State highway investment in New Zealand: the decline and fall of economic efficiency

Abstract

A decade ago, the benefit-cost ratio (BCR) – the economic measure of efficiency in investment spending – was the most important criterion used by the predecessors of the New Zealand Transport Agency (NZTA) to determine which land transport projects to fund. However, from 2003 there was a gradual shift away from a reliance on the BCR, and since 2009 it has been only one of three criteria used. In this article I examine how this change has come about, and demonstrate that it has resulted in the funding of a mix of state highway projects that is far from being economically efficient. Average BCRs have dropped so much that the estimated benefit from the allocated funding is far smaller than it would have been had the reliance on the BCR been retained.