TOTAL TRANSPORTATION

COST
In highway economic
analysis, one has to
consider the total
transportation cost, which
comprises the following:
1) Cost of construction of
the facility initially
2) Periodic cost of

The three components are

interdependent, and the designer has
to choose that alternative which holds
the sum total of the three to a
minimum.
Road User Cost is composed of the
following main components:
1 ) Vehicle Operating Cost
2) Time Cost
3) Accident Cost

DETERMINATION OF HIGHWAY
COSTS

The first two components

of the total transportation
discussed earlier, viz. the
cost of construction of the
facility initially and the
periodic cost maintenance
of the facility over its
design life are known

The cost of construction of the

facility includes the following:
i) Survey, investigation and design
costs
ii) Land acquisition costs
iii) Construction costs
iv) Physical contingencies
(unforeseen items and unforeseen
increase in cost

The cost of maintenance of the facility

includes the following:
1 ) Ordinary repairs such as patch
repairs, pot-hole filling, dressing earth
work, etc.
2) Periodic repairs, such as renewals
and resurfacing
3) Any emergent or special repairs
4) Operational expenses, such as traffic
signals, traffic aid posts, lighting,
policing etc.

When dealing with the highway

costs, it is necessary to phase the
same year by
year.
For example, if a project estimated
to cost Rs 1 00 crore is sanctioned
now,
The expenditure will generally be
incurred over a period of 3-5 years
depending upon various factors.
It is necessary to break-down the
outlays in each year of its
construction.

Table
Breakdown of Cost
Outlay
Year
Cost (Rs in
Crore)
1
10.0
2
20.0
3
30.0
4
40.0

Similarly, in the case of

maintenance costs, year-byyear costs have to be
identified.
Thus, if the yearly
maintenance cost of the
highway project are Rs 0.50
crore and
the cost of renewal of the
surface once in five years is

Table
Breakdown of Cost Outlay during Construction and
Maintenance Periods
Year
Cost (Rs in Crore)
1
2
Construction Period
3
4
5
0.50
6
0.50
7
0.50
8
0.50
9
2.00
10
0.50
11
0.50
12
0.50
and so on, repeating the cycle, till the design life of
the project.

Difference between Economic

Costs and Financial Costs
In economic analysis, one is
concerned with economic costs
and not financial costs.
Financial costs are easy to
determine, because they
represent the actual amount one
has to pay to get a road
constructed and maintained.
They are the engineer's
estimates to get the project
sanctioned and they are shown in

Difference between Economic Costs and

Financial Costs
In a perfectly competitive market and
where taxes are not levied, the financial
cost is very nearly equal to the economic
cost.
But when the market is imperfect and
where taxes are levied, the financial
costs and economic costs are not the
same.
Economic costs are based on the
"opportunity cost" of each of the

Shadow Pricing
In many developing countries, a
considerable amount of distortions
have arisen in the prices as a result
of government policies, regulations
and bad investment planning.
This scenario is true in the case of
Indian situation as the domestic
prices of many
commodities are administered by the
government and the traded prices

Shadow Pricing
The minimum wages,
especially of unskilled
labour are also fixed
statutorily by the
government, and in an
over-populated and
labour-surplus economy
like India, the wages do

Shadow Pricing
Foreign exchange is
extremely precious for the
Indian economy, but the
official exchange rate does
not reflect this.
Adjustments needed in the
prices of goods and wages to
make them reflect truly their