A simplified methodology for evaluating rural road proposals for less developed countries

The purpose of the study is to develop a simplified method for analyzing and evaluating rural road project proposals in LDCs that can be utilized by host government agencies charged with rural road development. The study begins by examining the traditional or ideal producer surplus approach utilized by most transport economists for estimating the impact of rural road improvement. The examination reveals that the two variables, local consumption and transporter revenue, can be eliminated from the traditional method without significantly affecting the rate of return analysis. Further examination reveals that the detailed level of yearly changes in total farm revenue and total farm cost due to the road improvement is not justified by the level of knowledge of the interaction between road improvement and output. Based on the above findings, the study suggests that analysts should determine the maximum change to be expected as a result of road improvement, the year in which it is expected to occur (three to five years is the suggested time period), and then to estimate the changes from the first year after road improvement to the maximum change year (unless there is information providing more precise knowledge of yearly change, linear change is suggested). With this maximum change figure, the year in which it occurs, and the yearly changes until the maximum is reached, the study demonstrates how to adjust the sum of discount figures so that the present value of the change in total farm revenue (dTR) and total farm cost (dTC) for the entire project period can be expressed in terms of the total change times an adjusted sum of discount factors figure (ASDF). Applying this same technique to the yearly maintenance costs completes the adjustments necessary for developing a simplified Benefit/Cost (B/C) equation that can be handled quite easily by non-economic/financial personnel. In the numerator, the simplified B/C equation consists of the number of farms (Farms) within the area of influence of a road segment times the estimated total change in farm revenue (dTR) times its ASDF, plus the discounted road salvage value. In the denominator is included the discounted value of road construction costs, plus the yearly maintenance cost variable (Maint) times its ASDF, and finally the term (Farms) (dTC) (ASDF) to obtain the present value of the change in total farm costs. The ASDF value for dTR and dTC may or may not be equivalent. With the rate of return analysis reduced to a simplified B/C equation, the study illustrates how much easier it is for a host agency to apply this simplified approach than the more traditional ideal one. Having eliminated the local consumption and transporter variable in the original development of the simplified B/C method, the study then demonstrates how they can be included in the equation without destroying its simplicity, if the analyst believes the data is reliable and necessary for the analysis. The study also indicates that in the special case where there is a high degree of homogeneity between areas to receive improved roads of same length and cost, the B/C ratio can be used to rank order road segments, and that the critical variable is the number of farms (Farms), served by each road segment.