## Term Paper: Cost-Benefit Analysis of the Metro-Dade Mass Transit

### economics

##### Description

ECP 3302: Introduction To Environmental Economics

Term Paper: Cost-Benefit Analysis of the Metro-Dade Mass Transit

Before you start working on this problem you need to develop some parameters (numbers). You may use your own Social Security Number (SSN). This 9 digit number has to be unique (different for everyone). If you are not comfortable using your actual SSN, you can rearrange the digits back and forth to make it up. You will need to email me your 9 digit number (email through blackboard; subject line: 9 Digit No for the Term Paper Project) and get it approved.

5    9     1    9      9     4      1     1      2

Denote each digit as:                                                   X1  X2  X3  X4  X5  X6   X7  X8   X9

Further, define X10 as: X10 = (41) sum of all nine digits (X1 to X9)

For example,

If your initial 9 digit number: 7 4 1 6 5 10 8 3 5. The values of X1 to X10 are: X1=7 X2=4 X3=1 X4=6 X5=5 X6=10 X7=8 X8=3 X9=5 and X10 = 49

In this assignment, you are asked to use the above parameters (X1, X2, ..., X10) in certain cases.

Background

The Metro Dade Transit Authority (MDTA) is considering a proposal to extend its metro rail service to Southwest Dade including Homestead, a fast growing residential area. You have been consulted by the Authority to conduct a project feasibility analysis. The project entails large startup costs that have to be financed through selling new bonds. The servicing of debt on these bonds is very expensive. If the project does not go well, the ultimate burden of the project would fall on city tax payers. Tax payers are not as much excited about the project. However, daily city commuters coalition and local environmentalists are in favor of the project as the new public transit system would reduce time wasted in the congested automobile traffic, reduce air and noise pollution, and reduce energy consumption. You’re provided with the following technical and economic data:

·         The population in year 2003 in the affected area of the city is 200,000. The population is expected to grow at an annual rate of 1.25 percent. People travel only on weekdays (i.e., 5 days). On an average, people get 10 days of vacation and 10 holidays every year during which they do not commute to work.

During every weekday, each citizen undertakes X6 number of trips through one of the transportation mode mentioned below. Each trip is called a passenger trip (PT). Currently, 80 percent of the total PTs by all citizens are made in private cars and the rest in minibuses. Each PT consists of X2+X4+X6 number of miles. The average fuel efficiency (for both buses and cars) in the city is estimated to be 18 miles/gallon. The current gasoline price is \$1.60 per gallon. This price will increase at a rate of 3 percent every year.

·         The new metro rail will not affect the number of PTs or their origin and destination. About 90 percent of the private car PT and all of the minibus PTs will switch to new metro. If the construction starts in 2010, it will take 4 years to complete the project. The total initial construction costs of the project are \$280 million, which will be distributed over four year period (i.e., 2010, 2011, 2012 and 2013) equally. The annual operating costs include two components: fixed annual operating costs of X10 million dollars, and variable operating costs of \$(X8 ÷ 100) per passenger mile.

·         During the construction period, several city roads must be closed causing a traffic delay of X2+X8 minutes per PT. The estimated average value of travel time is \$X7 per hour.

·         Because of the construction of new railway, 10 commercial buildings (with an average market value of X5 million dollar), 500 residential buildings (with an average market value of 3000 times X10) will have to be relocated. The MDTA is required to pay the compensation to property owners at the rate of 150 percent of the market value in the beginning of the project.

·         The rail travel is going to save an average of X2+X8 minutes per PT.

·         The fuel efficiency of cars is expected to increase to 25 miles/gallon after the commissioning of metro rail due to reduced traffic congestion.

·         The following information is available on traffic accidents.

 Type of Accidents Number of Accidents Per Million of car & bus PT Costs of Accident (\$/accident) Fatal 0.01 \$900,000 Serious 0.50 \$100,000 Minor 2.00 \$10000