportation planning, engineering, environmental review, budgeting, and policy making.

Although the idea of comparing the benefits and costs of transportation projects on a dollar-to-dollar basis has long appealed to decision makers, the application of economic analysis to such projects is often neglected in practice. Agencies may believe that transportation benefits and costs are too hard to quantify and value, or too subject to uncertainty to provide meaningful guidance. Fortunately, an expanding research base on economic methods and values, improved modeling of traffic and uncertainty, and more powerful desktop computers have made the widespread use of economic analysis for highway projects an attainable goal.

This primer is intended to provide a foundation for understanding the role of economic analysis in highway decision making. It is oriented toward State and local officials who have responsibility for assuring that limited resources get targeted to their best uses and who must account publicly for their decisions. It presents economic analysis as an integral component of a comprehensive infrastructure management methodology that takes a long-term view of infrastructure performance and cost. The primer is non-technical in its descriptions of economic methods, but it encompasses a full range of economic issues that are of potential interest to transportation officials.

The issuance of this primer is in keeping with the Federal Highway Administration's commitment to provide technical assistance, tools, and training to support State and local transportation agencies in their critical role of accommodating the Nation's need for safe and efficient transportation.

/s/ signed
David R. Geiger, Director,
Office of Asset Management
Updated: 02/07/2013