Those involved in transport modelling and appraisal are accustomed to assuming that users of transport networks choose between modes based on theirrelative generalised costs. Introducing a new mode, or enhancing an existing one changes this balance, and generates benefits, and it is the task of appraisal to seek to capture the expected value of these benefits. However, in a world of uncertainty, the costs of using particular modes may vary, and in these circumstances the existence of modes provides value, even if users do not expect to use them. In addition, since journey patterns over time are uncertain, a regular user (eg, a commuter) of a mode values its operation outside of normal usage times (eg, at the weekends). Only six stated preference studies have been carried out to estimate transport option and/or non-use values, and of these only two distinguished between option and non-use values. Furthermore, the evidence base is mostly focused onthe option and non-use values associated with bus or rail services, from the perspective of the household. So, options provided by roads, diversionary routes for rail freight, and taxi services for example, were not valued. This study examines the feasibility of using techniques developed to value financial and real options in transport appraisal. Financial options are derivative securities traded on financial markets, which give the bearer the right, but not the obligation to buy or sell an underlying asset at a point in the future. Real options (so called because they relate to 'real' situations or decisions, as opposed to financial assets) have become animportant element of the economics of investment appraisal, and recognisethe flexibility inherent in many assets, and the insurance this provides against uncertainty. Just like real options, transport networks give usersthe right, but not the obligation to use them at some point in the future, at a given generalised cost. With data on the generalised costs of the two modes, and on the variability of generalised cost of the preferred mode, the value of the option provided by the alternative mode can be valued using real options techniques. Similarly, since there is uncertainty about how often a user will need to travel, transport networks provide option value through enabling unexpected trip making. For leisure journeys, for example, there is a range of values of expected benefits associated with a particular destination, and with data on these values, and the generalised cost of the transport link to that destination, an option value can be generated using real options techniques. For the covering abstract see ITRD E145999
Abstract