CASE 7-1 Some Rough Cost-Benefit Numbers for a \"Bridge to Nowhere\" A widely pu

Question

CASE 7-1 Some Rough Cost-Benefit Numbers for a "Bridge to Nowhere" A widely publicized federal earmark in the 2006 transportation appropriation bill was $223 million for a bridge intended to provide access to Ketchikan, Alaska's airport on lightly populated Gravina Island. The project had the misfortune to become labeled the "Bridge to Nowhere" when the earmark came to light in the 2008 presidential campaign. It is possible to do some rough cost-benefit analysis on the project. Gravina Island has a population of around 50, so most of the bridge traffic would likely be those using the ai A ferry serves the island, with ferries leaving every half hour. The primary impact from the that the drive to the airport from Ketchikan would take 13 minutes, compared to 27 minutes by ferry. Therefore, the time saving is around 15 minutes per passeng Ketchikan is a port for cruise ships, which dock on the mainland, so some of the bridge traffic would be ship passengers either joining or leaving the cruise ships Airline enplanements/deplanements (total passengers coming and going through the rt. The island was not inaccessible without the bridge. bridge would be to reduce travel time on the trips. It has been estimated

Explanation / Answer

Let us first consider the data given in the case:-

Total crossing in the bridge =1,000,000

Saving of time ¼ hour = 15 minutes

Value of work time =$62.50 per hour

Value of leisure time =$31.25

So saving per passenger =$7.81

Total Saving = $7.81*1,000,000=$7,810,000

Discount rate = 3%

Present value of services =$7,810,000/0.03 =$260.4 million

Total expenditure on the construction of bridge=($165+$233)million =$398million

total loss= $398 million - $260.4 million = $137.6 million

So if we look at the above analysis, it is clear that the construction of the bridge is costlier than the benefits received from it. Thus I will suggest the government not to construct this bridge if we purely look for the costa and benefit analysis..

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