A Benefit-Cost Analysis of the Wonder World Drive Overpass in San Marcos, Texas
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The purpose of this paper is to two fold. First is to hold a detailed discussion about benefit-cost analysis and how it is used. The second is to apply the theory of benefit-cost analysis to a real project: the Wonder World Drive overpass in San Marcos, Texas. The discussion about benefit-cost analysis looks at how to identify costs and benefits that are involved in a project and then how to measure these costs and benefits in dollar amounts. The importance of time and discount rate is discussed and an appropriate discount rate established. Finally the types of decision criterion are identified and correlated with the appropriate policy type.
The City of San Marcos has approved funding to build an overpass on Wonder World Drive in order to bypass the frequent trains that plague the City. This will be the first train overpass in the city. Because this is the first overpass, there were many benefits to be considered. The costs and benefits of the project are identified and utilized in a conceptual framework table. This conceptual framework table is then operationalized to measure the costs and benefits in dollar amounts.
The Wonder World Drive overpass is a single decision model, meaning that there are no competing policies decisions. The best decision criterion is to find the Net Present Value of the project. The Discount rate that has been used is the same that is mandated by the Office of Management and Budget. Private and social rates are used to show what the project is worth using varying rates.
The costs and benefits are considered over the life of the project (25 years) and discounted accordingly to find the present value. Once the present value of each cost and benefit is know, the net present value of the project is established.
The results show the Wonder World Drive overpass is not a viable project. The costs exceed the expected benefits at both the private and social discount rates. This does not necessary mean that this is a poor investment for the City of San Marcos. This overpass is an important step for the City to bring its transportation infrastructure up to speed with its rapidly growing population. This benefit-cost analysis can be used as a model for future proposed overpasses in the area to improve the decision making policy makers are faced with.