Economic Analysis of Kentucky Being a Part of the National Lambda Rail

Electronic connectivity and information network systems form a major part of the overall modern research infrastructure. High capacity networks allow for the sharing vast amounts of data between research laboratories, analysis of complex images, and other demanding computer applications. The major electronic information network that is being established in the USA to improve electronic communication in the research field is the National Lambda Rail (NLR). NLR is a nationwide broad bandwidth computing network used by leading research institutions. NLR provides national scale infrastructure for research and experimentation. Most of the member states of NLR have high ranking in terms of federal obligation to research and development. Among the south eastern IDeA states (states that have generally received a meager share of federal research and development funds) only Louisiana and Arkansas are a part of NLR. Kentucky and NLR As of now, Kentucky has not appropriated any funds to be a part of the NLR. Investing in NLR will require an upfront investment from the state and a million dollar per year commitment. The potential benefits will be realized only 3-5 years after investing in infrastructure because research labs can be set up that can utilize NLR’s high broad bandwidth capacity. On the other hand, investing in NLR right now might make Kentucky more competitive for federal funds currently allocated to research. This study explores the benefits and costs/constraints involved in the decision of implementing NLR in KY. The study attempts to assign dollar values to the cost and benefits of this decision and evaluates if it’s economically feasible for Kentucky’s public institutions to be a part of NLR. Economic feasibility Net present values were used to calculate the amount of benefits (federal grant money) that would have to be realized in order to offset the costs. For the purpose of this analysis the infrastructure and user costs of connecting Kentucky to Washington DC were used. Sensitivity analysis was performed at various discount rates, growth rates and various life spans of NLR. The benefit amount needed to break even is sensitive to the life span of the project. Higher benefit amounts are needed to break even at lower life spans. The benefit amount is relatively the same with minor changes in discount rate and benefit growth rate. At a discount rate of 5%, the average benefits that have to be realized in order to offset the costs were approximately $1.8 million (assuming that NLR’s lifespan is 20 years). The results of this analysis indicate that the benefit amount needed to break even with the cost of implementing NLR’s minimum capacity can be realized by the two major research institutions in the state in the form of grant dollars. However for these institutions to get these grants, the state should provide financial aid and support. In addition, the state institutions could also consider joining Light rail consortiums headed by states like Georgia to further reduce the recurring costs