Socio-economic assessment: investing for the community

The socio-economic assessment (SEA) of public investment projects has been mandatory for transport infrastructure since 1982. Obligation extended, by the law of December 31, 2012, to any project whose public financing from the State exceeds 20 million euros.

In transport, energy, health, education… SEE is the proof the only evaluation method to provide an analysis of everyone of the effects of a civil investment on well-being collective. In this sense, it differs from financial analysis, environmental assessment and budget projection.

In addition to financial profitability: evaluate all the effects for the entire community

SEA not only evaluates the financial costs and benefits of a project, but all the effects. In other words, SEA also takes into account the non-market effects (saving time and comfort for users of a new subway, for example) and externalities, externalities that can be defined as the “secondary” effects of the project on its natural, human or economic environment. In the example of the new metro, it is, for example, the reduction of atmospheric pollutants.

The socio-economic analysis also seeks to evaluate the benefits of a project for society as a whole and not just for the lender, promoter or operator of the project alone. A new subway reduces air pollution but the subway operator does not make any financial gains.

A quantified example: the ESE of line 3 of the Toulouse metro

Financial analysis

  • 824 million euros of operating revenues;
  • – 602 million euros Tax reduction;
  • – 894 million euros Maintenance, upkeep and operation costs;
  • – 3,805 million euros Investment costs (infrastructure and rolling stock).

Economic analysis

  • 2,742 million euros Time savings for users of the future metro;
  • 510 M€ Reduction of CO emissions2 ;
  • 347 million euros Reduction of atmospheric pollutant emissions;
  • 10 million euros of noise;
  • 1,510 million euros Decongestion;
  • 1,599 M€ Agglomeration effects.

To integrate these gains “in kind” in the evaluation, the ESE “monetizes” them, i.e. assigns them a reference value, called value guardians, determined by public commissions of experts. There are shadow values ​​for time such as security, noise, carbon, etc.

Beyond the short term: discounting effects over a century

Because the evaluated projects relate to infrastructures that will shape our society, sometimes for several decades at least, SEE is done in the long term. Technically, SEA identifies all the foreseeable effects of the investment throughout its life, after “discounting” its costs and benefits. future to be able to compare them. “Refresh” here means “bring back to a current value” using a ” discount rate “. This rate depends on the expected future growth rate of the economy, risk aversion (or inequality between generations) and uncertainties.

Conclusions

Ultimately, SEA allows to objectify all the effects of an investment on the well-being of the community throughout the life of this investment. In short, SEE gives public decision-makers a rigorous answer to the question: will this bet on the future create social wealth?

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